NASDAQ: ODYS

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

Our
solutions are already deployed in the industrial, automotive and aviation sectors. Our customers include the Israeli Air Force, the
Israeli Ministry of Defense, a global international defense contractor, NASA, and Israel Railways Ltd., as well as a leading
European provider of elevator monitoring solutions. Historically, our revenue stream has been derived mainly from the medical
sector.

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Our
vision-based sensor technology

Initially
used in medical devices, our video-based sensor solution (comprising image acquisition, data collection and storage and image processing,
including PdM and CBM) have contributed significantly to visual aids for medical teams in an FDA-cleared minimally invasive surgical
device. Over time, our technology has proven essential in industries such as aerospace, where visual assessments are crucial for maintaining
performance rates, maintenance, and safety standards for various mechanical systems.

We
specialize in predictive maintenance and condition-based monitoring, utilizing advanced AI-driven sensor visualization solutions, using
video analytics and algorithms. Human perception relies significantly on visual sensing, and our technology enables our clients to accurately
observe phenomena that were previously only approximated or conjectured.

Our
core technologies include:

●
Vision-Based
Sensor Technology: This innovative approach uses micro sensors to monitor and analyze system health condition in real-time, designed
for hard-to-reach and harsh environments.

●
AI
and Machine Learning: We employ sophisticated proprietary AI algorithms and models to predict potential hazards, optimize maintenance
schedules and enhance operational efficiency.

●
High-Resolution
Visualization: Our solution provides detailed visual data, enabling accurate detection and monitoring of issues such as liquid
leaks, cracks, deformation and many other use cases.

●
Cloud-Based
Analytics: The collected data is continuously analyzed on a secure cloud platform or “On Prem”, offering customers
both raw data and processed insights for improved decision-making.

Our
vision-based sensing technology provides solutions across diverse PdM and CBM markets, and in harsh conditions as demonstrated in a variety
of environments, including outer space during NASA’s Robotic Refueling Mission, or RRM3.

AH-64
“Apache” Use Case

In
2016, a Boeing AH-64 Apache helicopter crashed when a hidden and rarely inspected safety nut became undone, causing the rotor blades
to dis-attach in-flight and caused a Class A (major) accident with casualties. We developed a solution that uses vision-based sensors
and trained AI algorithms to monitor and measure the size and number of threads in a bolt in real-time and automatically warn of out-of-synch
events, preventing such critical future events.

Our
solution was further developed to monitor safety critical and other components on the aircraft and today the solution has been procured
for the SH-60 Seahawk helicopter and deployed on the AH-64 Apache and other operational platforms in Israel and globally.

Our
System Architecture

Our
specialized software collects, processes, detects, and records real time information from multiple sensors. The data is available in
real-time through a user application or via our technician ground tool. Our modular integrated solution is comprised of a processing
unit and multiple vision-based sensors that are integrated into hard-to-reach areas and monitoring safety critical components in
real time. This open architecture supports both our full solution or integration with existing
systems.

5

Our
Business Model and Value Proposition

Our
unique video-based sensors, embedded software and AI algorithms are currently being deployed in hard-to-reach locations and harsh environments
across a variety of PdM and CBM use cases. Our value proposition is based on providing actual condition of a platform in real-time, offering
significant value through enhanced safety, efficiency and cost savings and transition from periodic maintenance to condition-based maintenance.
Our data analytics provide predictive insights regarding an entire system life cycle, spare parts management and smart prediction
of system performance. The operational, financial and quality benefits of using our solutions include the following:

Enhanced
Safety. \Our solutions enhance worker safety without sacrificing productivity, while minimizing planned and unexpected downtime.
This is made possible by early detection of potential failures, which can prevent accidents and help to ensure the aircraft operates
within safe parameters. In addition, our technology can endure extreme environments and has wireless capability, features that allow
maintenance teams to conduct monitoring and visual inspection remotely, with such continuous monitoring and real-time analysis on the
ground and in-flight operations reducing the risk of unexpected malfunctions. Our smarter approach collects data by placing multiple
cameras on or near the moving parts of machines, allowing workers to conduct remote monitoring to assess the condition of a component
or machine without having to touch the mechanical parts themselves, eliminating potential hazards of being exposed to those parts, including
extreme environmental conditions, rotating equipment and accidents while climbing ladders, among others.

Increased
Efficiency and Mission Capability. Organizations are estimated to lower their machine failure rates significantly by using
predictive maintenance programs. Conducting condition-based monitoring using technologies that can gather and distribute sensor
data enables maintenance teams to obtain real-time data on the health of a mechanical system, providing automated and precise
detection of issues that minimizes the time needed for manual and human visual inspections, and increases the mission capability of
the platform. This provides enough forewarning to apply the appropriate maintenance tasks that will prevent failure. For example,
our vision-based sensor reduces or replaces a significant part of the visual inspections required by maintenance teams in the
aviation or transportation industries (i.e., checks for completeness, checks for existence, checks for proper installation, etc.),
allowing technicians that oversee rotating and other equipment to conduct real-time monitoring of bearing malfunctions and
deformations while the machine is in operation. Our technology can detect minuscule deformations that will eventually leave the
bearings vulnerable to surface fatigue. AI algorithms can then forecast the estimated time of failure. This not only helps ensure
that the bearings are replaced, when necessary, but also prevents collateral damage to nearby components, machines or systems that
would occur should the bearings fail.

Cost
Savings. Predictive maintenance is estimated to cut maintenance costs on average by 25 percent. These savings are on
costs related to inventory management, the personnel needed to install replacement components and more. Under conventional
maintenance programs, in cases of emergencies and unexpected machine breakdown, these costs can multiply. With the foresight
predictive maintenance provides into the health of a machine, organizations can reduce the frequency of unexpected machine
breakdowns and optimized maintenance schedules, extending the lifespan of aircraft components and lowering replacement costs. Using
predictive maintenance in lieu of other maintenance approaches that rely on rigid maintenance scheduling also means that costs are
saved on servicing and replacing machine components that are still in good working order.

Improved
Accuracy and Reliability. As physical assets, machines are vulnerable to deterioration. Our vision-based system and analysis
ensure consistent and objective detection of issues, reducing human error and enhancing the reliability of maintenance predictions and
interventions. The data analytics we provide offer maintenance teams with insights that help machines perform optimally as long as possible.
The analysis of machine data from our vision-based sensing solution and analytics will highlight the situations in which components fail
or break down frequently. Maintenance teams can use this information to minimize breakdowns.

Reduced
Downtime. Unexpected downtime is expensive and can be one of the largest money drains in Industry 4.0 organizations (as used
in this Annual Report, Industry 4.0, or I4.0, refers to the integration of advanced technologies into manufacturing and industrial
processes to create smart, interconnected systems for improved efficiency and productivity). For example, Siemens estimates that the
world’s 500 largest companies lose almost $1.4 trillion annually through unplanned downtime, which is equivalent to
approximately 11% of their revenues. Our solutions have been designed to eliminate unplanned downtime and allows maintenance teams
to keep necessary, planned downtime to a minimum and at a more convenient, less disruptive schedule. This is a stark difference from
other maintenance approaches, such as preventive maintenance, which can increase downtime by implementing either insufficient or
excessive maintenance.

Advanced
Training and Support. Real-time and historical visual information serve as powerful training tools for technicians, improving
their skills and preparedness. Visual remote access capabilities allow for expert support and collaboration, even across different locations.

6

Our
current business model is to identify customers interested in adding real-time visualization and analytics to their existing or new
products. This model includes the initial kit sale including vision-based sensors, and processing unit with embedded software and
basic set of algorithms. This strategy allows for immediate revenue generation from system sales, while also setting a base that we
believe will allow us in the future to create a steady stream of recurring revenue from multi-year software subscriptions services
when the warranty expires.

Our
solution provides upsell opportunities including expanding algorithmic functionalities, additional applications, fleet management solutions
and improved cloud management.

We
have commercial agreements and purchase orders for hundreds of airborne systems of various original equipment manufacturers, or OEMs,
in the aerospace industry, and have completed successful demonstration projects for various industrial users. We are in the process of
developing additional applications for our vision-based sensing portfolio, which are anticipated to provide significant benefits to our
customers.

Market
Opportunity

We
believe that our solutions have potential application across diverse industry verticals as it is a core technology. As the benefits of
vision-based sensor technology become more widely accepted, we believe there are significant market opportunities available for our product
offerings.

Based
on industry reports and our estimates, the global predictive maintenance market was approximately $14 billion in 2025 and is projected
to grow to approximately $82 billion by 2031, at a compound annual growth rate of approximately 34%. In the aerospace market alone, which
includes commercial aviation, military rotorcraft, fixed wing aircraft and UAVs, we believe that our Aerospace TAM is currently more
than $10 billion. We based our Aerospace TAM calculations on data from third-party industry and governmental sources
regarding the total number of units that could utilize our vision-based sensor technology and on our estimates of an average selling
price and extent of our market penetration. We believe the TAM for other verticals we are targeting such as Industry 4.0, transportation
and energy eclipse that of aerospace.

In
addition, the U.S. Department of Defense has mandated the use of predictive maintenance as a pro-active maintenance strategy to improve
mission readiness and availability.

Our
Competitive Strengths

We
believe the following strengths have been instrumental to our success. We intend to continue to build on these strengths to position
us for future growth and drive our profitability:

Predictive
maintenance algorithmics using AI and machine learning. Our vision-based platforms use AI and machine learning engines, video
analytics and proprietary algorithms. Our AI platforms enable our customers to detect anomalies and anticipate maintenance trends in
real-time, improving planning and forecasting.

Vision-based
specialized sensors. Our solutions utilize high end device sensor technology coupled with software-defined products. With this
combination, we develop new solutions for industry-specific requirements, constantly expanding our product offerings.

Compelling
value proposition. We design our solutions to provide improved operating efficiency and safety, minimize maintenance costs, reduce
downtime and extend operational life. In addition, our solution may be installed at the design stage as well as retrofit. Due to these
advantages, we believe that our vision-based sensor solutions are appealing to customers seeking the benefits of condition based monitoring
and predictive maintenance solutions in hard-to-reach locations and harsh environments.

Potential
long-term growth driven by recurring subscription-based model. Currently, our revenues are derived mostly from sales of our solutions.
As we expand the installed base of our solutions, we expect subscriptions for the continued support of our technology to become the foundation
of our recurring revenue for sustainable growth over time.

7

Unique
research and development capabilities and a robust intellectual property portfolio. We have invested in establishing strong research
and development capabilities, including integrating hardware, software and algorithms to create an exceptional solution in a single optimized
system. Our deep knowledge and intellectual property are protected by a broad patent portfolio, including 19 issued patents, 10 of
which are in the U.S., and 63 pending patent applications, 25 of which are in the U.S. (including provisional patent applications),
as of the date of this Annual Report. We believe our intellectual property and knowledge present a significant barrier to entry for our
competitors.

Experienced
management team. We are led by a highly experienced management team with a successful track record in predictive maintenance,
condition-based monitoring, aerospace, software, algorithms, video analytics, optics and system engineering. Our team, under the leadership
of our CEO Yehu Ofer, who has decades of industry experience, has effectively managed dynamic growth phases in organizations and commercialized
products in various markets. Our senior management team brings a wealth of industry expertise, with decades of experience in leading
both public and private companies. Additionally, our board of directors consists of exceptional leaders with a proven track record of
building and managing businesses.

Our
Growth Strategy

We
believe we are well-positioned as a pioneer of PdM and CBM vision-based sensor technology. Our significant growth opportunities are focused
on the aerospace vertical where we have achieved sales to leading clientele, as well as expansion into the industrial and transportation
verticals as part of Industry 4.0. We continue to apply our technology and solutions to a broad range of applications within both the
civil and defense sectors.

Acquire
New Customers. We believe there is significant potential to attract new customers in the aerospace vertical, where we already
have leading clients. Our products, which meet aerospace standards, combined with our management expertise, knowledge, and professional
relationships, provide a strong foundation to engage with prospective clients. We plan to continue focusing on efficient growth by expanding
our sales and marketing efforts to secure new customers.

Execute
On Our Product Roadmap We continue to place a priority on innovation and product development to be competitive in our target
markets over time to win new and expanded business opportunities. We believe the performance of our solutions, in conjunction with the
flexibility of our software, will allow us to continue providing new solutions to our customers and further develop the use cases for
our systems across various vertical markets.

Extend
Our Technology Leadership. We believe our ability to enable our customers to optimize their maintenance and leverage applied-AI
solutions will contribute to our continued success. To support these efforts, we intend to make substantial investments in research and
development, including in the areas of applied machine learning and AI technologies, to expand and strengthen our offerings and develop
next generation products.

Position
Ourselves as Leading PdM and CBM Solution Provider in Aerospace and Expand to New Verticals. We continue to sign new commercial
agreements in the aerospace vertical and believe our solution is highly relevant and provides additional value in many aerospace platforms.
In addition, we are working to develop new vertical opportunities, including transportation, energy and other industries.

Partner
with Global Market Leading Corporations to Leverage their Commercial Position. We aim to leverage the global market position
of leading corporations that we partner with to maximize our reach and impact. By partnering with these industry leaders, we believe
that we will expand our market presence, strengthen brand credibility, accelerate growth, and optimize resources through their established
networks, extensive distribution channels, and operational capabilities.

Sales
and Marketing

We
are focused on the aerospace vertical while we target Industry 4.0, transportation and energy markets where there is a growing need for
our vision-based sensor technology. We are generating commercial revenues in aerospace, and advancing Industry 4.0 and transportation
initiatives, from proof-of-concept and demos into commercial deliveries. At the same time, we have initiated market-entry activities
in multiple geographies and continue to expand globally across aerospace and additional verticals as opportunities unfold.

8

We
are implementing a comprehensive sales and marketing approach that encourages widespread adoption of our products. Our aim is to sell
our solutions by targeting the Israeli home market, utilizing global platforms available in the U.S. and internationally.
This involves addressing operators, OEMs, maintenance and repair organizations, and forming strategic partnerships with entities holding
strong market positions that can benefit from our solution, providing them with immediate value and a technological edge, thereby accelerating
our sales and global expansion. Our direct interaction with OEMs enables us to work with them from the design phase, providing for seamless
integration of our solutions into their products. Our sales cycles vary from a few months to a few years, depending on the type and scale
of engagement. Once a system is deployed, it may be utilized for several years.

To
engage new customers, we employ various sales and marketing strategies. We employ several professional experienced sales managers in
relevant fields of expertise, in addition to a team of consultants who assist us in targeting potential customers by analyzing global
trends and designated geographical territories.

Our
marketing efforts include, but are not limited to, the following:

●
engaging
third-party companies and local consultants as territorial representatives in key markets to target leading companies in relevant
industries;

●
initiating
business engagements based on leads received through our marketing efforts or through active interaction with key industry influencers;

●
conducting
proof of concept demonstrations with customers in various industries in order to evaluate the feasibility of integrating our solutions
for monitoring their systems and to demonstrate the significant value proposition of our technology;

●
networking
through personal contacts in the aerospace, defense, transportation, maritime and energy industries; and

●
participating
in major aerospace, defense, vision technology, and other exhibitions, as well as Industry 4.0 specific events.

Currently,
we have three major customers that are expected to generate a substantial portion of our forecasted revenue in the near
term.

To date, Odysight.ai has made significant progress in deploying its advanced vision-based sensing and predictive
maintenance technologies across multiple sectors, including defense, aerospace, transportation and industrial markets. The Company established
strong partnerships and collaborations with prominent clients such as Elbit Systems, Israel Aerospace Industries, SIPAL S.P.A., Israel
Railways and several major international defense contractors. Odysight.ai’s solutions have been integrated into a variety of high-profile
platforms, including UAVs, helicopters (such as the UH-60 Blackhawk, SH-60 Seahawk, AH-64 Apache and AW139), and industrial systems like
elevator belts and mine trucks. These efforts were marked by some substantial purchase orders – one exceeding $10 million
– and successful pilot programs, validating the robustness, scalability and market relevance of Odysight.ai’s solutions.

The
Company’s modular, AI-driven technology has enabled real-time monitoring, predictive analytics and proactive maintenance, improving
operational safety, reducing downtime and optimizing maintenance costs for its clients. Odysight.ai has also transitioned from successful
proof-of-concept trials to initial commercial rollouts in the industrial sector, notably with elevator belt monitoring systems, and expanded
its reach into new geographies and applications, including railways and heavy vehicles. While Odysight.ai has demonstrated strong market
momentum and technological validation, it also acknowledges the potential risk of revenue decline if order volumes from new and existing
customers do not meet expectations, which could necessitate cost-cutting measures in the near term. Overall, the Company’s recent
milestones underscore its growing impact on predictive maintenance across diverse industries and its readiness to scale globally.

Our
purchase orders and collaborations generate revenue over a period ranging from a few months to several years. The variability in project
durations and the potential for delays or changes in client needs further complicate our ability to forecast revenue with precision.
As a result, there is an inherent uncertainty in predicting the exact timing and amount of revenue that will be generated from these
activities.

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 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 and developing prototypes for the required application.

Manufacturing
and Supply

We
rely on a combination of in-house and outsourced manufacturing for the assembly of our vision-based sensor products. We assemble the
miniature sensors used in our PHM and CBM solutions at our Omer facility, while the processing units and handheld devices are produced
by third-party manufacturers. The integration into complete systems is conducted in our facilities.

9

Most
of the components and parts we use in our manufacturing operations are available from more than one source. However, we obtain
certain components from single source suppliers. In the event of an extended failure of one or more of these suppliers, it is
possible that we could experience an interruption in supply until we established new sources or, in some cases, implemented
alternative processes. Any inability or delay in finding a suitable replacement supplier or suppliers could negatively affect our
business, financial condition, results of operations and reputation. However, we perform periodic supply chain risk analysis and
seek to procure required components to enable consistency in production of our solutions.

Our
facility in Omer holds the following certifications: ISO 9001, AS9100, ISO14001,
ISO13485, IPC-A-610, and IPC-7711/7721.

Research
and Development

Our
research and development activities are conducted internally by a team of 29 research and development staff based in Israel. Our development
strategy is to identify features and products for the hardware and software that enhance and improve the performance of our solutions
for our customers. The focus of our R&D team is to provide technological innovation and associated intellectual property that expands
the value proposition of our vision-based sensor solutions.

Our
research and development efforts focused on the following core areas:

●Technology
Adaptation: Repurposing proven micro-visualization technology for high-stakes aerospace
and industrial applications.

●Edge
AI Integration: Developing specialized AI models that process high-resolution visual
data directly at the edge, enabling the detection of subtle physical anomalies before they
result in malfunction or failure.

●Extreme
Environment Resilience: Engineering sensors and algorithms capable of operating reliably
in harsh environments.

●Dual-Use
Capabilities: Designing systems that can be retrofitted onto existing legacy platforms
or integrated into new platforms from the outset, providing a significant advantage over
traditional vibration- or acoustic-based sensors.

●Cloud-Based
Analytics: Continuously analyzing collected data through a secure cloud-based or on-premises
platform, providing customers with both raw data and processed insights to support better
decision-making.

Competition

Competition
among providers of sensing solutions is characterized by extensive research efforts and rapid technological progress. There are currently
several companies that develop and provide monitoring solutions for PdM and CBM. These monitoring solutions include the sensor itself,
data collection and storage, AI processing, or a combination of these capabilities. CBM and PdM solutions are usually based on traditional
sensing solutions such as vibration, temperature and acoustic sensors. Based on our research and discussions with customers, we believe
these traditional sensing methods are limited in their ability to provide an in-depth view of the condition of the monitored components
and usually alert on the occurrence of an anomaly when component failure has already occurred, which is too late in some cases. From
an AI perspective, there are several vendors providing off-the-shelf AI capabilities which then require customization per market, use
case, and/or data source. We believe that our more holistic approach and reliance on vision-based solutions creates richer and more informative
data, leveraged by AI and machine learning algorithms, enabling our customers to more effectively deploy predictive maintenance programs.

We
believe that our ability to compete successfully depends primarily on the following factors:

●
continuing
to advance our vision-based sensor solution;

●
leveraging
our data and AI capabilities;

●
maintaining
and attracting customers;

●
developing
and launching new products and transformative brands;

●
responding
to changing customer demands in a timely manner;

●
maintaining
the value and reputation of our brand;

10

●
attracting
and retaining a team committed to innovation;

●
effectiveness
of our products;

●
accessible
pricing;

●
customer
service; and

●
effectiveness
of our marketing strategies.

Additional
competitors may enter the market, and we are likely to encounter increased competition in the future. Any business combinations or mergers
among our competitors that result in larger competitors with greater resources or distribution networks, or the acquisition of a competitor
by a major technology corporation seeking to enter this business could further result in increased competition. Other companies, academic
and research institutions or others may develop new technologies for products that are more effective than our vision-based sensor technology.
Our technologies could be rendered obsolete by such developments.

Intellectual
Property

Intellectual
property is an important aspect of our business and we seek protection for our intellectual property rights as we deem appropriate. To
establish and protect our proprietary rights, we rely on a combination of patent, copyright, trade secret and trademark laws, and contractual
restrictions such as confidentiality agreements, licenses and intellectual property assignment agreements. We strive to protect the proprietary
technologies that we believe are important to our business, including seeking and maintaining patent protection intended to cover our
current and future products and technologies.

As
of March 18, 2026, our patent portfolio included 19 issued patents, nine of which are in the U.S., one allowed patent application in
the U.S., and 63 pending patent applications, 25 of which are in the U.S. (including provisional patent applications, not including PCT
applications). The issued U.S. patents are expected to expire between 2030 and 2042, in each case taking into account awarded patent
term adjustments and extensions, and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We
have a total of 24 patent families, 19 of which are in the predictive maintenance field and five are related to imaging technology.

In
January 2022, we entered into a patent cross-licensing arrangement with Japan-based Sumita Optical Glass, Inc., or Sumita, a specialty
optical fiber technology company, pursuant to which we granted Sumita a non-exclusive license to one of our imaging patent families in
return for payment of royalties and a grant-back license to Odysight.ai of Sumita’s patents and patent applications related
to fiber optics illumination. To date, only an immaterial amount of royalties has accrued.

We
often initially submit applications to the United States Patent and Trademark Office, or USPTO, as provisional patent applications. We
sometimes continue by filing non-provisional patent applications under the Patent Cooperation Treaty, or the PCT, which is an international
patent law treaty that provides a unified procedure for filing a single initial patent application to later seek patent protection for
an invention in any number of the member states of the PCT. Although a PCT application does not itself issue as a patent, it acts as
a placeholder allowing the applicant to seek protection in any of the member states through national-phase applications. In other cases,
we file national applications claiming priority under the Paris Convention from the provisional patent applications.

We
have trademark rights in our trade name and other brand elements in certain jurisdictions, including trademark applications and registrations
in various jurisdictions around the world, including the U.S., Europe, Israel, Australia, Brazil, Canada, Japan and Korea.

We
pursue the registration of domain names for websites that we use and that we consider material to the marketing of our products, including
the odysight.ai domain.

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We
generally seek to enter into confidentiality agreements and proprietary rights agreements with our employees, consultants, contractors
and suppliers and to control access to, and distribution of, our proprietary information and source code. However, we cannot guarantee
that all applicable parties have executed such agreements. Such agreements can also be breached, and we may not have adequate remedies
for any such breach.

Intellectual
property laws, procedures and restrictions provide only limited protection, and any of our intellectual property rights may be challenged,
invalidated, circumvented, infringed, misappropriated or otherwise violated (see “Item 3 — Legal Proceedings”).
Furthermore, the laws of certain countries do not protect intellectual property and proprietary rights to the same extent as the laws
of the United States, and we therefore may be unable to protect our proprietary technology in certain jurisdictions.

Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or obtain and use our technology to develop products
and services with the same functionality as our products. Policing unauthorized use of our technology is difficult. Our competitors could
also independently develop technologies like ours, and our intellectual property rights may not be broad enough or early enough for us
to prevent competitors from selling products and services incorporating those technologies. For more information regarding the risks
relating to intellectual property, see “Item 1.A — Risk Factors — Risks Related to our Intellectual Property.”

Government
Regulation

We
are subject to a variety of laws, regulations and licensing requirements of U.S. federal, state, and local authorities, as well as those
of Israel and other countries in which we operate. We are also required to obtain various licenses and permits from such
authorities in connection with the operation of our business.

We
manufacture and sell solutions that contain electronic components, and such components may contain materials that are subject to government
regulation in both the locations where we develop, manufacture, and assemble our products, as well as the locations where we sell our
products. Among other things, certain applicable laws and regulations require or may in the future require the submission of annual reports
to certain governmental agencies certifying that such products comply with applicable performance standards, the maintenance of manufacturing,
testing and distribution records, and the reporting of certain product defects to such regulatory agencies or consumers. If our products
fail to comply with applicable regulations, we and/or our products could be subjected to a variety of enforcement actions or sanctions,
such as product recalls, repairs or replacements, warning letters, untitled letters, safety alerts, injunctions, import alerts, administrative
product detentions or seizures, or civil penalties. The occurrence of any of the foregoing could harm our business, results of operations,
and financial condition.

Since
we plan to operate on a global basis, we will be required to continually monitor applicable laws and regulations and engage in an ongoing
compliance process to ensure that we and our suppliers are in compliance with existing laws and regulations, even as they change over
time. If there is an unanticipated or onerous new law or regulation that significantly impacts our use of various components or requires
more expensive components, such law or regulation could materially adversely affect our business, results of operations, and financial
condition.

In
addition, some of our customers may require that we comply with unique requirements specific to their operations. For example, there
exist U.S. Federal Aviation Administration and International Civil Aviation Organization requirements for certain airplane models to
be subject to CE certification, a regulatory standard that verifies certain products are safe for sale and use in much of Europe. These
and other requirements are applicable to our solutions in various jurisdictions across the globe.

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We
are subject to a number of laws and regulations that involve matters central to our business. These laws and regulations involve privacy,
data protection, intellectual property, competition and other subjects. Many of the laws and regulations to which we are subject are
still evolving and are being tested in courts, and could be interpreted in ways that could harm our business. In addition, the application
and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which
we operate. Because global laws and regulations have continued to develop and evolve rapidly, it is possible that we may not be, or may
not have been, compliant with each such applicable law or regulation.

As
we expand our operations internationally, we expect to be subject to other laws and regulations governing our international operations,
including regulations administered by the governments of Israel, the U.S. and the European Union, including applicable export control
regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements
and currency exchange regulations, collectively referred to as trade control laws. Failure to comply with anti-corruption laws and trade
control laws could subject us to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and to legal expenses.

Grants
from the Israel Innovation Authority

On
May 21, 2023, we were awarded a grant by the Israel Innovation Authority, or the IIA. The purpose of this grant is to support our production
capabilities. Subject to our successfully achieving all predetermined milestones, the maximum grant amount that can be received is NIS
1 million (approximately $ 277,777 using the NIS-dollar exchange rate at the time of grant).

As
of December 31, 2024, we received IIA royalty-bearing grants totaling approximately NIS 515,000 (approximately $130,000 at that
time).

We
are committed to paying royalties to the IIA at a rate of approximately 1.0% to 3.5% on sales proceeds from our products (and related
know-how and services) that were developed, in whole or in part, in connection with the IIA royalty-bearing grants we received under
IIA programs, up to the total amount of royalty-bearing grants received, linked to the U.S. dollar and bearing annual interest at rates
prescribed by the IIA’s rules and guidelines.

We
may, in the future, apply to receive additional grants from the IIA. However, we cannot predict whether we will receive any future grants,
or the amounts or the terms and conditions of any such grants.

In
addition, as a result of certain agreements between Xylo Technologies Ltd. (formerly Medigus Ltd.), or Xylo Technologies, and Odysight.ai Ltd., the IIA approved a transfer of IIA know-how developed by Xylo Technologies in the framework
of the Bio Medical Photonic Consortium, or the Xylo Technologies Consortium. Accordingly, all rights and obligations with regard to the
IIA under the Israeli 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 us. The rights and obligations within the framework of our activity in the Xylo Technologies
Consortium continue to apply to us notwithstanding the termination of the Xylo Technologies Consortium and include, among other things,
the following:

(i)
The
property rights to information which has been developed belongs to the Xylo Technologies Consortium member that developed it. However,
the developing entity is obligated to provide the other members in the Xylo Technologies Consortium a license for the use of the
new information, without consideration, provided that the other members do not transfer such information to any entity which is not
a member of the Xylo Technologies Consortium. The provision of a license or of the right to use the new information to a third-party
is subject to approval by the administration of the MAGNET Program at the IIA;

(ii)
The
Xylo Technologies Consortium member is entitled to register a patent for the new information which has been developed by it within
the framework of its activity in the Xylo Technologies Consortium. The foregoing registration does not require approval from the
administration of the MAGNET Program at the IIA; and

(iii)
The
know-how and technology developed under the program is subject to the restrictions set forth under the Innovation Law, including
restrictions on the transfer of such know-how and any manufacturing rights with respect thereto, without first obtaining the approval
of the IIA. Such approval may entail additional payments to the IIA, as determined under the Innovation Law and regulations.

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In
general, with regard to any IIA-funding, the Innovation Law requires, among other things, that the products developed as part of the
programs under which the grants were given be manufactured in Israel, and restricts the ability to transfer know-how directly or indirectly
funded by the IIA outside of Israel. A transfer for the purpose of the Innovation Law is generally interpreted very broadly and includes,
among other things, any sale of the IIA-funded know-how, any license to develop the IIA-funded know-how or the products resulting from
such IIA-funded know-how, grant of access to such knowhow, or any other transaction, which, in essence, involves a transfer of IIA-funded
know-how. The transfer of IIA-funded know-how outside of Israel requires prior approval and may be subject to payment of a redemption
fee to the IIA, calculated in accordance with a formula provided under the Innovation Law (which is subject to a cap of six times the
total amount of the IIA grants received, plus interest). These restrictions may impair our ability to sell, license or otherwise transfer
IIA-funded know-how outside of Israel.

In
general, manufacturing of products developed with IIA-funded know-how outside of Israel also requires prior approval from the IIA. Even
if we do receive approval to manufacture products developed with IIA-funded know-how outside of Israel, such transfer of manufacturing
capacity outside of Israel may be subject to an increase in the amount of royalties payable, depending on the manufacturing volume that
is performed outside of Israel, and to an increase in the rate of royalties. This restriction may impair our ability to outsource manufacturing
or engage in our own manufacturing operations for those products or technologies.

The
restrictions under the Innovation Law (including with respect to the restriction of the transfer of IIA-funded know-how and manufacturing
outside of Israel) continue to apply even after payment of the full amount of royalties payable to the IIA in respect of grants. However,
upon payment of the redemption fee on a transfer of IIA-funded know-how outside Israel, the obligations towards the IIA (including the
obligation to pay royalties) and restrictions under the Innovation Law cease to apply.

We
cannot be certain that any approval of the IIA will be obtained on terms that are acceptable to us, or at all. We may not receive the
required approvals should we wish to transfer IIA-funded know-how and/or manufacture products developed with IIA-funded know-how outside
of Israel in the future. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of
IIA-funded know-how pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by the
amounts we are required to pay to the IIA. If we fail to satisfy the conditions of the Innovation Law, we may be required to refund the
amounts of the grants previously received, together with interest and penalties, and may become subject to criminal charges.

Subject
to prior approval of the IIA, we may transfer the IIA-funded know-how to another Israeli company. If the IIA-funded know-how is transferred
to another Israeli entity, the transfer would still require IIA approval but will not be subject to the payment of the redemption fee
(however, there may be an obligation to pay royalties to the IIA from the income of such sale transaction as part of the royalty payment
obligation). In such case, the acquiring company would have to assume all of the applicable restrictions and obligations towards the
IIA (including the restrictions on the transfer of know-how and manufacturing outside of Israel) as a condition to the IIA’s approval.

Investment
by a foreign entity in an IIA-funded company, following which the non-Israeli entity becomes an “interested party” in the
company (e.g., holds, directly or indirectly, at least 5% of the shares of the funded company or has a right to appoint a director),
including an acquisition of 100% of the shares of an IIA-funded company, requires notification to the IIA of the transaction and an undertaking
signed by the non-Israeli investor to comply with the Innovation Law.

Human
Capital Resources

Our
key human capital management objectives are to attract, retain and develop the highest quality talent throughout our company. To support
these objectives, we strive to provide our employees good working conditions and competitive pay, as well as a wide range of benefits
programs to eligible employees. We regularly evaluate our benefits programs and policies to meet present and future employee needs and
desires. Programs and policies applicable to our employees generally include, but are not limited to, benefits programs, equity compensation
plans, flexible work schedules, diversity and inclusion initiatives, professional development opportunities, paid time-off policies and
recognition and rewards programs.

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As
of the date of this Annual Report, we have three officers, which consist of a Chief Executive Officer, Chief Financial Officer
and Chief Business Officer, all of whom are engaged on a full-time basis. As of the date of this Annual Report, we had 52 employees
in full or part-time capacities. While most of our employees are all located in Israel, we also have employees in the U.S.

None
of our employees are represented by labor unions or covered by collective bargaining agreements. We believe that we maintain good relations
with all our employees.

All
of our employment agreements include customary provisions with respect to non-competition, assignment to us of intellectual property
rights developed in the course of employment and confidentiality. Our consulting agreements with our agents and partners include provisions
with respect to assignment to us of intellectual property rights developed in the course of their engagement as well as confidentiality.
The enforceability of such provisions may be limited under applicable law.

Organizational
History

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

On
January 10, 2019, we formed Canna Patch Ltd., or Canna Patch, an Israeli corporation. Canna Patch did not have any operations and, on
December 4, 2019, we sold 100% of our holdings in Canna Patch.

On
September 16, 2019, Intellisense and Xylo Technologies entered into an exchange agreement pursuant to which, on December 30, 2019, we
acquired from Xylo Technologies all of the issued and outstanding share capital of ScoutCam Ltd. On December 31, 2019, we changed our
name to ScoutCam Inc. Following this acquisition, we integrated and fully adopted the acquired miniaturized imaging business into the
company as our primary business activity.

On
December 1, 2019, we consummated a certain Amended and Restated Asset Transfer Agreement with Xylo Technologies, which transferred and
assigned certain assets and intellectual property rights related to its miniaturized imaging business. On May 18, 2020, we entered into
a certain Side Letter Agreement with Xylo Technologies, whereby the parties agreed to amend certain terms of the Amended and Restated
Asset Transfer Agreement and related documents.

On
April 20, 2020, we entered into an Amended and Restated Intercompany Services Agreement with Xylo Technologies, which effectively amended
and restated an intercompany services agreement dated May 30, 2019.

On
June 5, 2023, we changed our name to Odysight.ai Inc. In addition, our trading symbol on the OTCQB was changed from “SCTC”
to “ODYS”, effective as of February 13, 2024.

On
February 28, 2024, we formed D. VIEW Ltd., a private company organized under the laws of the State of Israel and a wholly-owned subsidiary
of Odysight.ai Inc., to act as a local agent for the defense market in Israel.

On
January 9, 2025, we formed an additional wholly-owned subsidiary, Odysight.Ai Eu S.r.l., a private company organized under the laws of
Italy.

On
February 11, 2025, our common stock began trading on the Nasdaq Capital Market under the symbol “ODYS”.

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