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Item 1. Business

2025-03-28 compared with 2024-03-29 · 206 added, 268 removed, 92 unchanged (84% of the section changed)

Business Overview

We build intelligent multi-sensing platforms incorporating edge and cloud AI software solutions that are utilized by organizations to monitor and protect critical assets across a wide range of industries.

We are a provider of sensing systems built around high-resolution thermal imagers along with visible and acoustic imagers, as well as vibration and laser spectroscopy sensors, that perceive and measure heat, sound, vibration, and gas in industrial assets and the surrounding environment, helping companies gain insight to efficiently manage their most important assets and infrastructure.

We design and manufacture turn-key multi-sensor solution platforms with edge and cloud-based software that we believe to be high performing and attractively priced across each of our four target markets:

distribution & logistics;

We build and deploy intelligent multi-sensing platforms incorporating edge and cloud software solutions that leverage artificial intelligence (“AI”).

We are a provider of sensing systems built around high-resolution thermal imagers, visible and acoustic imagers, as well as vibration and laser spectroscopy sensors, that perceive and measure heat, sound, vibration, and gas in industrial assets and the surrounding environment, helping companies gain insight to protect and manage their most important assets and infrastructure.

We believe our platform is high performing and attractively priced across each of our primary target markets:

distribution and logistics;

manufacturing;

and oil & gas.

Our core infrared sensor devices achieve a high degree of accuracy through proprietary calibration processes, which are the result of thousands of hours of engineering and research and development (“R&D”).

We believe this to be a distinct competitive advantage in the infrared industry.

We also offers a wide range of form factors for our sensor devices, ranging from small to large handheld designs with built-in displays and controls, to fixed-mounted single- and multi-sensor camera sensor systems, with or without displays and controls, to mobile multi-sensor payload and gimbal systems for unmanned aerial vehicles (“UAVs”), and more.

We believe that our digital multi-sensor technology platform positions us at the center of a global revolution in thermal and related sensing, as the introduction of continuous streaming thermal data alongside other adjacent sensor data and coupled with automated insights replaces intermittent manual thermal and physical inspections, and cloud-connected thermal, visible, acoustic, vibration, and spectroscopy big data capture enables artificial intelligence and machine learning (“AI/ML”) to elevate critical asset management to a new level.

Partnering with several blue-chip multinational customers throughout the development process, we have validated dozens of high-value use cases for our SmartIR and MSAI cloud-software across our four core verticals.

We estimate the global total addressable market (“TAM”) for thermal solutions in our target markets to be approximately $14 billion, consisting of approximately $9 billion in hardware sales and $5 billion in software and service sales.

Our revenue is distributed across four industry verticals, the largest of which represented approximately 40% of our revenue for the year ended December 31, 2023.

We believe this revenue distribution illustrates both the flexibility of our technology and the significant addressable opportunity across our target markets globally.

and oil and gas.

We also offer a wide range of form factors for our sensor devices, including, among other form factors, small to large handheld designs with built-in displays and controls, fixed-mounted single- and multi-sensor camera sensor systems, with or without displays and controls, and mobile multi-sensor payload and gimbal systems for unmanned aerial vehicles (“UAVs”).

We believe that our digital multi-sensor software technology platform positions us to become a leader in thermal and related sensing as the introduction of continuous streaming thermal data alongside other adjacent sensor data, coupled with automated insights, replaces intermittent manual thermal and physical inspections.

Additionally, our cloud-connected thermal, visible, acoustic, vibration, and spectroscopy big data capture enables artificial intelligence and machine learning (“AI/ML”) opportunities to elevate critical asset management to a new level and provide differentiated insight.

In partnering with several blue-chip multinational customers throughout the development process, we have illustrated several high-value use cases for our MSAI Edge and MSAI Connect software across our three target markets, as described below.

Industry Background

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In the late 20th century, infrared technology was incorporated into thermal cameras, used in manufacturing and other industrial settings to identify faulty equipment in need of maintenance, as well as other potential operational and safety issues by sensing “hotspots” or raised temperatures that often presage equipment failure.

As the technology grew in sophistication, and decreased dramatically in cost, the breadth of applications proliferated.

In the past three decades, thermal sensing technology has been applied across numerous applications such as production process monitoring, electrical equipment monitoring, industrial plant monitoring, early fire detection, pressure vessel monitoring, tank level monitoring, liquid and gas leak detection, and more.

As the technology grew in sophistication, and decreased dramatically in cost, the breadth of applications expanded.

In the past three decades, thermal sensing technology has been applied across numerous applications, such as production process monitoring, electrical equipment monitoring, industrial plant monitoring, early fire detection, pressure vessel monitoring, tank level monitoring, and liquid and gas leak detection.

Adjacent and Complementary Sensor Technologies to Infrared

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These anomalies can sometimes also be detected using sound, vibration, and visible image analysis.

As a result, augmenting infrared image sensing with acoustic and visible image sensing as well as vibration monitoring can further improve asset and process condition monitoring and resultant predictive maintenance efforts.

Continuous Monitoring & Data-Driven Insight

In industrial settings, thermal technology has typically been applied through handheld devices in order to inspect equipment on a sporadic basis.

With the decline in thermal camera prices and advancements in technology over the last decade, there has been an increase in fixed thermal sensing technologies used to continuously monitor critical assets.

Similarly, advancements in technology and declines in prices in acoustic imagers, vibration sensors, and other industrial sensors have made continuous monitoring economical and effective.

By deploying thermal and other sensors in continuous monitoring applications, organizations have been able to minimize downtime and process waste through enhanced preventative and predictive maintenance.

We have been at the forefront of this movement towards using thermal imaging and other related sensing technology for continuous monitoring of critical assets.

Most of the focus in the industry, historically, has been on the development of the sensing technology itself in an effort to enhance accuracy and reliability.

Having optimized the fixed mounted hardware and associated thermal, visible, acoustic, vibration, and spectroscopy devices, we have shifted our focus towards the acquisition, storage and analysis of data through our proprietary SmartIR and MSAI SaaS software packages.

Our SmartIR & MSAI Technology

We are continuing to develop and implement our SmartIR SaaS platform to support our customers as they increasingly adopt continuous monitoring solutions and data driven analytics.

And we continue to add additional sensor modalities to the SmartIR platform as we transition to the MultiSensor AI (MSAI) platform branding.

Our SmartIR & MSAI technology has been developed and continues to be refined primarily for use in four core industrial markets that we believe are at the forefront of the transition to continuous monitoring thermal solutions:

the distribution & logistics, manufacturing, utilities, and oil & gas markets.

We launched our SmartIR cloud-software product suite in the second quarter of 2023.

Market Opportunity

Overall Market Opportunity

We believe our thermal and multi-sensing technology has potential application across many industry verticals.

As the benefits of data-driven infrared multi-sensor technology become more widely accepted, we believe there are significant market opportunities available for our product offerings.

We define our TAM as applications in the distribution & logistics, manufacturing, utilities and oil & gas markets in the United States, where we actively engage and maintain customer relationships.

We estimate the TAM in these target markets based on a combination of the total number of estimated potential customers and facilities in each market, our expectations regarding the scope of potential uses of thermal and multi-sensing solutions in those markets, and our estimates of average selling prices in those markets and potential opportunity for software solutions to increase the utility of thermal imaging and multi-sensing solutions.

Our TAM calculations are based upon third-party industry and governmental sources of the total number of facilities in the U.S.

that could utilize thermal and multi-sensing solutions.

These facilities include, but are not limited to, distribution centers, large commercial and freight airports, industrial mills, oil & gas producing wellheads, chemical manufacturing plants, electrical substations and earthen dams.

Based on the number of these facilities in the United States and our estimates of how many of our multi-sensor sensing systems could be deployed at these facilities, we estimate the TAM in our target markets to be approximately $14 billion, consisting of approximately $9 billion in hardware sales and $5 billion in software and service sales in 2023.

Our current market share in each of our four target markets represent less than 0.1% penetration of the estimated TAM.

Our TAM calculation was based on a thorough bottoms-up analysis of the potential number of externally verified facilities and assets in the United States across our four target markets that could be penetrated by MSAI integrated SmartIR & MSAI SaaS and device

The calculations were made with several assumptions and limitations in mind, but these were consistent across the calculations in all four of the target markets.

Specifically these assumptions and limitations included only considering:

● facilities located within the United States;

● the current number of externally verifiable facilities, with no assumptions related to the growth or reduction in the number of such facilities in future periods;

● facilities of the type in which we have current use cases with paying customers or have developed products that we are piloting with customers.

Although the numbers of facilities used in our calculation were specific to each of the target markets (e.g.

the number of distribution centers for warehouse and logistics or the number of steel mills for manufacturing), the rules for inclusion and exclusion were common to all four target markets.

While we have a long history of selling, implementing and supporting device-only thermal systems into each of the four target markets, there are some risks inherent to selling integrated device and software multi-sensing solutions into each of these target markets.

Please see Part I.

Risk Factors - Risks Related to Our Business and Industry for a more detailed discussion relating to the risks that apply to each of our four target markets, particularly as they relate to the adoption of our hardware and software offerings in each of the four target markets.

Distribution & Logistics Market Opportunity

We believe that the distribution & logistics TAM in 2023 was approximately $2.5 billion.

This distribution & logistics TAM includes conveyor system anomaly detection, hotspot detection, process automation, predictive maintenance, and failure avoidance, among other applications, with demand expected to be driven by both financial incentives related to process improvements and increased regulation pertaining to facility safety.

Manufacturing Market Opportunity

We believe that the manufacturing TAM in 2023 was approximately $2.5 billion.

This manufacturing market TAM includes process monitoring and control, predictive maintenance, power panel monitoring, production motor drives and vehicles, early fire detection, and electrified transport battery monitoring, among other applications.

We expect demand in the manufacturing market to be driven by ongoing commercial adoption of data-driven manufacturing processes (e.g., reduced scrap and waste).

One risk specific to the manufacturing target market is that many manufacturing customers have some form of legacy system, usually vibration monitors, that perform functions that overlap with some of the SmartIR & MSAI functionality.

Customers must be convinced that their legacy systems alone are not adequate for the predictive-maintenance, process-improvement or safety tasks.

Moreover, customers must be convinced that the combination of their legacy systems and SmartIR will be materially better for predictive maintenance, process improvement or safety and will generate returns on investment (e.g.

through prevention of unexpected downtime, improved process yields or early fire detection) that are significantly in excess of the costs of the SmartIR system.

Utilities Market Opportunity

We believe that the TAM for the power generation and utilities market in 2023 was approximately $4 billion.

This utilities TAM includes transformer failure and leak detection, fault detection, and solar field and wind turbine inspection, amongst dozens of other applications.

We expect demand to be stimulated by both increased regulations and customer demand for safe monitoring solutions and process efficiency enhancements.

Oil & Gas Market Opportunity

We believe that the oil & gas TAM in 2023 was approximately $5 billion.

This oil & gas TAM includes gas and liquid leak detection, tank level and flare monitoring, pipeline leak detection, and gas processing safety monitoring, as well as more general manufacturing reliability and predictive maintenance, among other applications.

We expect demand to be stimulated by both increased regulations and the general demand for safe and cost-effective thermal sensing and monitoring solutions.

In particular, the Environmental Protection Agency (“EPA”) has promulgated the regulations (commonly referred to as “Quad-O/Oa”) which have

established emission standards and compliance schedules for the control of volatile organic compounds and greenhouse gases, specifically methane.

These federal regulations are supplemented by state-level regulations from agencies such as the Texas Commission on Environmental Quality.

We believe that our fixed-mount, hand-held and drone-mounted systems are sufficient to promote compliance with the current Quad O/Oa and state-level standards for methane-leak detection and have sold devices for this specific use case for many years.

The EPA is preparing a new set of regulations, which are expected to come into effect in 2024 or 2025.

We believe that our solutions will also support compliance with these upgraded regulations, but until the regulations are finalized, this is not certain.

In addition, there are multiple established competing technologies for methane-leak detection, specifically including hand-held and drone-based thermal camera devices and hand-held methane “sniffers.” Although we believe that our fixed-mount continuous monitoring solutions are both more efficacious and more cost-effective than competing technologies, adoption of the ICI SmartIR fixed-mount solutions will require awareness, and adoption in the face of established practice.

In addition, there are multiple emerging technologies (e.g., satellite based thermal sensing) in the methane-detection space that may create additional competition for our commercial activity in the oil & gas vertical.

As a result, enhancing infrared image sensing with acoustic and visible image sensing as well as vibration monitoring can further improve asset and process condition monitoring and resultant predictive maintenance efforts.

Continuous Monitoring and Data-Driven Insight

In industrial settings, thermal technology has historically been applied primarily through handheld devices in order to inspect equipment on a periodic basis.

As thermal camera prices have decreased and computing and communications technology have advanced over the last two decades, there has been an increase in the use of fixed thermal sensing technologies to monitor critical assets on a continuous basis.

Similarly, advancements in technology and declines in prices in acoustic imagers, vibration sensors, and other industrial sensors have made continuous multi-modal data monitoring economical and effective.

By deploying thermal and other sensors in continuous monitoring applications, organizations have been able to minimize unplanned downtime and reduce process waste through enhanced predictive maintenance.

We believe we have been at the forefront of this movement towards using thermal imaging and other related sensing technology for continuous monitoring of critical assets.

Most of the focus in the industry, historically, has been on the development of the sensing technology hardware itself in an effort to enhance accuracy and reliability.

Having optimized the fixed-mount hardware and associated thermal, visible, acoustic, vibration, and spectroscopy devices, we have shifted our focus towards the acquisition, storage and analysis of data through our proprietary edge software, MSAI Edge, and our cloud-based software, MSAI Connect.

Infrared Sensing Technology

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Unlike visible light, infrared radiation (or heat) is emitted directly by all objects above absolute zero in temperature.

Thermal imaging systems detect this infrared radiation and convert it into an electronic signal, which is then processed for display as a video signal or analyzed by sophisticated software to conduct temperature data analysis.

Thermal sensors provide several benefits over ubiquitous visible, light-based sensing technologies, including the ability to measure temperature remotely and without touching the surface of the object, detect and image many types of otherwise invisible gases, observe in complete darkness, image through obscurants such as smoke and fog, detect and discriminate living beings in an efficient and reliable way, and see over long distances with minimal atmospheric interference.

For these reasons, we feel the potential of our core technology to grow in prevalence and importance is significant, particularly as the cost of the technology continues to decline, opening up large new end markets.

Thermal imaging systems detect this infrared radiation in an array of microbolometer pixels and convert individual temperature readings into an electronic signal, which is then processed for display as a video signal and/or analyzed by sophisticated software to conduct temperature data analysis.

Thermal sensors provide several benefits over ubiquitous, visible, light-based sensing technologies, including the ability to measure temperature remotely and without touching the surface of the object, detect and image many types of otherwise invisible gases, observe in complete darkness, image through obscurants such as smoke and steam, detect and discriminate living beings from other sources of heat in an efficient and reliable way, and see over long distances with minimal atmospheric interference.

For these reasons, we feel that the potential of our core technology to grow in prevalence and importance is significant, particularly as the cost of the technology continues to decline, opening up large new end applications.

Acoustic Imaging Technology

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Recently developed acoustic imaging technology combines an array of microphones surrounding a visible imaging sensor to both detect soundwaves and to estimate their source location within the camera’s field of view using sophisticated software.

The software analysis of these soundwaves can then identify, quantify, and localize compressed air or gas leaks as well as partial discharge in industrial equipment.

The software analysis of these soundwaves can then identify, quantify, and localize compressed air or gas leaks as well as partial electrical discharge in industrial equipment.

Vibration Monitoring Technology

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Multi-Sensor Technology

Our founders and engineering team have many years of infrared industry experience.

By leveraging our deep knowledge of infrared technology as well as complementary sensor technology, we have designed, manufactured, and sourced a range of industry-leading infrared and multi-sensor cameras and payloads.

We have also developed specialized software to ingest, store, and analyze this sensor data.

We often combine our sensor devices with our edge and cloud software to create tailored, end-to-end solutions for numerous industrial use cases.

Our sensor, sensor hardware, and sensor software products separately or collectively create new solutions to challenging problems across the industries we serve, and, as a result, we believe we are well-positioned to compete in the large new end markets we see emerging in infrared and related sensor technology.

Our integrated solutions leverage data generated from an array of sensors and sensor modalities to protect our customers' most critical assets.

We combine condition monitoring data with proprietary edge and cloud software to generate actionable insights that, we believe, minimize unplanned downtime, reduce maintenance costs, prevent catastrophe, and extend asset life.

Sensor Devices

Our sensor devices cover a large range of the electromagnetic and mechanical spectrums, encompassing visible-light imagers, shortwave (“SWIR”), midwave (“MWIR”), and longwave (“LWIR”) infrared imagers, ultraviolet (“UV”) imagers, acoustic imagers, and tunable diode laser emitter-detector pairs for laser absorption spectrometry (“TDLAS”).

Our sensor devices cover a large range of the electromagnetic and mechanical spectrums, encompassing visible-light imagers, shortwave (“SWIR”), midwave (“MWIR”), and longwave infrared imagers (“LWIR”), ultraviolet (“UV”) imagers, acoustic imagers, and tunable diode laser emitter-detector pairs for laser absorption spectrometry (“TDLAS”).

While our sensor devices generally include an infrared imager as a core sensor technology, many of them are multi-sensor and include two or more of the aforementioned sensor devices.

Many of our infrared sensor devices achieve enhanced accuracy as a result of our proprietary calibration process, which corrects manufacturing variances inherent in infrared sensors and enables our products to outperform those of some competitors.

We have invested thousands of hours of engineering R&D in creating and refining this calibration process and believe it to be a distinct competitive advantage in the infrared industry.

We offer a wide range of form factors for our sensor devices, ranging from small to large handheld designs with built-in displays and controls, fixed-mounted single- and multi-sensor camera systems with or without displays and controls, fixed-mounted pan-tilt-zoom (“PTZ”) single- and multi-sensor camera standalone systems, and mobile multi-sensor payload and gimbal systems for UAVs and unmanned ground vehicles (“UGVs”).

A partial list of our sensor devices follows below:

Fixed-Mount Infrared Cameras

Longwave Infrared (LWIR) Auto-focus Ethernet camera

Longwave Infrared (LWIR) Manual-focus USB camera

Cooled Midwave Infrared (MWIR) Optical Gas Imaging (OGI) camera

Fixed-Mount Infrared + Visible & Multi-Sensor Cameras

Compact IP67-rated IoT Dual-spectrum Longwave Infrared (LWIR) + Visible camera

High resolution IP66-rated Dual-spectrum Longwave Infrared (LWIR) + Visible camera

Fixed-Mount Acoustic + Visible Cameras

Sound Detect FM

Industrial IP54-rated 128-microphone Acoustic + Visible camera

Handheld Infrared + Visible Cameras

High resolution handheld Dual-spectrum Longwave Infrared (LWIR) + Visible camera

Ultra-high resolution handheld Dual-spectrum Longwave Infrared (LWIR) + Visible camera

High resolution handheld IR Tablet PC with Dual-spectrum Longwave Infrared (LWIR) + Visible sensors with integrated edge processing software

Handheld Acoustic + Visible Cameras

Sound Detect Pro

Handheld ATEX-certified IP54-rated 128-microphone Acoustic + Visible camera

Unmanned Vehicle Multi-Sensor Payloads

Methane Mapper

Multi-sensor payload with TDLAS + Visible sensors and ICI edge processing device

OGI Inspector Plus

Multi-sensor payload with Cooled Midwave Infrared (MWIR) Optical Gas Imaging (OGI), TDLAS + Visible sensors and ICI edge processing device

We offer a wide range of form factors for our sensor devices, including small to large handheld designs with built-in displays and controls, fixed-mounted single- and multi-sensor camera systems with or without displays and controls, fixed-mounted pan-tilt-zoom single- and multi-sensor camera standalone systems, and mobile multi-sensor payload and gimbal systems for UAVs and unmanned ground vehicles (“UGVs”).

Sensor Software

We have developed a suite of edge and cloud software systems to ingest, store, analyze, and automatically activate responses to sensor data.

The edge and cloud software systems can operate independently or be combined for maximum capability.

that the combination of our edge and cloud software together creates a multitude of turn-key software solutions for our customers that solve industrial problems in ways previously unavailable.

We have developed a suite of edge and cloud software systems to acquire, store, analyze, action and archive sensor data.

Our edge software can operate independently or be combined with our cloud system MSAI Connect.

We believe that the combination of our edge and cloud software together creates a multitude of turn-key software solutions for our customers that solve industrial problems in ways previously unavailable.

Edge Software

Our edge software is highly specialized because, in addition to performing standard, visible-light video processing, it also processes the raw radiometric data output from our infrared sensors, consisting of high-precision absolute temperature values for every pixel in the sensor array.

MSAI Edge is an “on premises” software, capable of processing advanced thermal imaging, visible imaging, and acoustic imaging data streams as well as multiple established industrial communications protocols.

This setup enables continuous monitoring of critical equipment and processes, delivering real-time insights into their health and performance, and is readily integrated into existing operational and business intelligence systems.

MSAI Edge is sold as both a term-based software license, which generally provides access to the software for a period of 12 months, and as a perpetual license.

MSAI Edge is highly specialized because, in addition to performing standard, visible-light video processing, it also processes the raw radiometric data output from our infrared sensors, consisting of high-precision absolute temperature values for every pixel in the sensor array (ranging from 49 thousand to 1.31 million pixels, depending on the sensor).

Our software is able to display a video image of the sensor output using customizable color palettes to represent temperature values and features automatic or adjustable minimum and maximum temperature values for this video image conversion.

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Built-in report generation features enable easy documentation of findings for customers still performing manual inspections.

Our edge software also features multiple notification methods for communicating an uncovered anomaly, including automatic email and text message generation as well as automatic light and sound generation.

Our edge software also features multiple notification methods for communicating a discovered temperature anomaly, including automatic email and text message generation and automated work-order generation via customer Enterprise Asset Management systems.

In addition, our software features flexible integration with customer systems using various industrial protocols to enable automatic, anomaly-driven remediation, whether dynamically adjusting operating parameters, shutting down production lines at risk of imminent failure, or triggering fire suppression systems.

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Also, our edge software designed for UAV and UGV usage enables partial to complete integration with the unmanned system’s control architecture to not only capture sensor data but also control gimbal devices and communicate with the unmanned system’s flight or ground controls.

A variation of our edge software is designed to measure human skin temperature in order to identify individuals who have an elevated body temperature.

This software features artificial intelligence (“AI”) capabilities and includes computer vision modules to automatically detect and locate a temperature reference source, automatically detect one or more human faces in the scene, and determine if a hat, glasses, or face mask is being worn so that appropriate actions can be taken.

Historically, a variation of our edge software was designed to measure human skin temperature in order to identify individuals who had an elevated body temperature.

This software was primarily sold during the COVID-19 pandemic and featured AI capabilities and included computer vision modules used to automatically detect and locate a temperature reference source, automatically detect one or more human faces in the scene, and determine if a hat, glasses, or face mask was being worn so that appropriate actions could be taken.

This edge software can generate notifications via multiple communication channels in response to elevated body temperature detection.

It also can identify employees via badge-worn QR codes, validate employee status, perform temperature checks, and grant facility access only upon proper compliance, thus functioning as an access-control system.

Our edge software can be run on many types of edge devices, generally any PC, workstation, or server, and can be run on either Windows or Linux operating systems.

Customer implementation needs will determine the type and location of the edge device relative to the sensor device.

Our edge software can be run on many types of edge devices, generally any PC, workstation, or server.

Customer implementation needs determine the type and location of the edge device relative to the sensor device.

Cloud Software

Our cloud software, which currently runs on the Amazon Web Services platform, communicates bilaterally with one or more devices running our edge software via any suitable internet connection, including via mobile and satellite networks, thereby receiving and storing sensor data from our sensor devices, including metadata such as ROI temperature values and generated ROI temperature alerts, full frame temperature data, and streaming video.

In addition to receiving and storing this data, our cloud software provides a rich dashboard that enables users to simultaneously view live data and video streams from multiple sensor devices as well as related ROI temperature values and ROI temperature alerts.

For customers with multiple facilities distributed geographically, this central monitoring capability provides a new and powerful tool for thermal anomaly detection and management.

Our cloud software is distinguished by its capability to not only transmit metadata and streaming RGB video from the edge to the cloud, but also transmit radiometric image data.

MSAI Connect is our innovative, cloud-based software, that utilizes AI and enables predictive asset reliability and process control in industrial environments.

This technology harnesses the power of continuous data inputs from advanced thermal imaging, acoustic imaging, visible imaging, and vibration sensing hardware solutions, which are strategically placed in customer's facilities to continuously monitor the health and performance of a customer's critical equipment and processes.

MSAI Connect can process and analyze vast amounts of data in real-time, providing actionable insights and predictive analytics.

This enables businesses to proactively identify potential issues, prevent costly downtime, and optimize their operations for maximum efficiency and reliability.

MSAI Connect is a subscription service and is generally contracted for a period of 12 months.

Our MSAI Connect technology has been developed and

continues to be refined primarily for use in three target markets that we believe are at the forefront of the transition to continuous monitoring solutions:

distribution and logistics;

manufacturing;

and oil and gas.

We launched our MSAI Connect cloud-software product suite in the second quarter of 2023.

MSAI Connect, which currently runs on the Amazon Web Services platform, communicates bilaterally with one or more devices running our edge software as well as with other cloud-hosted industrial data repositories via any suitable internet connection.

MSAI Connect thereby receives and stores sensor data from our directly connected sensor devices, including thermal, visible, and acoustic imagers, indirectly connected sensors communicating with our edge software via standard industrial communications protocols, and other cloud-connected industrial sensor data repositories.

In addition to receiving and storing this data, our cloud software provides an intuitive and insight-rich dashboard that enables users to simultaneously view live thermal and visible video streams from multiple sensor devices as well as related data values and alerts for temperature, sound, and vibration.

For customers with multiple facilities distributed geographically, this central monitoring capability provides a new and powerful tool for thermal, acoustic, and vibration anomaly detection and management.

Our cloud software is distinguished by its capability to not only transmit thermal imaging metadata and RGB video from the edge to the cloud, but also transmit radiometric image data.

This radiometric capability enables the full analytical power of infrared cameras to be harnessed in the cloud as well as at the edge.

In particular, this cloud radiometry enables vastly broader AI/ML capabilities, as models can be trained on radiometric data from enormous infrared datasets gathered from every camera connected at the edge.

We expect this “big data” capability to be a significant competitive advantage as we continue to develop transformative computer vision models for all of our customers’ use cases.

Our cloud software can also receive acoustic imager RGB video and metadata streams from our edge software, enabling remote monitoring and analysis of fixed-mount acoustic imagers.

Additionally, our cloud software can receive vibration monitor data from 3 rd -party wireless vibration sensor product solutions.

In particular, this cloud radiometry enables vastly broader AI/ML capabilities, as models can be trained on radiometric data from large infrared datasets gathered from every camera connected at the edge.

We expect this “big data” capability to be a significant advantage as we continue to develop transformative computer vision models for all of our customers’ use cases.

Our cloud software can also receive acoustic imager video and metadata streams from our edge software, enabling remote monitoring and analysis of fixed-mount acoustic imagers.

Additionally, our cloud software can receive vibration monitor data from third-party wireless vibration sensor product solutions.

We believe incorporating acoustic, vibration, thermal, and visible imager data into one ‘single-pane-of-glass’ monitoring solution provides enhanced value for our customers.

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A variation of our cloud software is designed to provide centralized monitoring of employee health and safety across facilities by communicating with edge devices running our elevated body temperature monitoring software, leveraging the same core infrared cloud architecture that underpins our industrial monitoring software.

This software provides robust analytics for measuring and responding to health trends and features AI capabilities, including computer vision modules to automatically track the location of employees who display elevated body temperature.

Product Roadmap and Development

Our sensing platforms integrate multiple sensors into sensor devices paired with edge and cloud software to create solutions that protect critical industrial assets in multiple end markets.

Our product development is therefore focused on improving and expanding our sensor portfolio to include sensors with superior performance, price, or sensing capabilities, improving our sensor device portfolio to incorporate superior form factors with improved performance, including handheld, fixed, and mobile device forms, and improving our edge and cloud software to incorporate superior performance and additional functionality, with a particular focus on utilizing AI to automate and improve industrial anomaly detection and response.

Our product roadmap has expanded significantly over the past several years as the company has transitioned from a transactional device and edge software focus to a comprehensive subscription service approach incorporating devices, edge software, and cloud software in combination to offer unprecedented turn-key infrared technology solutions to numerous industrial challenges.

Our product roadmap now also includes significant development efforts in AI/ML on top of our sensor, device, and software platform, enabled by our revolutionary new infrared solutions approach.

Our Customers

We primarily target four markets globally:

distribution & logistics, oil & gas, manufacturing, and utilities.

For the year ended December 31, 2023, one customer accounted for 44% of total net revenue and no other customer accounted for more than 10% of total net revenue.

Distribution & Logistics

Our customers in the distribution & logistics market are generally engaged in the maintenance and upkeep of facilities and their critical assets.

This includes conveyor systems, transportation and machinery, facilities and building envelopes and electrics, and much more.

This software provides robust analytics, and AI capabilities, including computer vision modules to automatically track the location of employees who display elevated body temperature.

Roadmap and Development

Our hardware roadmap has expanded significantly over the past several years as the Company has transitioned from a transactional device and edge software focus to a comprehensive subscription service approach incorporating devices, edge software, and cloud software in combination to offer turn-key technology solutions to numerous industrial challenges.

Our hardware development is therefore focused on improving and expanding our sensor portfolio to include sensors with superior performance, price, or sensing capabilities.

We also look to improve our sensor device portfolio to incorporate form factors with improved performance, including handheld, fixed, and mobile device forms.

Our software roadmap is focused on improving our edge and cloud software to expand our sensor portfolio, to improve and automate insights from sensor data, to expand sensor insight notifications and response, and to optimize overall architecture improving performance and cost.

Our software development is thus concentrated on the integration of new sensor devices and modalities, both via edge and cloud data streams, the incorporation of new sensor data into sophisticated analytical and AI models to improve industrial anomaly detection, the expansion of anomaly notification methods and channels, the addition of new response protocols via on-premise integrations, communications with industrial operations platforms and continued system architecture refinement.

Market Opportunity

Overall Market Opportunity

We believe our thermal and multi-sensing technology has potential application across many industries.

As the benefits of data-driven infrared multi-sensor technology become more widely accepted, we believe there are significant market opportunities available for our product offerings.

We define our total addressable market (“TAM”) as applications in the distribution and logistics;

manufacturing;

and oil and gas markets in the United States, where we actively engage and maintain customer relationships.

Our TAM calculations are based upon third-party industry and governmental sources of the total number of facilities in the U.S.

of a sufficient size and scale that could utilize thermal and multi-sensing solutions to achieve an expected positive return on investment.

These facilities include, but are not limited to, distribution / fulfillment centers, large commercial and freight airports, industrial mills, oil and gas producing wellheads, and chemical manufacturing plants.

Based on our own commercial experience, and conservative estimates of the number of critical assets, physical lines of sight, and expected reterun on investments of individual use cases per facility, we estimate how many of our multi-sensor sensing systems could be deployed at these facility.

We estimate the TAM in 2024 in our target markets was approximately $10.7 billion, consisting of approximately $7.1 billion in hardware sales and $3.6 billion in software and service sales.

Our current market share in each of our three target markets represents less than 0.1% penetration of the estimated TAM.

Our TAM calculation was based on a thorough bottoms-up analysis of the potential number of externally verified facilities and assets in the United States across our three target markets that could be penetrated by MSAI Edge and MSAI Connect sensor and software solutions.

These calculations were made with several assumptions and limitations in mind, applied consistently across the calculations in all three of the target markets.

Specifically, these assumptions and limitations included only considering:

● facilities located within the United States;

● the current number of externally verifiable facilities, with no assumptions related to the growth or reduction in the number of such facilities in future periods;

● facilities of the type in which we have current use cases with paying customers or have developed products that we are piloting with customers.

Although the numbers of facilities used in our calculation were specific to each of the target markets (e.g., the number of distribution centers for warehouse and logistics or the number of steel mills for manufacturing), the rules for inclusion and exclusion were common to all three target markets.

While we have a long history of selling, implementing and supporting device-only thermal systems into each of the three target markets, there are some risks inherent to selling integrated device and software multi-sensing solutions into each of these target markets.

Please see Part I.

“ Risk Factors — Risks Related to Our Business and Industry ” and “ Risk Factors — Risks Related to Our Products ” for a more detailed discussion relating to the risks that apply to each of our three target markets, particularly as they relate to the adoption of our hardware and software offerings in each of the three target markets.

Distribution and Logistics Market Opportunity

We believe that the distribution and logistics TAM in 2024 was approximately $2.3 billion.

This distribution and logistics TAM includes conveyor system anomaly detection, hotspot detection, process automation, predictive maintenance, and failure avoidance, among other applications, with demand expected to be driven by both financial incentives related to process improvements and increased regulation pertaining to facility safety.

Manufacturing Market Opportunity

We believe that the manufacturing TAM in 2024 was approximately $3.2 billion.

This manufacturing market TAM includes process monitoring and control, predictive maintenance, electrical panel monitoring (sub grid scale), production motor drives, early fire detection, and electrified transport battery monitoring, among other applications.

We expect demand in the manufacturing market to be driven by ongoing commercial adoption of data-driven predictive maintenance and manufacturing processes (e.g., reduced scrap and waste).

Oil and Gas Market Opportunity

We believe that the oil and gas TAM in 2024 was approximately $5.2 billion.

This oil and gas TAM includes gas and liquid leak detection, tank level and flare monitoring, pipeline leak detection, and gas processing safety monitoring, as well as more general manufacturing reliability and predictive maintenance, among other applications.

We expect demand to be stimulated by both increased regulations and the general demand for safe and cost-effective thermal sensing and monitoring solutions.

In particular, the Environmental Protection Agency (the “EPA”) has promulgated regulations (commonly referred to as “Quad-O/Oa”), which have established emission standards and compliance schedules for the control of volatile organic compounds and greenhouse gases, specifically including methane.

These federal regulations are supplemented by regulations promulgated by state-level agencies, such as the Texas Commission on Environmental Quality.

We believe that our fixed-mount, hand-held and drone-mounted systems are sufficient to promote compliance with the Quad O/Oa and state-level standards for methane-leak detection and have sold devices for this specific use case for many years.

In addition, there are multiple established competing technologies for methane-leak detection, specifically including hand-held and drone-based thermal camera devices and hand-held methane “sniffers.” Although we believe that our fixed-mount continuous monitoring solutions are both more efficient and more cost-effective than competing technologies, adoption of the MSAI Connect fixed-mount solutions will require brand awareness, and adoption in the face of established practice.

We primarily target three markets globally:

distribution and logistics;

and manufacturing.

For the year ended December 31, 2024, one customer in the distribution and logistics market accounted for 25% of total net revenue, and two customers in the manufacturing market accounted for 11% and 11% of total net revenue, respectively.

No other customer accounted for more than 10% of total net revenue.

Distribution and Logistics

Our customers in the distribution and logistics market are generally engaged in the maintenance and upkeep of facilities and their critical material-handling equipment assets.

This includes conveyor systems, transportation and machinery, and electrical infrastructure.

Traditionally, target users include mechanical engineers and maintenance and facilities professionals.

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Manufacturing

Our customers in the manufacturing market are numerous and include automotive and vehicle manufacturers, chemical and paper manufacturers, and aerospace and defense manufacturers, among other complex systems manufacturers.

Our customers in the manufacturing market primarily include automotive and vehicle manufacturers, chemical and paper manufacturers, and aerospace and defense manufacturers.

Our target users in the manufacturing market traditionally include mechanical engineers and facilities and maintenance professionals.

As our software solutions continue to evolve, we are increasingly targeting process design, safety, and operational leaders whose priorities involve process waste reduction, enhanced safety protocols, and improved consistency and quality in manufacturing outputs.

Our customers in the utilities market include all organizations involved in electrical power generation, transmission, and distribution.

Target applications include transformer and substation monitoring, power generation monitoring, and electrical line maintenance.

We also target organizations involved in green energy production, including wind and solar power generation.

Traditionally targeting linemen, substation managers, and maintenance professionals, our data driven solutions have expanded this user base to include operations, safety, environmental and reliability leaders.

Our customers in the oil & gas market leverage our technologies for a wide variety of uses, including facilities maintenance, asset performance assessment, tank level monitoring, leak detection, pipeline monitoring, and processing safety.

Our customers in the oil and gas market leverage our technologies for a wide variety of uses, including facilities maintenance, asset performance assessment, tank level monitoring, leak detection, pipeline monitoring, and processing safety.

This market includes commercial businesses as well as some governmental agencies.

Traditionally, our solutions have been sold to maintenance professionals, safety professionals, and engineers.

We believe that our data driven software and all-encompassing solutions will expand users to include operational and manufacturing leaders, as well as other organizational leaders involved in enterprise-level sales.

We believe that our data-driven software and solutions will expand users to include operational and manufacturing leaders, as well as other organizational leaders involved in enterprise-level sales.

Our Competitive Strengths

We believe the following strengths will allow us to maintain and extend our position as a provider of thermal sensing and software solutions.

We believe the following strengths will allow us to maintain and extend our position as a provider of multi-modal sensing and software solutions.

Proprietary SaaS Technology

We have developed a proprietary cloud-based platform, SmartIR, used by our customers to analyze key data points and patterns acquired by our thermal and other sensors.

We have developed what we believe to be a proprietary cloud-based platform, MSAI Connect, used by our customers to analyze key data points and patterns acquired by our thermal and other sensors.

This proprietary platform allows users to identify failure points and patterns to inform safety protocols, enhance predictive maintenance to minimize unplanned downtime, and improve manufacturing processes.

We believe our SaaS platform represents a significant financial opportunity to continue to convert our more than 200 enterprise customers, which we define as Fortune 1000 companies, and equivalent government agencies and academic institutions, with revenues of greater than $5,000, to a recurring revenue model presented by our software solution.

We believe our SaaS platform represents a significant opportunity to continue to convert our legacy enterprise customers (which we define as Fortune 1000 companies, government agencies and academic institutions, with revenues of greater than $5 million), to a recurring revenue model presented by our software solution.

As our platform capabilities expand, we believe our target applications, use cases, and points of differentiation in the marketplace will similarly expand.

High Performance At an Affordable Price

Our thermal imaging and sensing technologies represent one of the best price-to-quality ratios in the industry.

Our thermal devices provide high pixel resolution and accuracy, as well as industry-leading user software, at competitive prices.

This provides us with an ability to penetrate new markets and customers;

solution quality has also promoted customer retention.

We believe our SmartIR software will also provide value to customers that is differentiated within the industry by our turn-key cloud architecture, which enables customers to launch multi-facility thermal image monitoring without any software development work.

Leading Sensor Platform

Our sensor platform utilizes precise device sensor technology coupled with software-defined products that continue to drive low-cost customization.

Our sensor platform utilizes precise device sensor technology coupled with software to drive low-cost customization.

With this combination, we expect to develop new solutions for industry-specific applications, expanding our product offering without requiring significant manufacturing or inventory changes.

Large and Diversified Enterprise Customer Base

We believe that the diversity of our customer base and our established presence in our four target markets gives us several advantages.

First, our customer diversity adds stability to our business.

By having a diverse customer base, we have reduced exposure to individual customers.

Second, we believe our participation across these four target markets provides some level of resilience to market or regulatory changes within a particular end market.

Third, our enterprise customers provide the potential for growth across these customers’ respective global footprints, enabling benefits of scale should we be successful in further penetrating these customers’ accounts.

As an example, an increase in our sales volume may result in a lower cost per device, allowing us to compete more effectively in each of the target markets.

Finally, we believe our early entrance into these markets with our SmartIR SaaS

solution will enable us to gain market- specific expertise, informing our product development decisions so that we may more effectively customize our solutions’ fit for the end market customers’ needs.

We also believe that our early entrance into our target markets affords us an early-mover advantage useful to establish strong relationships globally with key customers in each market.

Proven Management Team

To achieve our vision of making our technology platform widely available to enterprise customers, we have attracted an experienced executive leadership team.

Our company executives have extensive backgrounds in technology, finance, and operations.

Diversified Applications

We believe that the diversity of applications in which our technology can be applied in our three target markets gives us several advantages.

We believe our early entrance into these markets with our MSAI Connect SaaS solution will enable us to gain expertise, informing our product development decisions so that we may more effectively customize our solutions for customers’ needs.

We also believe that our early entrance into our target markets affords us an advantageous opportunity to establish strong relationships globally with key customers in each market.

Our Growth Strategies

Our goal is to increase our market share.

Our goal is to increase our sales by expanding the market for multi-sensor condition-based monitoring across multiple industry sectors.

In order to achieve that goal, key elements of our growth strategy include:

Expand Our Sales and Marketing Presence

To further grow our market share in our target markets, we intend to strategically hire, scaling our dedicated business units to serve each end market.

As our market presence grows through targeted sales and marketing activity, we believe our customer base will grow.

In addition, we are increasingly cross-selling within accounts, accessing new projects and opportunities within accounts where we have a beachhead position and increasing the number of addressable opportunities even within single accounts.

Finally, we work closely with selected Strategic Channel Partners, including Amazon Web Services and Motion Industries, to leverage our commercial efforts into their existing customer base.

Increase Investment in SaaS Solution

Our SmartIR SaaS platform has been sold and is being used by key blue-chip accounts across our core vertical markets.

Our MSAI Connect SaaS platform has been sold and is being used by key blue-chip accounts across our target markets.

We believe the opportunity to cross-sell our value-added SaaS solutions alongside our sensors is an attractive opportunity to grow revenue.

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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 in order to win new and expanded business opportunities.

We believe the high performance of our thermal sensors, in conjunction with the flexibility of our software will allow us to continue providing new solutions to our customers, and further expand the use cases for our systems across various vertical markets.

Grow Wallet Share with Enterprise Customers

We possess an established customer base in each of our four target markets that we believe can be further strengthened as our relationships with customers mature.

As our hardware and device customers also become users of our SmartIR SaaS solution, we expect we will be able to increase our order volumes.

We expect these deep relationships to inform our product development strategy while simultaneously increasing customer retention rates via multi-year agreements.

Sales for these programs are often, but not always, memorialized in multi-year contracts that provide a closer relationship to the customer and increased growth opportunities.

Among our existing enterprise customers are a leading ecommerce company and a leading automaker.

Both customers bought our camera systems during the COVID-19 pandemic for biorisk applications, and while the purchases for biorisk applications have nearly entirely ceased, we have worked closely with both customers to develop further industrial applications for our devices and software technology.

In July 2022, the ecommerce company initiated a paid pilot program for approximately $350,000 for 87 integrated devices and one-year SmartIR subscriptions across 18 of its facilities in the United Kingdom.

We continue to place a priority on innovation and product development to be competitive in our target markets over time.

We believe the high performance of our thermal sensors, in conjunction with the flexibility of our software will allow us to continue providing new solutions to our customers and further expand the use cases for our systems across various target markets.

Grow Wallet Share with Legacy Enterprise Customers

We possess an established legacy enterprise customer base that we believe can be further strengthened as our relationships with customers mature.

As our hardware and device customers also become users of our MSAI Connect SaaS solution, we expect we will be able to increase our order volumes.

We expect these deep relationships to inform our product development strategy while simultaneously increasing customer retention rates.

Among our legacy enterprise customers are a leading ecommerce company and a leading automaker.

In July 2022, the ecommerce company initiated a paid pilot program for approximately $350,000 for 87 integrated devices and one-year MSAI Connect (then known as SmartIR) subscriptions across 18 of its facilities in the United Kingdom.

These subscriptions were each renewed for a minimum of one additional year in the third quarter of 2023.

In the fourth quarter of 2024, the ecommerce company contracted with MSAI to roll out our solutions at 57 additional facilities in the U.K.

and European Union, representing a total of approximately 650 subscriptions (approximately $2.3 million in annual recurring revenue), which implementation is currently in progress.

The ecommerce company has preliminary plans to deploy our devices at approximately 700 total sites by the end of 2025 in order to monitor conveyor belts, rollers, bearings and motors to detect imminent failures and avoid costly maintenance downtime.

We estimate that there is an aggregate annual recurring revenue opportunity of approximately $30 million associated with deploying devices at all of those sites.

We also have a pilot project in place with the automaker customer.

We and the customer have identified at least 16 potential additional applications for which we believe that our technology would provide high- ROI solutions to condition monitoring challenges or productivity improvement opportunities.

In addition to rolling out the pilot project (early fire detection in electric vehicle battery facilities) across multiple facilities, the automaker is currently evaluating the additional applications, with an eye toward broader rollout in 2024 and 2025.

The automaker customer has informed us that it intends to deploy our devices at 12 additional sites before the middle of 2025, primarily to continuously monitor temperature levels of electric vehicle batteries to avoid potential fires.

We estimate that there is an aggregate $2.5 million annual recurring revenue opportunity associated with deploying devices at all of those sites.

The ultimate sale by us of these devices and software subscriptions, the deployment of these devices by each of these customers at these additional sites and their timeline for doing so is subject to risks and uncertainties, including those described in Part I.

Risk Factors of this Annual Report on Form 10-K.

In the first quarter of 2024, the ecommerce company contracted with the Company to roll out our solutions at additional facilities in the U.K.

and European Union.

The ecommerce company has preliminary plans to deploy our devices at additional sites during the course of 2025 and 2026 in order to monitor conveyor belts, rollers, bearings and motors to detect imminent failures and avoid costly maintenance downtime.

In addition to the roll-out of predictive maintenance

solutions in this customer’s fulfillment centers, the Company is working with this customer on applications in multiple other parts of its business system.

These applications include electrical panel monitoring and renewable-energy monitoring.

We also have a pilot project in place with a leading automaker.

We and such customer have identified at least 16 potential additional applications for which we believe our technology would provide high-ROI solutions to condition monitoring challenges or productivity improvement opportunities.

In addition to rolling out the pilot project (early fire detection in electric vehicle battery facilities) across multiple facilities, the automaker is currently evaluating additional applications, with a potential broader rollout in 2025 and beyond.

In 2024, the Company and this customer successfully collaborated to refine the technology for fire detection purposes and utilize targeted person-based review with the objective of eliminating “false positive” readings in the early-fire-detection use case.

Expand Our Distribution Network

While the majority of our sales are direct to customers, we also sell our thermal sensors through a distribution network.

We believe these distributors enable us to reach more end customers in an operationally efficient manner.

We plan to grow our existing network and establish new distribution partnerships in regions where we do not currently have partnerships.

By leveraging these relationships, we believe we will be able to reach more customers faster and rapidly grow our sales.

As accounts grow, we maintain the right to begin selling directly to ensure close relationships with our most strategically and commercially important accounts.

While the majority of our sales are direct to customers, we also sell our thermal sensors through a network of strategic channel partners.

We believe that these partners enable us to reach more end customers in an operationally efficient manner.

We plan to grow our existing network and establish new distribution partnerships in regions and industry verticals where we do not currently have partnerships.

By leveraging these relationships, we believe we will be able to reach more customers faster and grow our sales.

As accounts grow, we maintain the right to begin selling directly to provide for close relationships with our most strategic and commercially important accounts.

Pursue Strategic Acquisitions

We may pursue acquisitions as a means to complement our technology and corporate capabilities should they represent a strategic fit and are consistent with our overall growth strategy.

While there is demand for our products today, we believe such acquisitions could create more expansive use cases for our products or provide greater access to our current target markets or access additional markets.

While there is demand for our products today, we believe such acquisitions could create more expansive use cases for our products, provide greater access to our current target markets, or serve additional applications.

Manufacturing

We leverage our years of expertise in infrared and related sensors and devices to design, develop, source, and manufacture a variety of engineered products.

We have developed a flexible manufacturing strategy combining contract manufacturing for high-volume products and in-house manufacturing for lower- volume specialized products.

For our in-house manufacturing we purchase many subcomponents pre- assembled, including certain detectors, coolers and optics, as well as other sensors.

We have developed a flexible manufacturing strategy combining contract manufacturing with certain third-parties for high-volume products and in-house manufacturing for lower-volume specialized products.

For our in-house manufacturing, we purchase many pre-assembled subcomponents, including certain detectors, coolers and optics, as well as other sensors.

These components are then assembled into finished systems, calibrated and tested at our primary production facility located in Beaumont, Texas.

For both of these manufacturing approaches, we often apply our proprietary calibration process as part of final assembly, in order to achieve superior sensor accuracy than competitors.

The global market for infrared sensing devices is well established with large scale manufacturers, such as Teledyne FLIR and Fortive, selling primarily into military and commercial applications.

Newer and lower-cost manufacturers, both domestic and overseas, have made inroads into the market in recent decades, contributing to a meaningful decline in sensing device prices as well as an expansion of device capabilities.

For both of these manufacturing approaches, we often apply our calibration process as part of final assembly.

The global market for infrared sensing devices is highly competitive and well established with large scale manufacturers, such as Teledyne FLIR and Fortive, selling primarily into military and commercial applications.

Newer and lower-cost manufacturers, both domestic and overseas, have made inroads into the sensor market in recent decades, contributing to a meaningful decline in sensing device prices as well as an expansion of device capabilities.

This in turn has led to new end market applications for which infrared sensing devices are a useful and cost-effective solution.

We believe that our infrared sensing platform is competitive in this current market, as we offer high resolution and accuracy at an attractive price, and we offer differentiated device form factors, including multi-sensor devices.

We believe that our infrared sensors are competitive in this current market, as we offer high resolution and accuracy at an attractive price, and we offer differentiated device form factors, including multi-sensor devices.

While we expect our product costs to continue to decline and our functionality to continue to increase, we have faced and will continue to face competition from existing competitors and new entrants both on a cost and functionality basis.

The market for cloud-based, infrared sensing software is less developed, as larger infrared device manufacturers have historically been more focused on device design and manufacturing than on software development or cloud-based solutions.

The market for turn-key infrared sensing solutions is even less mature, as complete solutions have either been “Build-Your-Own” or installed by integrators.

The market for software and turn-key solutions that support multiple sensor modalities is even less mature, as complete solutions have either been “Build-Your-Own” or installed by integrators.

We have established a differentiated position in the market providing turn-key infrared sensing solutions for specific end markets, including sensors, sensor devices, edge software, and cloud software, along with specific software modules such as integrations or AI/ML, tailor-made for each specific end market.

Although we believe our position as a market leader here is strong and that our continued innovation will support our position, we have faced and will continue to face competition from existing competitors and new companies, as well as the potential for customers to develop their own end-to-end infrared sensing solutions.

We believe our competitive landscape varies somewhat across our four target markets.

In distribution & logistics, we mainly compete with large scale manufacturers of handheld sensor devices that provide on- device thermal image display and basic on-device software.

In manufacturing, we generally compete with handheld sensor devices offered by large scale manufacturers as well as less-common fixed camera solutions installed by industry-specialist consultants and integrators that source and install sensor devices from large scale manufacturers and offer limited software solutions without cloud or AI/ML feature sets.

In utilities, we mainly compete with large scale manufacturers of handheld sensor devices that provide on- device thermal image display and basic on-device software, as well as smaller integrators that offer sensing device payloads for fixed-wing or UAV applications.

In oil & gas, we generally compete with handheld sensor devices offered by large scale manufacturers, with smaller integrators that offer sensing device payloads for fixed-wing or UAV applications, and with fixed camera solutions installed by industry specialists that offer more fully-featured software solutions that sometimes include basic AI/ML capabilities.

believe our technology is class-leading and that our continued innovation will support our position, we have faced and will continue to face competition from existing competitors and new companies, as well as the potential for customers to develop their own end-to-end sensing solutions.

We believe our competitive landscape varies somewhat across our three target markets.

In distribution and logistics, we mainly compete with large scale manufacturers of handheld sensor devices that provide on-device thermal image display and basic on-device software.

In manufacturing, we generally compete with handheld sensor devices offered by large scale manufacturers as well as fixed camera solutions installed by industry-specialist consultants and integrators that source and install sensor devices from large scale manufacturers and offer limited software solutions without cloud or AI/ML feature sets.

In the oil and gas market, we generally compete with handheld sensor devices offered by large scale manufacturers, with smaller integrators that offer sensing device payloads for fixed-wing or UAV applications, and with fixed camera solutions installed by industry specialists that offer more fully featured software solutions that sometimes include basic AI/ML capabilities.

Sales and Marketing

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We maintain a global sales presence and sell directly to the majority of our customers.

Members of our sales team are technical and understand use cases and value drivers across our four core vertical target markets.

While we maintain direct relationships with the majority of our customers, we have also developed a global network of active direct dealers and distributors to sell, install, and support our solutions.

Members of our sales team are technical and understand use cases and value drivers across our three target markets.

While we maintain direct relationships with the majority of our customers, we have also developed a network of active direct dealers and distributors, including our strategic channel partners, to sell, install, and support our solutions.

We collect feedback directly from our customers to generate insights that drive our business and innovation strategies.

We will continue to expand and optimize our dealer network to ensure that we have sufficient geographic coverage across both existing and new markets.

We take a targeted, data-driven marketing approach to each of our four focused markets.

We will continue to expand and optimize our dealer network so that we have sufficient geographic coverage across both existing and new markets.

We take a targeted, data-driven marketing approach to each of our three target markets.

We develop and publish digital content, including blogs, webinars, videos, and other digital solutions to educate potential customers and expand our reach.

We leverage a full technology stack, including a CRM system, marketing automation platforms, and account-based marketing tools to optimize target end user interactions and to drive efficient digital marketing efforts.

We also actively pursue thought-leaderships opportunities to present and speak at market-specific conferences, executive events, trade shows and industry events to further develop our brand and reputation.

We leverage a full technology stack, including a customer relationship management system, marketing automation platforms, and account-based marketing tools to optimize target end user interactions and to drive efficient digital marketing efforts.

We also actively pursue thought-leadership opportunities to present and speak at market-specific conferences, executive events, trade shows and industry events to further develop our brand and reputation.

These opportunities also allow us to showcase our technology and attract additional customer interest.

We also sponsor universities and other non-profit organizations to increase awareness of our technology and demonstrate its capabilities.

Research and Development

We have invested significant resources into research and development of our infrared sensor platform.

Our success has been, and will continue to be, substantially affected by our ability to innovate these new products and technologies to both augment our existing offerings and create new avenues for growth.

We strive to differentiate ourselves from our competition with our R&D capabilities.

We intend to continue to have significant internal R&D expenses in the future to provide a continuing flow of innovative and high- quality products to maintain and enhance our competitive position in each of our business segments.

In addition to these internally funded activities, we may engage in R&D projects that are reimbursed by government agencies or prime contractors pursuant to development contracts we undertake.

We have invested significant resources into research and development of our platform.

We believe that our success has been, and will continue to be, substantially affected by our ability to innovate these new products and technologies to both augment our existing offerings and create new avenues for growth.

We strive to differentiate ourselves from our competition with our research and development capabilities.

We intend to continue to have significant internal research and development expenses in the future to provide a continuing flow of innovative and high-quality products to maintain and enhance our competitive position in each of our business segments.

In addition to these internally funded activities, we may engage in research and development projects that are reimbursed by government agencies or prime contractors pursuant to development contracts we undertake.

Raw Materials

We depend on a number of suppliers in China for certain component parts and equipment containing raw materials, including but not limited to gallium and germanium, used in critical stages of our manufacturing processes.

We use purchase contracts as well as discrete purchase orders to ensure our supply of component parts utilizing raw materials.

Our suppliers are located around the world and can be subject to constraints beyond our control that may limit supply.

We believe our current supply of essential materials is sufficient to meet our needs.

However, shortages have occurred from time to time and could occur again.

Government Regulation

Any new or expanded laws or regulations, shifting approaches in the enforcement of existing laws or regulations, or changes in global, political, regulatory and economic conditions affecting trade, manufacturing, development or investment, could result in additional restrictions on our ability to conduct our business and, in turn, could impact our financial position and results of operations.

For additional information on regulations applicable to our business, see Part I, Item 1A “ Risk Factors — Risks Related to Our Regulatory Compliance.

The laws governing exportation of our thermal imaging technology vary from country to country and product to product.

Exporting our thermal cameras, infrared cameras, or infrared sensors to certain countries may be restricted by the United States

Government’s thermal camera export restrictions and many fall under International Traffic in Arms Regulations (ITAR).

Exporting our thermal cameras, infrared cameras, or infrared sensors to certain countries may be restricted by the United States Government’s thermal camera export restrictions and many fall under International Traffic in Arms Regulations (“ITAR”).

All ITAR items are designated by the U.S.

Department of State.

Some of ICI’s thermal cameras fall under specific Export Control Classification Number (ECCN) codes.

Some of MSAI’s thermal cameras fall under specific Export Control Classification Number (“ECCN”) codes.

ECCN items are governed by the U.S.

Department of Commerce Bureau of Industry and Security.

Likewise, most but not all of ICI’s cameras also have Commodity Jurisdiction (CJ) codes.

Depending on the sensor size and pixel pitch, ICI can export many of its thermal imaging cameras to most non U.S.-embargoed countries without restriction.

Likewise, most but not all of MSAI’s thermal cameras also have Commodity Jurisdiction codes.

We believe that depending on the sensor size and pixel count, MSAI can export many of its thermal imaging cameras to most non-U.S.-embargoed countries (particularly to signatories of the Wassenaar Agreement) without restriction.

Other countries can receive thermal imaging cameras with restrictions and proper licensing and documentation.

We are subject to federal, state and local laws and regulations related to environmental protection and worker health and safety.

For example, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and comparable state laws may impose strict, joint, and several liability without regard to fault or the legality of the original conduct on certain classes of persons that contributed to the release of a hazardous substance into the environment.

These persons include the current and former owners and operators of the site where the hazardous substance release occurred and any company that transported, disposed of, or arranged for the transportation or disposal of the hazardous substance released at the site.

Additionally, the Occupational Safety and Health Act (“OSHA”) and comparable state laws strictly govern the protection of the health and safety of employees.

The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA, and similar state statutes require that we organize and, as necessary, disclose information about hazardous materials used or produced in our operations to various federal, state, and local agencies, as well as to employees.

We may be required to obtain permits and approvals under such laws for our operations, and any failure to obtain or delay in obtaining such permits and approvals could have an adverse impact on our operations, financial position and result of operations.

Intellectual Property

We own and control various intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names, and copyrights.

We are licensed to use certain patents, technology and other intellectual property rights owned and controlled by others.

Similarly, other companies are licensed to use certain patents, technology and other intellectual property rights owned and controlled by us.

The annual royalties received or paid under license agreements are not significant to our overall operations.

Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise.

We do not expect the expiration or termination of these patents, patent applications and license agreements to have a material adverse effect on our business, results of operations or financial condition.

The table below sets out summary information for each patent that we consider to be material to our business, each of which is owned by us.

Scheduled Date of

Type of Patent

System to Adapt An Optical Device To Calculate A Condition Value

United States

Wireless Remote Control To Operate A Radiometric Camera Mounted To An Aerial Vehicle

United States

11,549,827 B1

System And Method For Automated Condition Value Reporting

Machine and Method of Use

United States

Provisional Application

Apparatus For Noninvasive Veterinary Screening And Diagnosis

United States

In addition to our patent portfolio, we assert copyright, and enjoy copyright protection on multiple elements of our intellectual property, including edge and cloud software, product manuals, marketing materials, implementation materials, and training materials.

This copyright protection is further supplemented by extensive know how and proprietary trade secrets.

As of December 31, 2023, we employed a total of 35 people on a full-time basis in the United States.

We employ 16 engineers and technical talent, and we are continuing to look to significantly expand our technical employee count in order to meet our goals.

We do not expect the expiration or termination of any such patents, patent applications and license agreements to have a material adverse effect on our business, results of operations or financial condition.

As of December 31, 2024, we employed a total of 41 people, 36 of whom are employed on a full-time basis, in the United States.

We also engage numerous consultants and contractors to supplement our permanent workforce.

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We believe we have strong and positive relations with our employees.

Our corporate headquarters is located in Beaumont, Texas where we lease approximately 6,380 square feet of office space and 7,320 square feet of warehouse space.

Our office space is leased pursuant to two one-year leases which both expire on December 31,

Our warehouse space is leased pursuant to a one-year lease which expires July 31, 2025.

We expect to be able to extend these leases prior to their expiration on commercially reasonable terms.

Our office space contains engineering, manufacturing, research and development and administrative functions of the Company.

Our warehouse space houses our inventory, stock items and quality control operations.

We believe that our office and warehouse space is adequate for our current needs and, should we need additional space, we believe we will be able to obtain additional space on commercially reasonable terms.

Corporate Information

Prior to the Business Combination, the registrant was a blank check company incorporated as a Delaware corporation on May 14, 2021, originally formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.

In connection with the Merger, SportsMap changed its name to “Infrared Cameras Holdings, Inc.” The registrant subsequently changed its name to MultiSensor AI Holdings, Inc.

In connection with the Merger, Legacy SMAP changed its name to “Infrared Cameras Holdings, Inc.” The registrant subsequently changed its name to MultiSensor AI Holdings, Inc.

on February 9, 2024.

Available Information

We file electronically with the SEC our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information.

Our filings with the U.S.

Securities and Exchange Commission (the “SEC”) are available to the public over the Internet at the SEC’s website at www.sec.gov .

We make available on our website at www.multisensorai.com , free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC.

In accordance with the Exchange Act, we file electronically with the Securities and Exchange Commission (the “SEC”) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information.

Our SEC filings are available to the public on the SEC’s website at www.sec.gov , and we make available on our website at www.multisensorai.com , free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC.

The information on any of our websites is deemed not to be incorporated in this Annual Report on Form 10-K or to be part of this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business