10-K: Odysight.ai Inc. Details Common Stock and Corporate Governance in 10-K Filing

Odysight.ai Inc.'s 10-K filing outlines the terms of its common stock, corporate governance structure, and potential risks for investors.

Summary

• Odysight.ai Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934: shares of common stock, par value $0.001.
• The company's common stock began trading on the Nasdaq Capital Market on February 11, 2025, under the symbol ODYS.
• Prior to that date, it was quoted on the OTCQB under the same symbol, and before February 13, 2024, under the symbol SCTC.
• The company is authorized to issue up to 300,000,000 shares of common stock.
• Holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders.
• Holders of common stock are entitled to receive dividends out of funds legally available, as determined by the board of directors, subject to Nevada law.
• The amended and restated articles of incorporation may be amended or repealed as prescribed by the Nevada Revised Statutes (NRS).
• The affirmative vote of at least 66% of the voting power is required to amend Articles IV through XIII of the articles of incorporation.
• The board of directors is divided into three classes with staggered terms.
• Certain provisions of Nevada law and the company's governing documents could make acquisitions or changes in control more difficult.
• The company has elected to be governed by Nevada's acquisition of controlling interest statutes.
• The company has elected not to be governed by Nevada's combinations with interested stockholders statutes.
• The transfer agent and registrar for the common stock is Securities Transfer Corporation.
• As of March 20, 2025, there were 16,307,321 shares of common stock outstanding.
• The aggregate market value of voting and non-voting stock held by non-affiliates as of June 28, 2024, was $21.1 million.
• The company relies on patents, copyrights, trade secret protection, and confidentiality agreements to protect its intellectual property.
• As of March 20, 2025, the patent portfolio included 17 issued patents, seven of which are in the U.S., and 55 pending patent applications, 19 of which are in the U.S.
• The company is subject to various U.S. federal, state, and local laws, regulations, and licensing requirements, including in Israel.
• The company is committed to paying royalties to the IIA at a rate of approximately 1.0% to 3.5% on sales proceeds from products developed with IIA grants.
• As of the date of this Annual Report, we had 61 employees in fullor part-time capacities, all located in Israel.
• The company's headquarters and other significant operations are located in Israel, which may be adversely affected by political, economic, and military instability.
• The company has a limited operating history and has incurred an accumulated deficit of approximately $46 million as of December 31, 2024.
• The company may need to raise additional capital before it can expect to become profitable from sales of its solutions.
• The company has four customers that account for a substantial portion of its revenues.
• The company faces competition from providers of sensing solutions.
• The company and its third-party vendors face cybersecurity risks.
• The company may be prohibited from selling the Odysight TruVision to certain countries if it is unable to obtain Israeli authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there's revenue growth and a strong backlog, the company's history of losses, reliance on a few customers, and potential need for additional capital raise concerns. The geopolitical risks associated with operating in Israel also contribute to a cautious sentiment.

Positives

• The company's common stock is now trading on the Nasdaq Capital Market, potentially increasing visibility and liquidity.
• The company has a growing backlog, increasing from $2.6 million in 2023 to approximately $15 million as of December 31, 2024.
• The company has a strong intellectual property portfolio with 17 issued patents and 55 pending patent applications.
• The company is implementing recommended security measures to mitigate identified risks, with such implementation being conducted with the support and expertise of a professional services company serving as our outsourced cybersecurity partner.

Negatives

• The company has a limited operating history and has incurred an accumulated deficit of approximately $46 million as of December 31, 2024.
• The company may need to raise additional capital before it can expect to become profitable from sales of its solutions.
• The company has four customers that account for approximately 99% of its revenues in the aggregate.
• The company is subject to political, economic, and military instability in Israel, where its headquarters and significant operations are located.
• The company may be prohibited from selling the Odysight TruVision to certain countries if it is unable to obtain Israeli authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business.

Risks

• The company's limited operating history and accumulated deficit raise concerns about its ability to achieve and sustain profitability.
• The need for additional capital introduces uncertainty about the company's ability to fund its operations and growth plans.
• The concentration of revenue among a few customers makes the company vulnerable to the loss of any of those customers.
• Political, economic, and military instability in Israel could disrupt the company's operations.
• The company faces competition from providers of sensing solutions.
• The company and its third-party vendors face cybersecurity risks.
• The company may be prohibited from selling the Odysight TruVision to certain countries if it is unable to obtain Israeli authorization regarding the export of our products, or if current or future export laws limit or otherwise restrict our business.

Future Outlook

The company expects its research and development expenses to increase as it continues to develop its products and services and recruit additional research and development employees due to increased focus on R&D activities in the domain of I4.0. The company expects that its sales and marketing expenses will increase as it expands its selling and marketing efforts in the I4.0 domain.

Industry Context

The company operates in the predictive maintenance market, which is projected to grow significantly, and is targeting the aerospace, Industry 4.0, transportation, and energy markets.

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).
• Following appeal hearings held in early 2024, the Board of Appeals revoked all three patents, with formal written decisions issued in July 2024.
• We have filed a petition for review of the decision regarding two of the three European patents (EP 2.478.693 and EP 2.621.159) and are not appealing the decision regarding the third European patent (EP 2.621.158).

Related Party Transactions

• On March 16, 2023, the company entered into and consummated securities purchase agreements with (i) Phoenix Insurance Company Ltd. (for Mr. Arkin, who currently serves as a director on our board of directors, through his individual retirement account) and (ii) Phoenix Insurance and Phoenix Amitim, in connection with the sale and issuance of an aggregate of 3,294,117 units, at a purchase price of $4.25 per unit, and for an aggregate purchase price of $14,000,000.
• During 2023 we received development services in the amount of $29,000 from Smartec R&D Ltd., a company owned by our former CTO, Amir Govrin.
• On July 16, 2024, we issued 2,144,583 shares of our common stock in consideration for a purchase price of $4.80 per share to new and existing investors, including Mr. Arkin (via M. Arkin (1999) Ltd.), who currently serves as a director on our board of directors, and The Phoenix Holdings, through Phoenix Insurance and Phoenix Amitim.
• In February 2025, one or more entities affiliated with the More Group and Sudoku Capital Ltd. (an entity affiliated with Shmuel Harlap), purchased 1,046,672 shares and 1,153,846 shares, respectively , of our common stock in our underwritten public offering.

Stakeholder Impact

• Shareholders face risks related to potential stock price volatility, dilution from future equity issuances, and the influence of major shareholders.
• Employees may be affected by the company's financial performance and ability to provide competitive compensation and benefits.
• Customers may be impacted by the company's ability to deliver high-quality products and services and maintain its financial stability.
• Suppliers and creditors face risks related to the company's ability to meet its financial obligations.

Next Steps

• The company plans to continue to invest in long-term growth, and therefore it expects that its expenses will grow.
• The company expects to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution.
• The company will continue to incur additional costs associated with operating as a public company.

Key Dates

Keywords

common stock, corporate governance, risk factors, intellectual property, Nevada law, Nasdaq, IIA, Israel, financial condition, operations, Odysight.ai