AND FINANCIAL REVIEW AND PROSPECTS A. Operating Results. The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and under “Item 3.D. Risk Factors” elsewhere in this annual report on Form 20-F. Our discussion and analysis for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in our annual report on Form 20-F for the fiscal year ended December 31, 2024, filed with the SEC on March 27, 2025. 87 Overview We are a commercial stage medical device company focusing on the research, development and marketing of cryoablation systems and technologies based on LN2 for treating tumors. Cryoablation is the process by which benign and malignant tumors are ablated (destroyed) through freezing such tumors while in a patient’s body. Our proprietary cryoablation technology is a minimally invasive alternative to surgical intervention, for tumors, including those found in the breast, lungs, kidneys, bones and other indications. Our lead commercial cryoablation product is the ProSense system. The ProSense system has received marketing authorization from the FDA for the local treatment of low-risk breast cancer with adjuvant endocrine therapy for women aged 70 and above, including patients who are not suitable for surgical alternatives for breast cancer treatment. Alongside our continued efforts at improving our core technology, including our flagship product, the ProSense system, which has received FDA marketing authorization for patients with low risk breast cancer when combined with adjuvant endocrine therapy for women aged 70 and over, we are also focused on new product developments. This includes our XSense system with CryoProbes for which we have received 510(k) regulatory clearance from the FDA. We believe that the XSense system with CryoProbes can serve as a platform that will allow us to develop other unique CryoProbes and catheters and expand our clinical applications, and that it is also more efficient, intuitive and user friendly compared to our existing ProSense system. Our pipeline also includes MSense which could enable the treatment of multiple and larger tumors (see “Item 4.B. Business Overview – Our Products – Research and Development” for additional information). Components of Operating Results Revenues Our revenues primarily consist of (i) selling or placing our ProSense and IceSense3 systems and selling their disposables and related services; and (ii) revenues from granting the exclusive distribution rights to our products in Japan to Terumo Corporation, which also include providing technical, regulatory and clinical materials and support in obtaining regulatory approvals in Japan. Cost of Revenues Our cost of revenues consists primarily of salaries and related personnel expenses, materials for production of our products, subcontractors’ expenses and other related production expenses. Gross Margin Gross margin, or gross profit as a percentage of revenue, is affected by a variety of factors which influence our revenues and the cost of goods sold. Revenues are affected mostly by the number of products we sell and the varying ratio between selling and placing systems, different selling prices depending on sales channels, territories and the mix of products and currency fluctuation, mainly the U.S. Dollar against the Euro and revenue recognition from granting exclusive distribution rights in Japan. The cost of revenues is affected mostly by the changes in cost of materials and import costs, subcontractors’ costs, cost of personal, and currency fluctuation, mainly the U.S. Dollar against the NIS. Our gross margin is also affected by production volumes and production efficiency. Operating Expenses Our current operating expenses consist of three components — research and development expenses, marketing and sales expenses and general and administrative expenses. Research and Development Expenses Our research and development expenses consist primarily of salaries and related benefits, subcontractors’ expenses, materials and other related research and development expenses, clinical studies and regulation expenses. Our research and development expenses might increase as we continue to develop our new products, pursue new regulatory indications in the United States and other territories, collect updated clinical data, and recruit additional research and development and regulation employees. 88 Sales and Marketing Our sales and marketing expenses consist primarily of salaries and related benefits, payments to consultants, costs associated with conventions, travel and other marketing and sales expenses. We expect that our sales and marketing expenses will materially increase as we continue to enhance our market penetration efforts and recruit additional sales and marketing employees. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits, professional services fees for accounting, legal, directors’ fees, facilities, and associate costs, insurance and other general and administrative expenses. Our general and administrative expenses might increase as a result of the expansion of our business. Financial expense and income Financial expenses and income consist primarily of interest income from deposits and exchange rate differences on cash and cash equivalents, deposits and other assets and liabilities which are denominated in NIS and EUR. Comparison of the Years Ended December 31, 2025 and 2024 Results of Operations The following table summarizes our results of operations for the periods presented. Year Ended December 31, U.S. dollars in thousands 2025 2024 Revenues $ 3,379 $ 3,291 Cost of revenues 2,153 1,840 Gross profit $ 1,226 $ 1,451 Research and development expenses 7,433 7,096 Marketing and sales expenses 4,358 6,296 General and administrative expenses 4,529 3,755 Operating loss $ 15,094 $ 15,696 Finance income, net (37 ) (378 ) Net loss and comprehensive loss $ 15,057 $ 15,318 Basic and diluted net loss per share $ 0.24 $ 0.30 89 Revenues The following table summarizes our revenues through types for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods. Year Ended December 31, U.S. dollars in thousands 2025 2024 Disposables $ 2,053 $ 1,828 Systems 1,326 1,363 Exclusive distribution agreement and other services - 100 Total $ 3,379 $ 3,291 Our revenues for the year ended December 31, 2025 increased by $88 thousand, or 3%, to 3,379 thousand, compared to $3,291 thousand for the year ended December 31, 2024. Our total revenue from sales of systems and disposables for the year ended December 31, 2025, increased by 6% to $3,379 thousand, compared to $3,191 thousand for the year ended December 31, 2024, an increase of $188 thousand. Sales of disposables for the year ended December 31, 2025 increased to $2,053 thousand, compared to $1,828 thousand for the year ended December 31, 2024, an increase of $225 thousand, or 12%. Sales of systems for the year ended December 31, 2025 were $1,326 thousand, compared to $1,363 thousand for the year ended December 31, 2024, a decrease of $37 thousand, or 3%. There was no revenue recognition from our exclusive distribution agreement in Japan and other services for the year ended December 31, 2025 compared to $100 thousand for the year ended December 31, 2024, a decrease of 100%. The following table summarizes our revenues by geographic region for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods. Year Ended December 31, U.S. dollars in thousands 2025 2024 United States $ 908 $ 870 Japan 282 481 India 120 413 China 108 41 Israel 24 30 Other 1,937 1,456 Total $ 3,379 $ 3,291 Our revenue in the United States amounted to $908 thousand for the year ended December 31, 2025, compared to $870 thousand for the year ended December 31, 2024, an increase of approximately $38 thousand, or 4%. Our revenue in Japan, including revenue recognition from exclusive distribution rights and other services and revenue from the sale of products, amounted to $282 thousand for the year ended December 31, 2025, compared to $481 thousand for the year ended December 31, 2024. Our revenue in India amounted to $120 thousand for the year ended December 31, 2025, compared to $413 thousand for the year ended December 31, 2024, a decrease of approximately $293 thousand, or 71%. Our revenue in China amounted to $108 thousand for the year ended December 31, 2025, compared to $41 thousand for the year ended December 31, 2024, an increase of approximately $67 thousand, or 163%. Our sales in Israel and other territories, including Europe, amounted to $1,961 thousand for the year ended December 31, 2025, compared to $1,486 thousand for the year ended December 31, 2024, an increase of $475 thousand of 32%. Cost of Revenues and Gross Profit The following table summarizes our cost of revenues for the periods presented, as well as presenting the gross profit as a percentage of total revenues. The period-to-period comparison of results is not necessarily indicative of results for future periods. Year Ended December 31, U.S. dollars in thousands 2025 2024 Raw materials, subcontractors, and auxiliary materials (including changes in inventories) $ 913 $ 832 Payroll and related benefits (including share-based compensation)) 724 585 Depreciation 178 186 Royalties to IIA 101 99 Shipping 87 44 Others 150 94 Total $ 2,153 $ 1,840 Gross profit $ 1,226 $ 1,451 Gross margin % 36 % 44 % 90 Our cost of revenues for the year ended December 31, 2025 increased by 17% to $2,153 thousand, compared to $1,840 thousand for the year ended December 31, 2024, whereas our gross profit for the year ended December 31, 2025 decreased by $225 thousand, or 16%, to $1,226 thousand, compared to $1,451 thousand in the year ended December 31, 2025. The increase in our cost of revenues in 2025 was primarily attributable to an increase in raw material costs, subcontractor costs and auxiliary material costs, an increase in payroll and related benefits and other costs. The decrease in gross profit and gross margin was primarily attributable to the increase in cost of revenues and the decrease in revenues from our exclusive distribution agreement in Japan and other services. Research and development expenses The following table summarizes our research and development costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods. Year Ended December 31, U.S. dollars in thousands 2025 2024 Payroll and related benefits (including share-based compensation) $ 5,634 $ 5,436 Raw materials, subcontracted work and consulting 689 734 Clinical trials 355 181 Others 755 745 Total $ 7,433 $ 7,096 Research and development, or R&D, expenses increased by 5% to $7,433 thousand, compared to $7,096 thousand in 2024. The increase is primarily due to an increase in clinical trials and payroll and related benefits which were partially offset by a reduction in our development expenses for the XSense system. Sales and marketing expenses The following table summarizes our sales and marketing costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods. Year Ended December 31, U.S. dollars in thousands 2025 2024 Payroll and related benefits (including share-based compensation) $ 2,571 $ 2,639 Consultants and professional services 750 2,518 Travel 280 426 Conferences 329 286 Sales Commissions 36 96 Advertising and promotion 116 32 Others 276 299 Total $ 4,358 $ 6,296 Selling and marketing expenses for the year ended December 31, 2025 decreased by 31% to $4,358 compared to $6,296 thousand in 2024. The decrease in selling and marketing expenses in 2025 compared to 2024 is mainly attributable mainly to costs associated with consultants and professional services related to the reopening of our De Novo classification approval case with the FDA and the associated convening of the Advisory Panel, a decrease in travel and a decrease in payroll and related benefits expenses. 91 General and administrative expenses The following table summarizes our general and administrative costs for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods. Year Ended December 31, U.S. dollars in thousands 2025 2024 Professional services $ 1,895 $ 1,955 Payroll and related benefits (including share-based compensation) 2,427 1,624 Others 207 176 Total $ 4,529 $ 3,755 General and administrative expenses for the year ended December 31, 2025 increased by 21% to $4,529 thousand, compared to $3,755 thousand for the year ended December 31, 2024. This increase is primarily attributable to an increase in payroll and related benefits mostly attributed to increase in share-based compensation expenses and the depreciation of the USD against the NIS. The increase was partially offset by a decrease in directors and officers insurance and legal expenses. Operating loss Based on the foregoing, our operating loss decreased from $15,696 thousand for the year ended December 31, 2024 to $15,094 thousand for the year ended December 31, 2025. The decrease is primarily attributable to the decrease in sales and marketing expenses, partially offset by the decrease in gross profit and the increase in research and development and general and administrative expenses. Finance income, net Finance income, net for the year ended December 31, 2025 was $37 thousand, compared to $378 thousand for the year ended December 31, 2024. The decrease in our net financial income is primarily attributable to the decrease in our short-term deposits and the income from interest on such short-term deposits. Net loss Net loss for the year ended December 31, 2025 decreased by 2% to $15,057, compared to $15,318 thousand for the year ended December 31, 2024. The decrease is primarily attributable to the decrease in operating loss which was mostly offset by the decrease in net financial income. B. Liquidity and Capital Resources. Overview Since our inception through December 31, 2025, we have funded our operations principally from public offerings and private placements of our securities, loans, revenues from sale of products and distribution agreements, and grants received from the IIA. As of December 31, 2025, we had $8.9 million in cash and cash equivalents, including short-term deposits. Our primary recurring use of cash is payment of our operating costs, which consist primarily of employee-related expenses, such as compensation and benefits, as well as to our suppliers and subcontractors for components and services provided for our products and research and development, general operating expenses for sales and marketing, facilities and overhead costs, general and administrative and capital expenditures. 92 The table below presents our cash flows for the periods indicated. USD in thousands 2025 2024 Net cash used in operating activities (14,574 ) (12,563 ) Net cash provided by (used in) investing activities (36 ) 446 Net cash provided by financing activities 15,834 9,187 Net increase (decrease) in cash and cash equivalents 1,224 (2,930 ) Operating Activities Cash flows from operating activities consist primarily of loss adjusted for various non-cash items, including depreciation and amortization and share-based compensation expenses. In addition, cash flows from operating activities are impacted by changes in operating assets and liabilities, which include inventories, accounts receivable, other assets, accounts payable and other current liabilities. Net cash used in operating activities for the year ended December 31, 2025 increased by $2,011 thousand to $14,574 thousand, compared to $12,563 thousand for year ended December 31, 2024, which reflects an increase in 2025 cash operational activities compared to 2024. Investing Activities Net cash used in investing activities for the year ended December 31, 2025, was $36 thousand compared to net cash of $446 thousand provided by the year ended December 31, 2024. The net cash used in investing activities for the year ended December 31, 2025 is attributable to the purchase of property and equipment for $36 thousand. Net cash provided by investing activities for year ended December 31, 2024 is attributable to a withdrawal of short-term deposits of $529 thousand, which are offset, in part, by the purchase of property and equipment for $71 thousand and investment in restricted deposits of $12 thousand. Financing Activities Net cash provided by financing activities increased by $6,647 to $15,834 thousand for the year ended December 31, 2025, compared to $9,187 thousand for the year ended December 31, 2024. The increase is primarily attributable to the issuance of Ordinary Shares, net of issuance costs, through the Rights Offering and through use of our at-the-market, or ATM, facility and exercise of warrants and pre-funded warrants. Financial Arrangements As of December 31, 2025, our credit arrangements include grants from the IIA. Since 2022, we have funded our operations mainly through public offerings, raising an aggregate amount of net proceeds of $41 million. On December 23, 2022, we announced the closing of a “best efforts” public offering of 8,787,880 Ordinary Shares at a public offering price of $1.65 per share. After deducting placement agent fees, commissions and other offering expenses, our net proceeds from this offering were $13.6 million. Several of our long-term institutional shareholders, including Epoch Partner Investments Limited, or Epoch, participated in the transaction on the same terms as other investors. On January 12, 2024, we entered into an equity distribution agreement with Maxim Group LLC, or Maxim, as sales agent, pursuant to which we may offer and sell Ordinary Shares having an aggregate offering price of up to $9,700,000 from time to time through Maxim, otherwise known as an ATM facility. The Ordinary Shares were offered and sold pursuant to our currently effective registration statement on Form F-3 (File No. 333-267272), the prospectus contained therein and the prospectus supplement filed with the SEC dated January 12, 2024. We paid Maxim a commission equal to 2.5% of the gross sales price per share sold pursuant to the terms of the agreement and provided Maxim with customary indemnification and contribution rights. We reimbursed Maxim for certain specified expenses. As of December 31, 2025, we had sold 10,764,315 Ordinary Shares pursuant to the ATM facility, having aggregate gross proceeds of $9.7 million and aggregate net proceeds of $9.2 million. 93 On January 13, 2025, we entered into a second equity distribution agreement with Maxim as sales agent, pursuant to which we may offer and sell Ordinary Shares having an aggregate offering price of up to $13,960,500 from time to time through Maxim. The Ordinary Shares will be offered and sold pursuant to our currently effective registration statement on Form F-3 (File No. 333-267272), the prospectus contained therein and the prospectus supplement filed with the SEC dated January 13, 2024. We will pay Maxim a commission equal to 2.5% of the gross sales price per share sold pursuant to the terms of the agreement and will provide Maxim with customary indemnification and contribution rights. We also agreed to reimburse Maxim for certain specified expenses. On January 8, 2026, we amended the second equity distribution agreement with Maxim to extend its termination date from January 13, 2026 to March 13, 2026. As of March 13, 2026, we sold 5,990,915 Ordinary Shares pursuant to the ATM facility, having aggregate gross proceeds of $6.6 million and aggregate net proceeds of $6.3 million. On May 17, 2025, we entered into an unsecured loan agreement, as borrower, with Epoch, as lender, pursuant to which we received a bridge loan, or the Bridge Loan, in a principal amount of $2.0 million. The Bridge Loan bears interest at a rate equal to the interest rate of a 12-month U.S. Treasury bond in effect on May 17, 2025, calculated on the basis of a 365-day year from the date of disbursement until the date of actual repayment. The principal amount of the Bridge Loan, together with any accrued interest, is required to be repaid no later than one calendar year from May 17, 2025. We may repay the Bridge Loan at any time prior to its maturity date without penalty. If, prior to the maturity date, we raise capital in an equity transaction other than through our at-the-market offering facility or any other equity line, the amount raised in such transaction, up to the outstanding amount of the Bridge Loan, is required to be used to prepay the Bridge Loan, subject to Epoch’s participation in such equity transaction. Upon completion of the Rights Offering (as defined below), we repaid the Bridge Loan in full. On June 25, 2025, our board of directors approved a rights offering, or the Rights Offering, to holders of our Ordinary Shares. We engaged Maxim to act as dealer-manager in connection with the Rights Offering. In the Rights Offering, we distributed to eligible shareholders non-transferable subscription rights, or Subscription Rights, to purchase up to an aggregate of 10,000,000 units, or Units, at a subscription price of $1.00 per whole Unit. Each Subscription Right entitled its holder to purchase 0.1703 of a Unit. Each Unit consisted of one Ordinary Share and one warrant to purchase one Ordinary Share, or, at the holder’s election, one Unit comprised of one pre-funded warrant to purchase one Ordinary Share and one warrant to purchase one Ordinary Share, in each case at a subscription price of $0.9999 per Unit. Epoch committed to exercise its Subscription Rights in full and any over-subscription privilege to purchase Units not subscribed for by other shareholders with an aggregate subscription price of up to $5.0 million. On July 10, 2025, we commenced the subscription period for the Rights Offering. The Subscription Rights were exercisable only during the subscription period and were non-transferable. On July 28, 2025, the subscription period for the Rights Offering expired. The Rights Offering was oversubscribed, with aggregate demand approximately two times the size of the offering, and was completed on or about August 1, 2025. In connection with the Rights Offering, we issued approximately 9,954,756 Ordinary Shares, warrants to purchase 9,999,994 Ordinary Shares and pre-funded warrants to purchase up to 45,238 Ordinary Shares, and received aggregate gross proceeds of approximately $10 million before deducting dealer-manager fees and other offering expenses. In addition, since our inception, we received an aggregate of $2.7 million (including accumulated interest) from the IIA. Current Outlook We have financed our operations to date primarily through proceeds from sales of our Ordinary Shares and convertible securities, sales of our products and grants from the IIA. We have incurred losses and generated negative cash flows from operations since inception in 2006. We expect that we will continue to generate substantial operating losses and fund our operations primarily through the utilization of current financial resources, sales of our products, and additional raises of capital. These conditions raise substantial doubts about our ability to continue as a going concern. Our plan involves raising funds from existing shareholder and potential investors. There is no assurance, however, that such funding would be available to us, that it could be obtained on favorable terms, or that we will be provided with sufficient funds to continue to develop and commercialize our products. 94 We expect to generate revenues from the sale of our products and other revenues in the future. However, we do not expect these revenues to support all of our operation in the near future. We expect our expenses to increase in the future in connection with our ongoing activities, particularly as we continue the development of our MSense system and continue our commercialization efforts. Furthermore, we expect to incur additional costs associated with operating as a public company listed on Nasdaq. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. As of December 31, 2025, our cash and cash equivalents, including short-term deposits, were $8.9 million, and we had working capital of $7,781 thousand and an accumulated deficit of $120,436 thousand. As of March 13, 2026, the Company’s cash, cash equivalents, and short-term deposits were approximately $4.7 million. The Company’s current cash and cash equivalents position is not sufficient to fund its planned operations for at least the next 12 months beyond the filing date of this Annual Report. Such conditions raise substantial doubts about the Company’s ability to continue as a going concern. Management’s plan includes raising funds from existing shareholders and/or outside potential investors. However, there is no assurance such funding will be available to the Company or that it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to successfully complete the development of, and to commercialize, its products. The financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties; however, we expect that we will require substantial additional capital to continue the development of, and to commercialize our products. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including: ● our ability to sell our products according to our plans; ● the progress and cost of our research and development activities; ● the costs associated with the manufacturing our products; ● the costs of clinical trials and obtaining regulatory approvals; ● the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; ● the cost of our commercialization efforts, marketing, sales and distribution of our products the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and ● the magnitude of our general and administrative expenses. Until we can generate significant recurring revenues and profit, we expect to satisfy our future cash needs through debt or equity financings. We cannot be certain that additional funding will be available to us when needed, on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans, and/or commercialization efforts and/or regulatory efforts with respect to our products in different territories. C. Research and development, patents and licenses, etc. For a description of our research and development programs and the amounts that we have incurred over the last two years pursuant to those programs, please see “Item 5.A. Operating Results— Operating Expenses— Research and Development Expenses” and “Item 5.A. Results of Operations— Comparison of the year ended December 31, 2025 to the year ended December 31, 2024— Research and Development Expenses, net.” 95 D. Trend Information We are subject to a number of trends and uncertainties that we believe are reasonably likely to have a material impact on our financial condition and results of operations. Commercialization of Breast Cancer Indication In October 2025, the FDA granted De Novo authorization for the use of our ProSense system for the treatment of early-stage, biologically low-risk breast cancer in a defined patient population. We expect commercialization efforts in 2026 to focus on physician training, reimbursement engagement, recruitment of sales representatives and distributor expansion. However, revenue growth will depend on physician adoption, reimbursement coverage and patient acceptance. Reimbursement Environment The absence of broad third-party reimbursement coverage for certain indications remains a significant factor that may limit adoption. We are engaged in efforts to expand reimbursement pathways, but timing and outcomes remain uncertain. Capital Requirements We expect operating losses and negative cash flows to continue in 2026 as we expand commercialization and continue development of MSense. As a result, we will likely require additional capital. Geopolitical Risks Ongoing regional instability in Israel may impact our operations, workforce availability and supply chain continuity. Competitive Landscape The cryoablation and minimally invasive oncology markets remain highly competitive and subject to technological innovation. Additional trends and uncertainties that may affect our business are described elsewhere in this Annual Report, including in “Item 3.D. Risk Factors,” “Item 4.B. Business Overview,” “Item 5.A. Operating Results,” “Item 5.B. Liquidity and Capital Resources,” and “Item 10.C. Material Contracts.” E. Critical Accounting Estimates We prepare our financial statements in accordance with U.S. GAAP. At the time of the preparation of the financial statements, our management is required to use estimates, evaluations, and assumptions which affect the application of the accounting policy and the amounts reported for assets, obligations, income, and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change to the estimate is made. Use of estimates in the preparation of financial statements: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. Actual results could differ from those estimates. 96 We describe our significant accounting policies more fully in Note 2 to our financial statements for the year ended December 31, 2025, included elsewhere in this annual report on Form 20-F. We believe that the accounting policies below are critical in order to fully understand and evaluate our financial condition and results of operations. Inventories We value our inventories at the lower of cost or market, with cost determined with weighted average cost of historical purchases and market based upon net realizable value. The valuation of our inventories requires management to make costing and market estimates. For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products. For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions. Revenue recognition Revenue is measured as the amount of consideration we expect to be entitled to, in exchange for transferring products or providing services to our customers and is recognized when or as performance obligations under the terms of contracts with our customers are satisfied. ASC 606 prescribes a five-step model for recognizing revenue from contracts with customers: (i) identify contract(s) with the customer; (ii) identify the separate performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the separate performance obligations in the contract; and (v) recognize revenue when (or as) each performance obligation is satisfied. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services. We then allocate the transaction price (the amount of consideration the Company expects to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. Revenues from product sales are recognized upon the transfer of control, which is generally upon shipment or delivery. Provisions for discounts, rebates and sales incentives to customers, returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Deferred revenue represents amounts received by us for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. 97