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Item 9A. Controls and Procedures

2025-03-28 compared with 2024-03-29 · 80 added, 1026 removed, 90 unchanged (92% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the existence of the material weaknesses described below.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the preparation of the audited consolidated financial statements for the years ended December 31, 2023 and 2022, we identified material weaknesses in our internal controls over financial reporting.

Specifically, these weaknesses related to having an insufficient number of personnel with an appropriate degree of accounting and internal controls knowledge, experience, and training to appropriately analyze, record and disclose accounting matters commensurate with its accounting and reporting requirements, which resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives.

Management’s Plan to Remediate the Material Weaknesses

With the oversight of our senior management and audit committee, we will continue hiring additional accounting personnel with accounting and internal controls knowledge, experience and training and have implemented improved process level and management review controls with respect to the completeness, accuracy, and validity of complex accounting measurements on a timely basis.

We also have supplemented internal accounting resources with external advisors to assist with performing technical

accounting activities.

Furthermore, we are implementing a process of formalizing procedures to ensure appropriate internal communications between the accounting department and other operating departments necessary to support the internal controls.

The remediation measures are ongoing and are expected to result in future costs for the Company.

While we are implementing a plan to remediate these material weaknesses, we cannot predict the success of such plan or the outcome of our assessment of these plans at this time.

These improvements to our internal control infrastructure are ongoing, including during the preparation of our financial statements as of the end of the period covered by this report.

As such, management has concluded that the remediation initiatives outlined above are not sufficient to fully remediate the material weaknesses in internal control over financial reporting, and will remain insufficient until the applicable controls have operated for an adequate period of time, and further, that through testing, management can conclude that the controls are designed and operating effectively.

We are committed to continuing to improve our internal control processes and will continue to diligently review our financial reporting controls and procedures.

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024 (“Evaluation Date”).

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective as of December 31, 2024.

Management’s Annual Report on Internal Control over Financial Reporting

As discussed elsewhere in this Annual Report on Form 10-K, we completed the Business Combination on December 19, 2023.

Prior to the Business Combination, Legacy SMAP was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more operating businesses.

As a result, Legacy SMAP’s previously existing internal controls are no longer applicable or comprehensive enough as of the assessment date as Legacy SMAP’s liabilities and operations prior to the Business Combination were insignificant compared to those of the consolidated entity post-Business Combination.

The design of our internal control over financial reporting post-Business Combination has required and will continue to require significant time and resources from management and other personnel.

As a result, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of our internal control over financial reporting as of December 31, 2023.

Accordingly, we are excluding management’s report on internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations.

Additionally, our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act or even after we no longer qualify as an “emerging growth company,” if we remain a “low-revenue smaller reporting company” that meets the revenue limits under the definition of a smaller reporting company in Rule 12b-2 of the Exchange Act, until we are no longer a low-revenue smaller reporting company.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”).

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S.

Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect all misstatements.

Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, management has conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013) and SEC guidance on conducting such assessments.

Based on evaluation under these criteria, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2024.

Remediation of Prior Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As previously disclosed in Part II, Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, management determined that the Company’s internal control over financial reporting was not effective as of December 31, 2023 due to the existence of the material weakness in internal control over financial reporting related to having an insufficient number of personnel with an appropriate degree of accounting and internal controls knowledge, experience, and training to appropriately analyze, record and disclose accounting matters commensurate with our accounting and reporting requirements, which resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives.

During 2024, management conducted a remediation plan to address the material weakness described above.

The Company hired additional personnel with the requisite expertise in accounting and internal controls, including individuals with significant experience in financial reporting and compliance.

Additionally, these personnel hired have conducted training for our existing accounting and finance staff to enhance their knowledge and skills in accounting principles, internal controls, and financial reporting.

The Company also developed and implemented new internal control procedures and enhanced existing controls.

During the quarter ended December 31, 2024, our management completed testing of the remediation activities and concluded that the previously identified material weakness was remediated as of December 31, 2024.

Changes in Internal Control Over Financial Reporting

Other than the remediation efforts described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended December 31, 2024.

We implemented a new general ledger accounting and enterprise resource planning system in October 2024.

With the implementation, we have realized certain process efficiencies, and we expect this new system to enhance our financial reporting and analysis capabilities in the future.

The change in our general ledger and enterprise resource planning system was subject to testing and review both before and after the implementation.

Besides the system implementation discussed, we determined that there were no other changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

(a) Disclosure in lieu of reporting on a Current Report on Form 8-K.

Amended and Restated Bylaw s.

On March 25, 2025, the Company’s Board of Directors approved the Company’s Second Amended and Restated Bylaws to clarify, among other things, (i) the procedure for the right of shareholders to bring business before a shareholder meeting, (ii) information to be provided by shareholders who submit proposals at the Company’s annual or special meetings, (iii) requirements for notices of shareholder meetings and (iv) the conduct of business at a shareholder meeting.

The above description of the changes to the Company’s Second Amended and Restated Bylaws is a summary and does not purport to be complete.

It is subject to and qualified in its entirety by reference to such bylaws filed herewith as an exhibit to this annual report.

(b) Insider Trading Arrangements and Policies .

During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “ Rule 10b5-1 trading arrangement” or “ non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

During the quarter ended December 31, 2024, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “ Rule 10b5-1 trading arrangement” or “ non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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Executive Officers and Directors

The following table provides information regarding our executive officers and members of our board of directors (ages as of the date of this Annual Report on Form 10-K):

Director and Chief Executive Officer

Director and President

The following table provides information regarding our executive officers and members of our board of directors as of the date of this Annual Report on Form 10-K:

Position(s) at the Company

Principal Employment

Stuart Flavin III

Director and Interim Chief Executive Officer and President

Robert Nadolny

Chief Financial Officer

Chief Commercial Officer

General Counsel

Stuart V Flavin III

Petros Kitsos

Gary Strahan .

Since the Closing, Gary Strahan has served as a director and the Chief Executive Officer of MSAI.

Strahan served as Legacy ICI’s Chief Executive Officer since its founding in 1995, using his experience in the infrared technology space and non-destructive testing (“NDT”) and other technologies to grow our business into the provider of high-resolution thermal sensing solutions it is today.

Prior to starting Legacy ICI, Mr.

Strahan worked at Mobil Oil from 1989 to 1994 as an Inspection Engineer, Inspection Manager and, eventually, Senior NDT Level III, during which time he established Mobil Oil’s NDT procedures.

From 1994 to 1995, Mr.

Strahan was a Mechanical Integrity Manager at Ameripol Synpol Corporation.

Strahan was a Manufacturer’s Representative for Agema from 1995 to 1998.

He was also a District Manager at FLIR Systems through its merger (now a subsidiary of Teledyne Technologies) in 1998 before leaving FLIR Systems Inc.

in 2000 to work as a Manufacturer’s Representative of Mikron Infrared, Inc.

until Mikron was purchased by LumaSense Technologies, Inc.

Strahan is a veteran of the U.S.

Navy, where he was a Hull Technician and Diver.

He is a Level III Certified Thermographer and attended Lamar University prior to joining the U.S.

He attended UCSD after USN service.

Strahan received certification as a mixed gas saturation diver from the College of Oceaneering and attended Don Boscoe Technical Institute where he was certified in multiple NDT methods including radiography, ultrasonics, magnetic particle, and liquid penetrant inspection.

Strahan is an Authorized Inspector for the NBBI and has had API and AWS certifications.

He currently serves on the ASTM E-20 Committee and SPIE Thermosense Committee.

Strahan is well qualified to serve on the MSAI Board due to having over 30 years of experience with infrared technology and NDT methods, including in his capacity as Legacy ICI’s Chief Executive Officer.

Steven Winch .

Since the Closing, Steven Winch has served as a director and the President of MSAI.

Winch served as Legacy ICI’s President since May 2020.

Since 2014, he has also been the Managing Partner of Villard Capital, LLC, a private equity firm focused on investments in technology and industrial sectors.

Previously, Mr.

Winch was a Managing Director at The Blackstone Group focused on private equity and special situations investing.

At Blackstone, Mr.

Winch sourced, evaluated, and executed direct investment opportunities in both private and public markets.

Before Blackstone, Mr.

Winch was a senior advisor to Cornwall Capital Management LP.

Prior to that, Mr.

Winch worked at Ripplewood Holdings LLC where he sourced, analyzed, and executed direct private equity investments in technology and industrial sectors.

Previously, Mr.

Winch was an Engagement Manager at McKinsey & Company working across a range of industries in the U.S., Europe, Asia, South America, and Australia.

He began his career in the Mergers & Acquisitions group of Salomon Brothers Inc.

He previously served on the board of directors of Keweenaw Land Association, Ltd.

from April 2018 to December 2021.

Winch received an A.B.

from Duke University, where he graduated magna cum laude and was elected Phi Beta Kappa, as well as an M.B.A.

with Distinction from Harvard Business School.

He is a member of the Council on Foreign Relations.

Winch is well qualified to serve on the MSAI’s Board due to his familiarity with our business and his extensive management experience.

Peter Baird .

Since the Closing, Peter Baird has served as Chief Financial Officer of MSAI.

Since August 2020, Mr.

Baird served as Legacy ICI’s Chief Financial Officer, where he has established and managed a range of corporate functions from accounting, treasury and finance, among others.

Prior to joining Legacy ICI, Mr.

Baird worked at 91 Asset Management (formerly Investec Asset Management) as Head of African Private Equity from January 2017 to March 2020, and at Standard Chartered Bank as

a Senior Managing Director and Head of African Private Equity from September 2011 to December 2016.

In both of these roles he managed a team of professionals investing in and managing growth companies.

Prior to this, Mr.

Baird was a Principal at McKinsey & Company, where he worked from September 1995 to June 2006.

During his investing career he has served on and/or chaired more than 25 corporate boards.

He received a Bachelor of Arts degree cum laude with Honors in Economics and Political Science from Bates College, a Master of Arts degree in Quantitative Economics from the University of Cape Town, and a Master of Business Administration degree from the Stanford Graduate School of Business.

At Stanford he was an Arjay Miller Scholar (top 10% of the class) and was also awarded certificates in Public Management and Global Management.

Baird is also a Charted Financial Analyst and is a member of the Council on Foreign Relations.

Steve Guidry .

Since the Closing, Steve Guidry has served as General Counsel of MSAI.

Guidry served as Legacy ICI’s General Counsel since April 2020.

Previously, Mr.

Guidry was a solo practitioner at his own law firm from October 2013 to April 2020 and, prior to that, he was a partner at the law firm of Germer Gertz, LLP from April 2001 to October 2012.

Guidry received an Associate of Applied Science and a Bachelor of Science in Industrial Engineering and Industrial Technology from Lamar University and a Juris Doctor degree from the University of Texas at Austin.

Since the Closing, David Gow has served as a director of MSAI.

Gow previously served as the Chief Executive Officer and a director of SportsMap since its inception until the Business Combination.

In August 2007, Mr.

Gow founded Gow Media, a multi-platform media company with a portfolio of platforms, including ESPN Radio Houston, the SportsMap Radio Network and digital content sites, CultureMap, SportsMap, InnovationMap and AutomotiveMap, and he has continued to serve as its Chairman and CEO since such time.

Prior to Gow Media, between April 2002 to August 2007, Mr.

Gow worked as a management consultant, providing advisory services involving strategic planning, fundraising, financial reviews and identification of new business opportunities for a portfolio of clients with a focus on ecommerce.

From January 1999 through April 2002, Mr.

Gow worked at Ashford.com, first as the CFO, leading a successful IPO, and ultimately as the CEO.

From January 1996 to December 1998, Mr.

Gow was the Director of Corporate Strategy at Compaq Computers, and from August 1993 to January 1996, Mr.

Gow was a consultant at McKinsey & Co.

He received his BA in Economics from Williams College in 1985 and a MPP degree from Harvard University in 1993.

Gow is the father of Lawson Gow, who serves as our Chief Strategy Officer has been a Director since October 18, 2021.

We believe Mr.

Gow is qualified to serve on the MSAI’s Board due to his corporate finance, general management and public company experience.

Since the Closing, Reid Ryan has served as a director of MSAI.

Ryan previously served as a director of SportsMap since October 18, 2021 until the Business Combination.

Ryan became the Founder & CEO of Ryan-Sanders Baseball, Inc., an entity that owns the Round Rock Express, the Triple-A affiliate of the Texas Rangers of Major League Baseball.

Ryan-Sanders Baseball, Inc.

is an ownership group that includes his father, Hall of Fame pitcher Nolan Ryan, his brother, Reese, and former Houston Astros part-owner Don Sanders.

Ryan also serves on the board for Major League Baseball player development license group.

Ryan left Ryan-Sanders to become the president of the Houston Astros and served in this position from 2013 to 2019, which included two trips to the World Series and a World Championship in 2017, and thereafter became Executive Advisor of Business Relations in 2020.

He was the executive producer for a feature length “30-for-30 style” documentary on Nolan Ryan which debuted in 2022.

Ryan also runs a family office that invests in sports tech properties and other sports-related companies.

Ryan is also a former college and professional baseball player.

He attended the University of Texas at Austin before transferring to Texas Christian University, where he finished his collegiate career.

We believe Mr.

Ryan is qualified to serve on the MSAI’s Board due to his general management and sales and marketing experience.

Stuart V Flavin III .

Since the Closing, Stuart V Flavin III has served as a director of MSAI.

Flavin served as the Chief Operating Officer of Healthier Cleaning Innovations from March 2016 to July 2022.

Additionally, Mr.

Flavin served as the Chief Executive Officer from April 2018 to August 2019 and served as the Chief Operating Officer from January 2015 to March 2018 of N12 Technologies, Inc.

Previously, Mr.

Flavin served as the VP of Innovation for P&G’s Global Shave Care business from July 2009 to October 2012, where he focused on innovation strategy, product/technical roadmap planning, and program execution.

Previously, Mr.

Flavin was the VP of Global Operations for the Blades and Razors Business from January 2006 to June 2009.

Prior to this, Mr.

Flavin was a Partner at Mckinsey & Company where he focused on operational excellence across many industrial companies and co-led the Operations Practice.

Flavin served as a director of Healthier Cleaning Innovations from June 2014 to June 2015 and N12 Technologies, Inc.

from October 2012 to August 2019.

Flavin received a B.S.

in Chemical Engineering from the University of Rochester, where he graduated magna cum laude, as well as an M.B.A from Harvard Business School.

Flavin is well qualified to serve on the MSAI’s Board due to his experience in innovation, program management, scaling businesses, and managing global operations.

Director and Senior Advisor

CEO and President of Center for Houston’s Future

Founder and CEO of Ryan-Sanders Baseball, Inc.

Petros Kitsos

Since the Closing, Petros Kitsos has served as a director of MSAI.

Kitsos currently serves as the Managing Principal of TBL Companies, LLC, a strategic services firm, since September 2006, and Co-Founder and Trustee of the KT Family Trust, a private investment trust, since July 2004.

Prior to TBL Companies, LLC, Mr.

Kitsos enjoyed a distinguished 16-year career in investment banking with Citigroup, Salomon Smith Barney, and Salomon Brothers where, among other responsibilities, he served as Head of the Global Defense & Aerospace Group, Head of Western Region Mergers & Acquisitions, and Co-Head of the Los Angeles office.

Kitsos currently serves as a director of Sonnedix Power Holdings Ltd., elected in December 2014, Northrop Grumman Federal Credit Union, elected in November 2018, Maritime Tactical Systems, Inc., elected in September 2021, and St.

Stefanos Greek Orthodox Community, Inc., elected in January 2023.

Previously, Mr.

Kitsos served as a director of PrecisionHawk, Inc.

from September 2016 to April 2018, and Aries I Acquisition Corp.

from February 2021 to July 2021.

As Director of Aries I Acquisition Corp., a publicly traded “SPAC,” he participated in the company’s IPO, and then, participated in the diligence and review of over thirty merger targets.

Kitsos received an A.B.

from Hamilton College, where he was elected Phi Beta Kappa, as well as an M.B.A.

with honors from Harvard Business School.

He also attended St.

Antony’s College, Oxford.

Kitsos is well qualified to serve on the MSAI’s Board due to his extensive strategy and advisory experience in the aerospace, defense, and electronics sectors in the last thirty years.

Margaret Chu .

Since the Closing, Margaret Chu has served as a director of MSAI.

Chu currently serves as the Chief Financial Officer of PaeDae Inc., an advanced media-buying technology platform, since September 2022.

Prior to PaeDae Inc., Ms.

Chu served as the Chief Financial Officer of Vox Media, Inc.

from March 2020 to March 2022.

Prior to that, Ms.

Chu served as an Executive Vice President at Green Pen, LLC from November 2018 to February 2022.

Chu served as a director of Momo Holdings, LLC from December 2016 to October 2018, and FQS Holdings, LLC from January 2017 to October 2018.

Additionally, Ms.

Chu has held non-Director Board Observer positions for Momomilk, LLC, Legendary Pictures, Inc., Dayton Superior Corporation and TransDigm Group.

Chu received a B.A.

from Dartmouth College, where she was awarded the Milton Sims Kramer award, as well as an M.B.A.

from Harvard Business School.

Chu is well qualified to serve on the MSAI’s Board due to her extensive experience overseeing corporate finance, accounting, development and legal departments.

Code of Business Conduct and Ethics

We have a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

A copy of the code is posted on our website at https://investors.multisensorai.com/ .

In addition, we intend to post on our website all disclosures that are required by law or the Exchange rules concerning any amendments to, or waivers from, any provision of the code.

Managing Principal of TBL Companies, LLC

CFO and Executive Advisor of Infillion

Daniel Friedberg

Managing Member of 325 Capital

The remaining information required by this Item will be included in our definitive proxy statement for our 2025 Annual Meeting of Stockholders (the “2025 Proxy Statement”), expected to be filed with the SEC no later than 120 days after December 31, 2024, and is incorporated herein by reference.

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(a)(1) Financial Statements.

The following documents are included on pages F-1 through F-30 attached hereto and are filed as part of this Annual Report on Form 10-K.

The following financial statements are filed as part of this report under Item 8—“Financial Statements and Supplementary Data.”

Index to Consolidated Financial Statements

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2 to Business Combination Agreement, dated September 17, 2023, by and among SportsMap Tech Acquisition Corp., Infrared Cameras Holdings, Inc., and ICH Merger Sub Inc.

Second Amended and Restated Certificate of Incorporation of Infrared Cameras Holdings, Inc.

(n/k/a Multi Sensor AI Holdings, Inc.)

Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Infrared Cameras Holdings, Inc.

(n/k/a Multi Sensor AI Holdings, Inc.).

Amended and Restated Bylaws of Infrared Cameras Holdings, Inc.

(n/k/a Multi Sensor AI Holdings, Inc.)

Amendment to the Amended and Restated Bylaws of Multi Sensor AI Holdings, Inc.

Second Amended and Restated Certificate of Incorporation MultiSensor AI Holdings, Inc.

, as amended through February 12, 2024

Second Amended and Restated Bylaws of MultiSensor AI Holdings, Inc.

Warrant Agreement, dated as of October 18, 2021, by and between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent.

Form of Pre-Funded Warrant and 325 Capital, LLC

Description of Registrant’s Securities

Subscription Agreement, dated December 1, 2023, by and between the Registrant and the parties thereto.

Form of Financing Note

Form of Financing Warrant

Form of Loan Agreement.

Share Transfer Agreement.

Amended and Restated Registration Rights Agreement, dated as of December 19, 2023, by and among Infrared Cameras Holdings, Inc.

and the holders party thereto.

Form of Lock-Up Agreement.

Amended and Restated Employment Agreement among Infrared Cameras Holdings, Inc., Infrared Cameras, Inc., and Gary Strahan.

Amended and Restated Employment Agreement among Infrared Cameras Holdings, Inc., Infrared Cameras, Inc., and Steven Winch.

Amended and Restated Employment Agreement among Infrared Cameras Holdings, Inc., Infrared Cameras, Inc., and Peter Baird.

Form of Restricted Stock Unit Grant Notice and Award Agreement (Deferred RSUs Non-Plan Award).

Amended and Restated 2020 Equity Incentive Plan of Infrared Cameras Holdings, Inc.

Form of Stock Option Agreement (2020 Equity Incentive Plan).

Earnout Waiver Agreement dated March 7, 2024

Lock-Up Waiver Agreement dated March 7, 2024

Subscription Agreement, dated March 31, 2024, by and between MultiSensor AI Holdings, Inc.

and David Gow

Common Stock Purchase Agreement, dated April 16, 2024, between MultiSensor AI Holdings, Inc.

Riley Principal Capital II, LLC

Registration Rights Agreement, dated April 16, 2024 by and between MultiSensor AI Holdings, Inc.

Riley Principal Capital II, LLC

Form of Conversion Agreement re:

Note Conversion Inducement Offer and Notice of Conversion of the Convertible Promissory Note, dated December 19, 2023

Form of Inducement Agreement re:

Note Conversion Inducement Offer and Notice of Conversion of the Convertible Promissory Note, dated December 19, 2023

Form of Note Amendment to the Convertible Promissory Note, dated as of December 19, 2023

Subscription Agreement, effective as of March 31, 2024, by and between MultiSensor AI Holdings, Inc.

and David Gow

Form of Note Amendment to the Convertible Promissory Note, dated as of December 19, 2023

Form of PIPE Lock-Up Agreement

Securities Purchase Agreement, dated June 27, 2024, by and between the Company and 325 Capital, LLC

Registration Rights Agreement, dated July 1, 2024, by and between the Company and 325 Capital, LLC

Voting Agreement, dated July 1, 2024, by and among the Company and certain Key Holders

Placement Agency Agreement, dated June 27, 2024, by and between the Company and Roth Capital Partners, LLC

Consulting Agreement, dated November 26, 2024 by and between Gary Strahan and MultiSensor AI Holdings, Inc.

Infrared Cameras Holdings, Inc.

2 unchanged sentences

Form of Stock Option Grant Notice and Agreement (2023 Incentive Award Plan)

Form of Restricted Stock Unit Grant Notice and Agreement (2023 Incentive Award Plan).

Form of Indemnification and Advancement Agreement between Infrared Cameras Holdings, Inc.

and its directors and officers

Earnout Waiver Agreement dated March 7, 2024

Lock-Up Waiver Agreement dated March 7, 2024

Form of Restricted Stock Unit Grant Notice and Agreement as Amended (2023 Incentive Award Plan)

Amended and Restated 2020 Equity Incentive Plan of Infrared Camera Holdings, Inc.

Form of Stock Option Agreement (2020 Equity Incentive Plan)

Insider Trading Policies and Procedures

List of subsidiaries

Consent of Deloitte & Touche LLP

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

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March 28, 2025

/s/ Gary Strahan

Chief Executive Officer and Director

/s/ Stuart V.

Interim Chief Executive Officer, Interim President and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Gary Strahan

Chief Executive Officer and Director

/s/ Stuart V.

Interim Chief Executive Officer, Interim President and Director

March 28, 2025

(Principal Executive Officer)

/s/ Peter Baird

(Interim Principal Executive Officer)

/s/ Robert Nadolny

Chief Financial Officer

March 28, 2025

Robert Nadolny

(Principal Financial Officer and Principal Accounting Officer)

/s/ Steven Winch

President and Director

March 28, 2025

3 unchanged sentences

March 28, 2025

/s/ Stuart V Flavin III

/s/ Daniel M.

March 28, 2025

Stuart V Flavin III

/s/ Petros Kitsos

3 unchanged sentences

March 28, 2025

MultiSensor AI Holdings, Inc.

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of MultiSensor AI Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MultiSensor AI Holdings, Inc.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, statements of changes in shareholders’ equity, and statements of cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company is developing its customer base and has not completed its efforts to establish a stabilized source of revenue sufficient to cover its expenses.

The Company has suffered net losses, negative cash flows from operations, and negative net working capital;

which raises substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

March 29, 2024

We have served as the Company’s auditor since 2021.

MultiSensor AI Holdings, Inc.

Consolidated Balance Sheets

( Amounts in thousands of U.S.

dollars, except share and per share data )

As of December 31,

Current assets

Cash and cash equivalents

Trade accounts receivable, net of allowances of $ 180 and $ 290 , respectively

Inventories, current

Income taxes receivable

Other current assets

Total current assets

Property, plant and equipment, net

Right-of-use assets, net

Other noncurrent assets

Liabilities and shareholders’ deficit

Current liabilities

Trade accounts payable

Income taxes payable

Accrued expense

Contract liabilities

Line of credit

Convertible notes, current

Related party promissory note

Legacy SMAP promissory note

Right-of-use liabilities, current

Other current liabilities

Total current liabilities

Shareholder promissory note

Contract liabilities, noncurrent

Convertible notes, noncurrent

Deferred tax liabilities, net

Total liabilities

Commitments and contingencies (Note 15)

Shareholders’ equity (deficit)

Common stock, $ 0.0001 par value;

300,000,000 and 7,708,163 shares authorized as of December 31, 2023 and 2022, respectively, and 11,956,823 and 5,292,384 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Additional paid-in capital

Accumulated deficit

Total shareholders’ deficit

Total liabilities and shareholders’ deficit

The accompanying notes are an integral part of these consolidated financial statements.

MultiSensor AI Holdings, Inc.

Consolidated Statements of Operations

( Amounts in thousands of U.S.

dollars, except share and per share data )

Year Ended December 31,

Cost of goods sold (exclusive of depreciation)

Operating expenses:

Selling, general and administrative

Casualty losses, net of recoveries

Total operating expenses

Operating loss

Interest expense

Interest expense, related parties

Change in fair value of convertible notes

Tariff refund

Change in fair value of warrants liabilities

Loss on financing transaction

Other (income) expenses, net

Loss before income taxes

Income tax expense

Weighted-average shares outstanding, basic and diluted

Net loss per share, basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.

MultiSensor AI Holdings, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

( Amounts in thousands of U.S.

dollars, except share data )

Shareholders’

Class A Common Stock

January 1, 2022, as previously reported

Elimination of historical equity

Retroactive application of recapitalization

Adjusted Balance at January 1, 2022

Share-based compensation

Balance at December 31, 2022

Conversion of shareholder promissory note

Conversion of convertible notes

Financing transaction shares

Issuance of common stock

Merger recapitalization (Note 3)

Deferred transaction costs

Share-based compensation

Balance at December 31, 2023

The accompanying notes are an integral part of these consolidated financial statements.

MultiSensor AI Holdings, Inc.

Consolidated Statements of Cash Flows

( Amounts in thousands of U.S.

Year Ended December 31,

Operating Activities

Adjustments to reconcile net loss to net cash:

(used in) provided by operating activities

Allowance for doubtful accounts

Inventories impairment

Non-cash lease expense

Inventory casualty losses

Deferred income tax expense

Share-based compensation

Non-cash PIK interest

(Gain) on sale of equipment

Loss on financing transaction

Change in fair value of warrants liabilities

Change in fair value of convertible notes

Increase (decrease) in cash resulting from changes in:

Trade accounts receivable

Deferred transaction costs

Other current assets

Other noncurrent assets

Trade accounts payable

Income taxes payable

Income taxes receivable

Contract liability

Other current liabilities

Right of use liabilities

Accrued expenses

Other liabilities

Net cash used in operating activities

Investing Activities

Capital expenditures

Proceeds from sale of equipment

Net cash used in investing activities

Financing Activities

Proceeds of First Insurance Funding line of credit

Repayments of First Insurance Funding line of credit

Proceeds of Wells Fargo line of credit

Repayments of Wells Fargo line of credit

Proceeds of B1 Bank line of credit

Repayments of B1 Bank line of credit

Proceeds from SMAP related party promissory note

Proceeds from related party promissory notes

Proceeds from shareholder promissory notes

Repayments on shareholder promissory notes

Proceeds from convertible notes

Proceeds from financing transaction

Merger recapitalization

Net cash provided by financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of the year

Supplemental cash flow information

Interest paid

Income taxes paid

Non-cash investing and financing transactions

Conversion of shareholder promissory note and accrued interests into common stock

Conversion of convertible notes and accrued interest into common stock

Conversion of related party promissory note into convertible note

Conversion of Legacy SMAP related party promissory notes into convertible notes

Transfer of inducement shares in financing transaction

The accompanying notes are an integral part of these consolidated financial statements.

MultiSensor AI Holdings, Inc.

Notes to Consolidated Financial Statements

( Dollars in thousands )

Note 1 — Organization and Business Operations

MultiSensor AI Holdings, Inc.

(“MSAI”, “the Company”, “we” or “our”) and its wholly owned subsidiaries manufacture and distribute multi-sensor systems (hardware and software) for thermographic and other use in a variety of industrial applications.

The Company also provides on-prem and cloud-based software and services, including training, calibration, and repairs for its customers.

The Company’s customers operate in the distribution and logistics, manufacturing, utility and oil and gas sectors.

The Company is domiciled in Delaware and is a C corporation for tax purposes.

Business Prior to the Business Combination

Prior to the Business Combination, the Company as a corporate entity was SportsMap Tech Acquisition Corp.

(“Legacy SMAP”), and the Company’s sponsor was SportsMap, LLC (the “Sponsor”).

The registration statement for Legacy SMAP’s initial public offering (“IPO”) was declared effective on October 18, 2021 (the “Effective Date”).

On October 21, 2021, Legacy SMP consummated the IPO of 11,500,000 units (the “Units” and, with respect to the Common stock included in the Units being offered, the “public shares”) at $ 10.00 per Unit, including the full exercise of the underwriters’ over-allotment of 1,500,000 units, generating gross proceeds to Legacy SMAP of $ 115,000 .

Simultaneously with the consummation of the IPO, Legacy SMAP consummated the private placement of 675,000 Units at a price of $ 10.00 per Unit to the Sponsor and the representative of the underwriters and/or certain of their designees or affiliates, generating gross proceeds to Legacy SMAP of $ 6,750 .

Transaction costs for Legacy SMAP’s IPO amounted to $ 2,823 , consisting of $ 2,300 of underwriting commissions and $ 523 of other offering costs.

Of these transaction costs, $ 2,687 was charged to temporary equity and $ 137 was charged to additional paid-in capital.

All activity for the period from October 21, 2021 (inception) through December 18, 2023 related to the Company’s formation and IPO, subsequent to closing of the IPO, and identifying a target company for an initial business combination, and consummating the Business Combination (described below).

Legacy SMAP generated non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the IPO.

Business Combination Agreement and Related Financing

On December 19, 2023, Legacy SMAP, through its subsidiary ICH Merger Sub Inc.

(“Merger Sub”), and Infrared Cameras Holdings Inc (“Legacy ICI”), all of them Delaware corporations, consummated the closing of the transactions contemplated by the Business Combination Agreement, initially entered on December 5, 2022, by and among Legacy SMAP, Legacy ICI, and Merger Sub (the “Business Combination”).

Pursuant to the terms of the Business Combination Agreement, a merger of Legacy SMAP and Legacy ICI was effected by the merger of Merger Sub with and into Legacy ICI, with Legacy ICI surviving the Merger as a wholly-owned subsidiary of Legacy SMAP.

As a result of the consummation of the Business Combination, Legacy SMAP changed its name from “SportsMap Tech Acquisition Corp.” to “Infrared Cameras Holdings, Inc.” (“ICI”).

In February 2024, ICI changed its name to MultiSensor AI Holdings, Inc.”

Pursuant to the Business Combination Agreement, at the effective time of the Business Combination, (i) each outstanding share of Legacy ICI common stock was converted into the right to receive a number of shares of Company common stock equal to the Exchange Ratio (as defined below), and (ii) each Legacy ICI option, restricted stock unit, restricted stock award that was outstanding immediately prior to the closing of the Business Combination (and by its terms did not terminate upon the closing of the Business Combination) remained outstanding and (x) in the case of options, represented the right to purchase a number of shares of Company common stock equal to the number of shares of Legacy ICI’s common stock subject to such option multiplied by the Exchange Ratio used for Legacy ICI common stock (rounded down to the nearest whole share) at an exercise price per share equal to the exercise price per share for such option divided by the Exchange Ratio (rounded up to the nearest whole cent) and (y) in the case of restricted stock units and restricted stock awards, represented a number of shares of Company common stock equal to the number of shares of Legacy

ICI’s common stock subject to such restricted stock unit or restricted stock award multiplied by the Exchange Ratio (rounded down to the nearest whole share).

The Exchange Ratio was 10.2776 of a share of Company common stock per fully diluted share of Legacy ICI common stock.

On December 19, 2023, the Company received $ 2,137 held in Legacy SMAP’s trust account net of redemptions.

Transaction costs related to the issuance of the trust shares were $ 3,910 .

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

The Company’s consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All intercompany transactions and balances have been eliminated upon consolidation.

The Merger was accounted for as a reverse recapitalization in accordance with Accounting Standards Codification (“ASC”) 805, Business Combination.

As a result of Legacy ICI being the accounting acquirer in the Merger, the financial reports filed with the SEC by the Company subsequent to the Merger are prepared as if ICI is the accounting predecessor of the Company.

The historical operations of Legacy ICI are deemed to be those of the Company.

Thus, the financial statements included reflect (i) the historical operating results of Legacy ICI prior to the Merger;

(ii) the consolidated results of the Company, following the Merger on December 19, 2023;

(iii) the assets and liabilities of Legacy ICI at their historical cost;

and (iv) the Company’s equity structure for all periods presented.

The recapitalization of the number of shares of common stock is reflected retroactively to the earliest period presented and will be utilized for calculating loss per share in all prior periods presented.

Going Concern

These consolidated financial statements have been prepared in accordance with U.S.

GAAP assuming the Company will continue as a going concern.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company is developing its customer base and has not completed its efforts to establish a stabilized source of revenue sufficient to cover its expenses.

The Company has suffered net losses, negative cash flows from operations, and negative net working capital.

The Company expects it may continue to incur losses or limited income in the future.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In response to these conditions, the Company plans to obtain additional liquidity including raising additional funds from investors (in the form of debt, equity or equity-like instruments) and continuing to reduce operating expenses.

However, these plans are subject to market conditions, and are not within the Company’s control, and therefore, cannot be deemed probable.

As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make certain estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Estimates are adjusted to reflect actual experience when necessary.

Significant estimates reflected in these consolidated financial statements include, but are not limited to revenue recognition, useful life of fixed assets, allowance for doubtful accounts receivable, capitalization of internal-use software, share-based compensation, estimation of contingencies and estimation of income taxes.

The Company assesses estimates on an ongoing basis;

however, actual results could materially differ from those estimates.

The Company has 9,131,250 warrants outstanding as of December 31, 2023, that were assumed from SMAP (comprised of 8,625,000 warrants issued in SMAP’s initial public offering and 506,250 warrants issued in a private placement to SMAP’s sponsor concurrently with SMAP’s initial public offering), and 340,250 warrants were issued in connection with the financing transaction consummated concurrently with the Business Combination.

The warrants are accounted in accordance with the guidance contained in ASC 815-40-15-7D.

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

The 9,131,250 warrants outstanding as of December 31, 2023, that were assumed from SMAP, are classified as equity-classified instruments, and the 340,250 warrants that were issued in connection with the financing transaction consummated concurrently with the Business Combination are classified as liability-classified instruments.

Segments and geographical information

Segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) to allocate resources and assess performance.

The CODM reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance.

Accordingly, the Company operates and manages its business as one operating segment.

The following table summarizes revenue based upon the customers country of origin:

United States

International

Total revenue, net

The Company holds 100 % of its assets within the United States.

Revenue Recognition

Revenue is accounted for under ASC 606, Revenue from Contracts with Customers through the following steps:

● Identify the contract with a customer;

● Identify the performance obligations in the contract;

● Determine the transaction price;

● Allocate the transaction price to performance obligations in the contract;

● Recognize revenue when or as the Company satisfies a performance obligation.

Revenue is recognized net of allowances for returns and any sales taxes collected from customers.

Revenue Sources

The Company’s revenues are derived from multiple sources.

The following are descriptions of principal revenue generating activities.

— Product Sales

The Company recognizes revenue from product sales at point of time, at the amount to which it expects to be entitled when control of the products is transferred to its customers.

Control is transferred at Free On Board (“FOB”) Destination.

Payment for products is collected within 30 – 90 days following transfer of control.

Product sales are considered one performance obligation.

— Software as a Service (“SaaS”) and Related Services

The Company sells SaaS subscriptions that comprise access to the cloud platform and technical support and upgrades of the software.

The software subscription is accounted for as service obligation.

The access to the cloud platform has stand-alone functionality and represents one performance obligation, and the technical support and upgrades of the software are considered distinct from another, are not considered critical for the functionality of the software, and are considered a separate stand ready performance obligation.

The Company’s SaaS subscription services are generally contracted for a period of 12 – 36 months.

Annual subscription payments are made in advance, are initially recognized as customer prepayments and revenue is recognized ratably over the subscription period.

— Ancillary Services

Ancillary services derived from on-site inspections, the calibration of infrared cameras, maintenance and training are recognized at point of time when service is provided to the customer.

Shipping and Handling

Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and included in cost of goods sold as incurred.

Transaction Price Allocated to Performance Obligations

The Company allocates the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price (SSP) basis.

Contract Liabilities

Contract liabilities include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment upon the completion of all performance obligations.

Contract liabilities also include customer prepayments consisting of advances from customers related to products and SaaS subscriptions, as well as repair and service agreements, for which the Company has not yet recognized revenue.

Product Warranties

The Company provides a warranty for the repair or replacement of any defective products within one year of purchase.

Estimated future warranty costs are accrued and charged to cost of goods sold in the period that the related revenue is recognized.

These estimates are derived from historical data and trends of product reliability and costs of repairing and replacing defective products.

Accounts Receivable

Accounts receivables are stated at net realizable value.

The allowance for doubtful accounts is determined through an evaluation of the aging of the Company’s accounts receivable balances, and considers such factors as the customer’s creditworthiness, the customer’s payment history and current economic conditions.

A provision is recognized to bad debt expense and the allowance for doubtful accounts for accounts determined to be uncollectible.

Bad debt written-off and any recovery of bad debt write-off is applied to the allowance for doubtful accounts.

Customer Concentration

For the year ended December 31, 2023, one customer accounted for 82 % or $ 2,011 of accounts receivables and one customer accounted for 44 % or $ 2,374 of revenue.

For the year ended December 31, 2022, two customers accounted for 21 % or $ 317 and 10 % or $ 151 , respectively of accounts receivables and two customers accounted for 11 % or $ 799 and 6 %or $ 436 , respectively of revenue.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

The carrying values of cash and cash equivalents approximate their fair values due to the short-term nature of these instruments.

Cash in the Company’s bank accounts may exceed federally insured limits.

Restricted cash, if any, represents amounts that the Company is unable to access for operational purposes.

As of December 31, 2023, and 2022, the Company had no restricted cash.

Offering Costs

The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering”.

Offering costs consist of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are directly related to the IPO.

Offering costs are allocated to the separable financial instruments to be issued in the IPO based on a relative fair value basis, compared to total proceeds received.

Offering costs directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction of equity.

Offering costs for equity contracts that are classified as assets and liabilities are expensed immediately.

Upon closing of the IPO on October 21, 2021, offering costs associated with the common stock and the warrants were charged to temporary equity.

Transaction costs amounted to $ 2,823 , consisting of $ 2,300 of underwriting commissions and $ 523 of other offering costs.

$ 2,686 was all charged to temporary equity and $ 137 was charged to additional paid-in capital.

For the year ended December 31, 2023, the Company incurred transaction costs related to the Business Combination of approximately $ 7,595 which are included as a reduction in APIC on the consolidated statements of changes in shareholders’ equity.

The Company paid $ 3,910 in transaction costs related to legal, banking, and accounting advisory fees at the closing of the Business Combination.

Inventories are carried at the lower of cost or net realizable value and primarily consist of infrared cameras and various other components and parts.

The Company accounts for inventory using the weighted average cost method.

Inventory is evaluated and adjusted for excess or obsolete quantities when conditions exist to indicate that inventories are likely to be in excess of anticipated demand or are obsolete based upon the Company’s assumptions about future demand for its products.

At the end of each quarter and at year-end the Company evaluates its inventory based on i) its current operating plan to estimate the demand of inventories based on market environment, current portfolio of customers and upcoming purchase orders from customers, ii) full count of inventory at year end and 80 % coverage count on a quarterly basis to identify if there are any inventories that are not sold

in the operating business cycle, have slow movement and/or are obsolete, iii) assessing whether the costs of individual line items in inventory are greater than net realizable value and should be impaired.

Inventory is evaluated and adjusted for excess or obsolete quantities when conditions exist to indicate that inventories are likely to be more than anticipated demand or are obsolete based upon the Company’s assumptions about future demand for its products.

On October 8, 2022, the Company incurred a casualty loss.

The Company performed a physical inventory count of all inventories on January 19, 2023, accounting for a casualty loss of $ 1,376 related to a flood in the Beaumont warehouse.

The Company did not identify material count discrepancies between its inventory count and its corresponding inventory/financial accounting records and did not identify any material weakness in controls for inventories as of December 31, 2022.

This amount is offset by insurance recoveries of $ 1,221 , resulting in a net $ 155 of casualty losses, net of recoveries presented on the consolidated statement of operations.

Of the $ 1,221 in insurance recoveries, $ 225 was received in cash in December 2022 and the remaining $ 996 was received in cash in January 2023.At the end of each quarter, the Company reviews short-term and long-term classification of inventories related to infrared cameras, as well as to replacement, maintenance and spare parts.

Using similar analyses and sources of information as for the inventory write down to net realizable value assessment, the Company makes the following determinations:

● The Company classifies as short-term inventories that are expected to be sold in the subsequent twelve months.

● The Company recognizes an inventory write down for inventories that cannot be sold in the market and net realizable value is below cost.

● The Company classifies as long-term inventories the inventories that are not expected to be sold in the following twelve months but for which ones there is an active market, and the Company has not identified any indicator of impairment.

For the year ended December 31, 2023, the Company updated its operating plan and recorded an inventory write down of $ 1,689 , which were charged to costs of goods sold in the Consolidated Statements of Operations, primarily related to products that are not expected to be sold, based on customer demand and current market conditions.

No inventory write down was recognized for the year ended December 31, 2022.

Property, Plant and Equipment

Property, plant, and equipment is recorded at cost and is depreciated on the straight-line basis over its estimated useful life.

Upon retirement or sale, the cost of assets disposed, and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operating income (loss).

Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred.

All property, plant, and equipment is depreciated (to the extent of estimated salvage values) on the straight-line method based on estimated useful lives of the assets as follows:

Estimated Useful Life

25 - 39 years

Computer equipment

Furniture and fixtures

Machinery and equipment

Capitalized Software

The Company capitalizes certain internal and external costs incurred to acquire or create internal use software in the development stage.

Internal costs capitalized are directly attributable to the development of the software.

Capitalized software is included in property, plant and equipment and is amortized over 5 years on the straight-line method once development is complete.

The Company expenses advertising costs as incurred.

Advertising costs were $ 345 and $ 609 for the years ended December 31, 2023, and 2022, respectively.

Long-Lived Assets

The Company reviews the carrying value of property, plant and equipment and other long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable.

If a long-lived asset is tested for recoverability and the undiscounted estimate future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

No impairment was recognized for the years ended December 31, 2023, and 2022.

Leases are accounted under ASC 842, Leases.

The Company’s lease portfolio consists of real estate leases.

Some leases have the option to extend or terminate the lease and the Company recognizes these terms when it is reasonably certain that the option will be exercised.

As a lessee, the Company determines if an arrangement is a lease at commencement.

The Right-of-Use (ROU) lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments related to the lease.

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

We use incremental borrowing rates based on information available at the commencement date to determine the present value of our lease payments.

The Company leases relate to its corporate office and production facilities.

As of December 31, 2023, and 2022, all leases are classified as operating leases.

The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes .

The income tax accounting guidance results in two components of income tax expense:

current and deferred.

Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.

The Company recognizes a net deferred tax asset or liability based on the tax effects of the differences between the book and tax basis of assets and liabilities.

Enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from the change in the net deferred tax asset or liability between periods.

The deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not some portion or all of a deferred tax asset will not be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained.

Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.

The Company does not have any uncertain tax positions that require recognition or measurement in the Company’s consolidated financial statements.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations.

Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

ASC 740, “Income Taxes,” requires the Company to reduce its deferred tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or a portion of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of appropriate character during the periods in which those temporary differences become deductible.

Management considers the weight of available evidence, both positive and negative, including the scheduled reversal of deferred tax assets and liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment.

To the extent the Company believes that it does not meet the test that recovery is more likely than not, it establishes a valuation allowance.

To the extent that the Company establishes a valuation allowance or changes this allowance in a period, it adjusts the tax provision or tax benefit in the consolidated statement of operations.

Management uses its best judgment in determining provisions or benefits for income taxes, and any valuation allowance recorded against previously established deferred tax assets.

The Company has measured the value of deferred tax assets for the year ended December 31, 2023, based on the cumulative weight of

positive and negative evidence that exists as of the date of the financial statements.

Should the cumulative weight of all available positive and negative evidence change in the forecast period, the expectation of realization of deferred tax assets existing as of December 31, 2023, prospectively may change.

As a result, the Company established a valuation allowance based on the weight of available evidence, both positive and negative, including results of recent and current operations and our estimates of future taxable income or loss.

In order to determine the amount of deferred tax assets or liabilities, as well as the valuation allowances, the Company used estimates and assumptions regarding future taxable income and other business considerations.

Changes in these estimates and assumptions, including changes in tax laws and other changes impacting the ability to recognize the underlying deferred tax assets, could require adjustments to the valuation allowances.

Shared-Based Compensation

The Company issues share-based awards to certain employees and non-employees in the form of stock options, which are measured at fair value at the date of grant.

The fair value determined at the grant date and is expensed on a straight-line basis over the vesting period.

The share-based awards are classified as equity.

Share-based compensation expense is included within selling and general administrative expense in the consolidated statements of operations.

The Company estimates grant date fair value using the Black-Scholes-Merton option-pricing model.

The use of a valuation model requires management to make certain assumptions with respect to selected model inputs.

The Company grants stock options at exercise prices determined equal to the fair value of common stock on the date of the grant.

The fair value of the Company’s common stock is based on the Company’s historical financial performance and observable arms-length sales of the Company’s capital stock.

The expected term represents the period that the share-based awards are expected to be outstanding.

The stock option grants are “plain vanilla” and the Company determines the expected term using the simplified method as provided by the Securities and Exchange Commission.

The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.

The risk-free rate for the expected term of the options is based on the U.S.

Treasury yield curve at the date of the grant.

Forfeitures are recognized as they occur (Note 10).

Contingencies

The Company accrues costs relating to litigation claims and other contingent matters when such liabilities become probable and reasonably estimable.

Such estimates may be based on advice from third parties or on management’s judgment, as appropriate.

Revisions to contingent liabilities are reflected in the consolidated statements of operations in the period in which different facts or information become known or circumstances change that affect the Company’s previous judgments with respect to the likelihood or amount of loss.

Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previous estimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known.

In circumstances where the most likely outcome of a contingency can be reasonably estimated, the Company accrues a liability for that amount.

Where the most likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is more likely than others, the low end of the range is accrued.

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

A three-tiered hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value.

This hierarchy requires that the Company use observable market data, when available, and minimize the use of unobservable inputs when determining fair value:

observable inputs such as quoted prices in active markets;

inputs other than the quoted prices in active markets that are observable either directly or indirectly;

unobservable inputs in which there is little or no market data, which requires that the Company develop its own assumptions.

Deferred transaction costs

Deferred transaction costs represent amounts paid for legal, consulting, and other offering expenses in conjunction with the future raising of additional capital to be performed within one year.

These costs are netted against additional paid-in capital after the Merger was complete.

Tariff refund

Tariff refund includes refunds from the U.S.

Customs and Border Protection (“CBP”) resulting from overpayment of customs duties, taxes, and fees.

New Accounting Pronouncements

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

As the Company is a smaller reporting company, ASU 2016-13 is effective for the Company’s annual reporting periods, and interim periods within those years, beginning after December 15, 2022, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements Financial Instruments-Credit Losses (Topic 326).

ASU 2019-04 provides narrow-scope amendments to help apply ASU 2016-13 and is effective with the adoption of ASU 2016-13.

The Company adopted ASU 2016-13 and ASU 2019-04 on January 1, 2023, and it did not have a material impact on its financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update No.

2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures.

The amendments require disclosure of incremental segment information on an annual and interim basis.

The amendments also require companies with a single reportable segment to provide all disclosures required by this amendment and all existing segment disclosures in Accounting Standards Codification 280, Segment Reporting.

The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

The Company does not expect the adoption of the amendments to have a material impact on its financial statements.

In December 2023, the FASB issued Accounting Standards Update No.

2023-09, Income Taxes - Improvements to Income Tax Disclosures.

The amendments require (i) enhanced disclosures in connection with an entity’s effective tax rate reconciliation and (ii) income taxes paid disaggregated by jurisdiction.

The amendments are effective for annual periods beginning after December 15, 2024.

The Company does not expect the adoption of the amendments to have a material impact on its financial statements.

Note 3 — Reverse Recapitalization

On December 19, 2023, the Merger was accounted for as a reverse recapitalization under U.S.

Legacy ICI was the accounting acquirer and Legacy SMAP was the accounting acquiree for financial reporting purposes.

Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Legacy ICI with the Merger being treated as the equivalent of ICI issuing stock for the net assets of Legacy SMAP, accompanied by a recapitalization.

The net assets of Legacy SMAP are stated at historical cost, with no goodwill or other intangible assets recorded.

Operations prior to the Merger are presented as those of Legacy ICI.

The following table reconciles the elements of the Merger to the consolidated statement of cash flows for the year ended December 31, 2023:

Recapitalization and associated transactions

fees to underwriters and advisors

Net cash due to Merger recapitalization

Issuance of Financing notes

Net cash received from Financing transaction and Merger recapitalization

The number of outstanding shares of common stock of the Company as of December 31, 2023, is summarized as follows:

Shares by Type

Number of shares

ICI Class A Common Stock outstanding previous to the Merger

Number of Shares issued at the date of the business combination (Recapitalization)

SMAP Class A Common Stock outstanding previous to the Merger

Redemption of SMAP Class A previous to the Merger

( 1,493,265 )

Total Class A Shares issued to former SMAP shareholders

Number of Basic Share issued at the Merger and Total Common Stock as of December 31, 2023

Pursuant to the terms of the Business Combination Agreement, each Transaction RSU Award immediately prior to the closing of the Business Combination, and which based on their terms did not terminate upon the closing of the Business Combination, remained outstanding.

In the case each Transaction RSU Award, they were converted based on the number of shares of Company common stock equal to the number of shares of Legacy ICI common stock subject to that award, multiplied by the Exchange Ratio.

Class A Common Stock

Pursuant to the Business Combination Agreement, at the effective time of the Merger each outstanding share of Legacy ICI common stock ( 804,194 shares) were converted into common stock of the Company based on the Exchange Ratio described in Note 1.

Under the Business Combination Agreement, the surviving company would have been obligated under certain circumstances to issue 2.4 million shares of common stock following the Business Combination (the “Earnout Shares”).

The Earnout Shares would be issued pro rata to the holders of Legacy ICI common stock prior to the Business Combination, under certain qualifying conditions, if either (a) during the period beginning six months after the closing of the Business Combination and ending on December 31, 2024, the common stock of the Company achieved a market price of $ 12.50 per share for a specified number of days, or the Company consummated a transaction in which its stockholders have the right to receive consideration implying a value of at least $ 12.50 per share, or (b) the Company achieved revenue of $ 68.5 million during the fiscal year ending December 31, 2024.

The earnout provision under the Business Combination Agreement was subsequently cancelled on March 7, 2024.

Financing Transaction

In connection with the Business Combination, a number of purchasers (each, a “Financing Investor”) purchased from the Company an aggregate of $ 6.8 million in convertible promissory notes in connection with the closing of the Business Combination (the “Financing Notes”).

Of the $ 6.8 million in Financing Notes, $ 1.3 million were issued in exchange for cancellation of an equal amount of existing promissory notes of Legacy SMAP (rather than having such notes repaid at the closing of the Business Combination), $ 1.0 million were rolled over from an existing related party promissory note of Legacy ICI (rather than having such note repaid at closing of the Business Combination), and $ 4.5 million were cash proceeds to the combined company.

Each Financing Note will mature on the third anniversary of the closing of the Business Combination (the “Maturity Date”) and is convertible at any time at the Financing Investors’ option at a conversion price of $ 10.00 per share, subject to certain customary adjustments (such shares issuable upon conversion of Financing Notes, the “Conversion Shares”).

Except with the consent of the

holder of the applicable Financing Note (the “Holder”), we may not repay any principal amount of any Financing Note prior to the Maturity Date.

We will pay interest on the aggregate unconverted and then outstanding principal amount of such notes at the rate of 9 % per annum, payable (i) quarterly on January 1, April 1, July 1 and October 1, beginning April 1, 2024, (ii) on each date on which a Holder elects to convert any amount of Financing Notes and (iii) on the Maturity Date (each such date, an “Interest Payment Date”), in cash or, if the Holder elects to receive interest on the Financing Note in the form of shares of our common stock.

If the Holder elects to receive interest in shares of our common stock, such interest shall be payable at a rate of 11 % per annum in duly authorized, validly issued, fully paid and non-assessable shares of our common stock at a volume-weighted average price for the 30 consecutive trading days ending on the trading day immediately prior to the applicable Interest Payment Date (which shall not be less than $ 1.00 ) (such shares payable in lieu of cash interest, the “Interest Shares”).

Failure to pay interest is deemed an event of default and the interest rate shall increase automatically to 15 % per annum until repaid.

As part of the financing transaction, we also issued warrants (the “Financing Warrants”) to the Financing Investors to purchase an aggregate of 340,250 shares of our common stock (such shares issuable upon exercise of the Financing Warrants, the “Financing Warrant Shares”), at an exercise price of $ 11.50 per Financing Warrant Share.

The Financing Warrants were allocated ratably among the Financing Investors in accordance with their respective investment amounts.

The Financing Warrants are exercisable at any time before the fifth anniversary of the closing of the Business Combination.

The Financing Warrants are not subject to any redemption provision, and can be exercised for cash or on a cashless basis at the discretion of the holder.

In addition, in order to induce the Financing Investors’ investments, certain holders of SMAP’s founder shares and stockholders of Legacy ICI transferred, and Legacy ICI issued prior to the closing of the Business Combination for exchange at the Exchange Ratio at Closing, an aggregate of 680,500 shares of our common stock to the Financing Investors at the closing.

Note 4 — Revenue

The following table summarizes the Company’s revenue disaggregated by type of product and service:

Product sales

Software as a service and related services

Ancillary services

Total revenue

In 2023 and 2022, $ 4,646 and $ 6,920 of the Company’s revenues were recognized as point in time and $ 784 and $ 348 revenues were recognized over time, respectively.

Contract Liabilities

Contract liabilities consist of sales of SaaS subscriptions and related services, as well as repair and service agreements, where in most cases, the Company receives prepayments and recognizes revenue over the support term of 12 - 36 months.

The Company classifies these contract liabilities as either current or non- current liabilities based on the expected timing of recognition of related revenue.

The following table summarizes the change in contract liabilities:

Contract liabilities

Balance at January 1, 2022

Revenue recognition

Balance at December 31, 2022

Revenue recognition

Balance at December 31, 2023

Contract liabilities, noncurrent

Remaining performance obligations

As of December 31, 2023, the Company had $ 2,065 in remaining performance obligations, of which $ 1,944 will be completed by the year ended December 31, 2024 , and $ 121 will be completed by the year ended January 31, 2028 .

Accounts Receivables Allowance

The following table summarizes the change in the accounts receivables allowance:

Beginning balance

Reversal of account receivables allowance

Bad debt expense

Ending balance

Note 5 — Property, Plant and Equipment

The following table summarizes our property, plant and equipment:

Computer equipment

Furniture and fixtures

Machinery and equipment

Internal-use software

Property, plant and equipment, gross

accumulated depreciation

Property, plant and equipment, net

Depreciation expenses were $ 872 and $ 561 for the years ended December 31, 2023, and 2022, respectively.

Note 6 — Other Current Assets

The following table summarizes our other current assets:

Prepaid expenses

Other receivables

Total other current assets

As of December 31, 2022, other receivables reflect the amount recoverable by the insurance, related to the damage of inventories in the production facility in Beaumont, Texas as noted in Note 2.

Note 7 — Inventories

The following table summarizes inventories:

Infrared cameras

Replacement, maintenance, and spare parts

Inventories, current

Infrared cameras

Replacement, maintenance, and spare parts

Inventories, noncurrent

Total inventories

For the year ended December 31, 2023, the Company recorded an inventory write down of $ 1,689 , which were charged to costs of goods sold in the Consolidated Statements of Operations, related to products that are not expected to be sold in one year based on customer demand and current market conditions.

No inventory write down was recognized for the year ended December 31, 2022.

The following table summarizes the amount of inventory write-downs to net realizable value recorded for each period (in thousands):

Amount of inventory write-down to net realizable value

Note 8 — Accrued Expense

The following table summarizes accrued expenses:

Professional fees

Salaries and wages

Interest payable

Taxes payable

Total accrued expense

Note 9 — Debt

Wells Fargo Line of Credit

On April 2, 2021, the Company entered into an asset based revolving credit agreement with Wells Fargo Bank, National Association, as amended on June 18, 2021 (the “Credit Agreement”).

The Credit Agreement provided an aggregate revolving credit commitment of $ 15,000 subject to a borrowing base consisting of eligible accounts receivable and inventory.

The Credit Agreement included borrowing capacity available for letters of credit and revolving loans available for working capital and other general corporate purposes.

This Credit Agreement had a maturity date of April 3, 2023.

The interest rate applicable to the Credit Agreement was either (i) the Base Rate, which is the higher of the Prime Rate, the Federal Funds Rate plus 0.5 % and the Daily Floating LIBOR Rate plus 1.0 %, or (ii) LIBOR plus a margin of 2.0 % .

The Company was subjected to a non-use fee of 0.375 % on the daily average unused portion of the commitment under the Credit Agreement.

Obligations under the Credit Agreement were secured (with certain exceptions) by first priority security interests on all of the Company’s assets.

The Credit Agreement permitted voluntary prepayments (without reducing availability for future revolving borrowings) and voluntary commitment reductions at any time, in each case without premium or penalty.

In March and May 2022, the Company borrowed $ 400 and $ 1,000 , respectively and in June 2022, the Company repaid the entire $ 1,400 borrowing.

On July 12, 2022, the Company voluntarily reduced the revolving credit commitment to zero ($ 0 ) and terminated the Credit Agreement.

At the time of the termination, the interest expense was $ 10 and termination fees were $ 51 , which were charged to selling, general and administrative expenses in the Consolidated Statements of Operations.

B1 Bank Line of Credit

On January 22, 2023, the Company entered into an asset-based revolving credit agreement with B1 Bank (the “Line of Credit”).

The Line of Credit provided an aggregate revolving credit commitment of $ 3,000 , subject to a borrowing base consisting of eligible accounts receivable and inventory.

The Line of Credit included borrowing capacity available for letters of credit and revolving loans available for working capital and other general corporate purposes.

The maturity date is January 22, 2024.

The interest rate applicable to the Credit Agreement is 8.5 % and is secured by inventories and cash flows.

In March and June 2023, the Company borrowed $ 300 and $ 600 , respectively.

In December 2023, the Company repaid the entire $ 900 borrowing.

Throughout 2023, the Company paid $ 52 in interest.

Shareholder Promissory Note

On July 14, 2020, the Company issued a promissory note to its majority shareholder in an amount of $ 29,718 (the “Shareholder Promissory Note”).

The Shareholder Promissory Note bore interest at the rate of 0.45 % per annum, with all principal and accrued interest due and payable in full on July 14, 2025.

The Shareholder Promissory Note was unsecured.

Principal and interest payments were made by the Company in cash or in kind prior to maturity.

During the years ended December 31, 2023, and 2022 the Company made principal cash payments of $ 100 and $ 100 , respectively.

The Company received additional proceeds in the amount of $ 200 in 2022.

On December 31, 2022, the principal outstanding balance was $ 18,347 and accrued unpaid interest was $ 224 .

Interest expenses for the years ended December 31, 2023, and 2022 were $ 30 and $ 83 , respectively.

Interest expense is paid-in-kind.

On May 31, 2023, the Company completed the conversion of the outstanding principal and accrued and unpaid interests of the Shareholder Promissory Note into shares of Class A Common Stock.

At the time of conversion, the total face value of the Shareholder Promissory Note was $ 18,501 , comprising $ 18,247 in principal and $ 254 in accrued interest.

In exchange for the contribution of the Shareholder Promissory Note, the Company issued 142,028 shares of its Class A Common Stock to the creditor, in accordance with ASC 405-20-40, “Liabilities - Extinguishments of Liabilities - Derecognition”.

No cash was exchanged as part of this transaction.

Related Party Promissory Notes

On August 9, 2022, the Company borrowed $ 1,000 under an unsecured non-interest-bearing promissory note with a related party to fund short-term working capital needs.

The promissory note shall be payable in full on any future date on which the lender demands repayment On December 19, 2023, in connection with the Business Combination, the promissory note was exchanged for an equal amount of Financing Notes which resulted in loss on the extinguishment of debt of $ 594 recorded under loss on financing transaction within the Consolidated Statements of Operations.

In June 2023, the Company borrowed $ 375 under an unsecured non-interest-bearing promissory note with a related party to fund short-term working capital needs.

The Related Party Promissory Note shall be payable in full on any future date on which the lender

demands repayment.

The Notes have a maturity date of 12 months from the effective date and beared an interest rate of 12 %.

Accrued unpaid interest was $ 25 on December 31, 2023.

On December 8, 2023, the Company borrowed $ 200 under an unsecured non-interest-bearing promissory note with a related party to fund short-term working capital needs.

The Related Party Promissory Note shall be payable in full on any future date on which the lender demands repayment.

Legacy SMAP Related Party Promissory Notes

In April, May and November 2023, Legacy SMAP secured operational working capital of $ 1,524 .

The promissory notes were not interest bearing and were not convertible into any securities of the company.

The promissory notes were to be payable upon consummation of an initial business combination;

provided that the Company has the right to extend the repayment date for up to 12 months thereafter in the event that the minimum cash transaction is not met or would not be met but for such extension.

The minimum cash transaction proceeds were not met at the closing of the Business Combination, and as such, the Company has elected to extend repayment of the promissory notes beyond the closing.

The principal balance may be prepaid at any time.

On December 19, 2023, in connection with the Business Combination, $ 1,324 of the promissory notes was exchanged for an equal amount of financing notes which resulted in loss on the extinguishment of debt of $ 787 recorded under loss on financing transaction within the Consolidated Statements of Operations.

Convertible Notes

In September 2023, August 2023, July 2023, June 2023, May 2023, January 2023 and December 2022, Legacy ICI issued unsecured convertible notes with several accredited private investors in an aggregate principal amount of $ 100 , $ 500 , $ 400 , $ 350 , $ 100 , $ 150 and $ 950 , respectively.

The notes had a maturity date of 6 months from the effective date and beared a paid-in-kind interest rate of 10 % per annum which was increased to 12 % effective on February 15, 2023.

In the event of and prior to the consummation of an initial public offering (“IPO”) or de-SPAC transaction, the unpaid principal balance and accrued interest were to be automatically converted into ICI Class A Common Stock at the imputed price per share of common stock of the IPO, discounted at 50 %.

On December 19, 2023, in connection with the Business Combination, Legacy ICI completed the conversion of the outstanding principal and accrued and unpaid interests of the convertible notes into shares of Class A Common Stock.

At the time of conversion, the total face value of the convertible notes was $ 2,754 , comprising $ 2,550 in principal and $ 204 in accrued interest.

Financing Notes

On December 19, 2023, in connection with the Business Combination, the Company issued the Financing Notes to several accredited private investors in an aggregate principal amount of $ 6,805 , including $ 2,324 of which were issued in exchange for other debt instruments as described above.

Each Financing Note will mature on the third anniversary of the closing of the Business Combination (the “Maturity Date”) and is convertible at any time at the holder’s option at a conversion price of $ 10.00 per share, subject to certain customary adjustments (such shares issuable upon conversion of Financing Notes, the “Conversion Shares”).

Except with the consent of the holder of the applicable Financing Note, the Company may not repay any principal amount of any Financing Note prior to the Maturity Date.

The Company will pay interest on the aggregate unconverted and then outstanding principal amount of such notes at the rate of 9 % per annum, payable (i) quarterly on January 1, April 1, July 1 and October 1, beginning April 1, 2024, (ii) on each date on which a holder elects to convert any amount of Financing Notes and (iii) on the Maturity Date (each such date, an “Interest Payment Date”), in cash or, if the holder elects to receive interest on the Financing Note in the form of shares of the Company’s common stock.

If the Holder elects to receive interest in shares of the Company’s common stock, such interest shall be payable at a rate of 11 % per annum in duly authorized, validly issued, fully paid and non-assessable shares of the Company’s common stock at a volume-weighted average price for the 30 consecutive trading days ending on the trading day immediately prior to the applicable Interest Payment Date (which shall not be less than $ 1.00 ) (such shares payable in lieu of cash interest, the “Interest Shares”).

Failure to pay interest is deemed an event of default and the interest rate shall increase automatically to 15 % per annum until repaid.

Debt Obligations and Schedule Maturities

As of December 31, 2023, aggregate principal repayments of total debt for the next five years were as follows:

Note 10 — Share-Based Compensation

Stock Options

On October 9, 2020, the Company implemented the 2020 Equity Incentive Plan, (the “Plan”) pursuant to which the Company’s Board of Directors may grant stock options to employees and non-employees.

The Plan initially authorized grants to purchase up to 26,500 shares of authorized but unissued Class B non- voting Common Stock of Legacy ICI.

In December 2020, May 2021 and December 2021, the Plan was amended to increase the number of stock options granted for issuance under the Plan by an additional 43,257 , 40,000 and 40,000 shares, respectively.

As of December 31, 2022, the amount of stock options granted was 149,757 shares.

Stock options could be granted under the Plan with an exercise price equal to the share’s fair value at the grant date.

The options vest and become fully exercisable over service periods ranging from two to four years from the date of grant.

The options expire ten years after issuance.

On December 19, 2023, in connection with the Business Combination, which triggered accelerated vesting of all outstanding stock options, resulted in an additional $ 845 share-based compensation expense.

The grant date fair value of each option award is estimated on the date of grant using the Black-Scholes- Merton option-pricing model based on the following weighted average assumptions:

Valuation assumptions:

Exercise price per share

Expected term (in years)

Expected share volatility

Expected dividend yield

Risk free rate

The following table summarizes the Company’s stock option activity during the year ended December 31, 2023 and 2022:

exercise price

remaining term

Balance at January 1, 2022

Balance at December 31, 2022

Exercisable at December 31, 2022

exercise price

remaining term

Balance at January 1, 2023

Balance at December 31, 2023

Exercisable at December 31, 2023

The weighted average grant-date fair value of options granted during the years 2023 and 2022 was $ 33.50 and $ 30.91 , respectively.

110,916 and zero shares were exercised during the years ended December 31, 2023, and 2022, respectively.

Total share-based compensation expense related to stock options recognized in selling, general and administrative expenses in 2023 and 2022 was $ 1,197 and $ 644 , respectively.

At December 31, 2023 and 2022, there was no ne and $ 1,129 , respectively, of total unrecognized compensation cost related to unvested stock options granted under the Plan.

The total fair value of shares vested during the years ended December 31, 2023, and 2022 was $ 1,197 and $ 841 , respectively.

Restricted Stock Units

Prior to the effective time of the Business Combination, the Company granted 1,886,166 Transaction RSU Awards to certain employees.

Each Transaction RSU Award vests on January 1, 2024.

In addition, each Transaction RSU Award is expected to be settled in twelve substantially equal monthly installments starting on the date following the first anniversary of the closing of the Business Combination.

An additional award of restricted stock units is expected to be granted by the Company to certain employees upon the effectiveness of the Form S-8 that will register common stock issuable under the Company’s 2023 incentive award plan, which is expected to occur in 2024.

Presented below is a summary of the status of outstanding RSUs, including showing the vesting status based on the service and criteria.

Average Grant

Date Fair Value

Non-vested at January 1, 2023

Nonvested at December 31, 2023

As of December 31, 2023, there are 1,886,166 RSUs outstanding, all with only service conditions.

None have vested as of December 31, 2023.

All RSUs were assigned a fair value of $ 6.82 , which is based on the fair value of the Company’s common stock on the date of the grant.

Stock compensation expense for Transaction RSU Awards have only service vesting conditions.

Expense will be recognized on a straight-line basis for all RSU awards with only service conditions.

In the event that a RSU grant holder is terminated before the award is fully vested for RSUs granted under the 2023 incentive award plan, the full amount of the unvested portion of the award will be recognized as a forfeiture in the period of termination.

We recognized a total shared based compensation expense related to RSUs of $ 12,864 during the year ended December 31, 2023.

Note 11 — Shareholders Equity

Total authorized capital stock of the Company as of December 31, 2023 is 300,000,000 shares of common stock and 10,000,000 shares of preferred stock.

As of December 31, 2023, there were 11,956,823 shares of common stock issued and outstanding and no shares of preferred stock outstanding.

As of December 31, 2022, there were 5,292,384 shares of Legacy ICI Class A common stock issued and outstanding .

Note 12 — Earnings (loss) per Share

Basic earnings (loss) per share is computed in accordance with ASC 260, Earnings Per Share, by dividing the net loss attributable to holders of common stock by the weighted average shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed by dividing net income by the weighted average shares of common stock outstanding, including the dilutive effects of stock options.

The following table summarizes the computation of basic and diluted earnings (loss) per share:

Since the Company was in a net loss position for the years ended 2023 and 2022, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been antidilutive.

Basic and Diluted Net loss attributable to common stockholders

Weighted average number of shares:

Basic - Common Stock

Dilutive effects, as shown separately below

Unvested Stock Options

Diluted - Common Stock

Basic Net loss per share attributable to common stockholders

Diluted Net loss per share attributable to common stockholders

The diluted earnings (loss) per share is the same as the basic earnings (loss) share for years ended December 31, 2023 and 2022 as all potential common shares including stock options are anti-dilutive and are therefore excluded from the computation of diluted net profit per share.

The table above does not include (i) up to 680,500 shares of new Common Stock that will be issuable upon conversion of $ 6,805 in Financing Notes at a conversion rate of $ 10.00 per share, (ii) up to 2,245,650 shares of new Common stock that may be issuable as interest payments on the Financing Notes, (iii) up to 8,625,000 shares of new Common Stock that will be issuable upon exercise of the Company’s outstanding public warrants at an exercise price of $ 11.50 per share for cash, (iv) up to 2,400,000 Earnout Shares that will be issuable if certain conditions are met (v) up to 506,250 shares of new Common Stock that will be issuable upon exercise of the Company’s outstanding private warrants at an exercise price of $ 11.50 per share, (vi) up to 340,250 shares of new Common Stock that will be issuable upon exercise of the Financing Warrants at an exercise price of $ 11.50 per share for cash, (vii) shares of new Common Stock that will be issuable upon the exercise of Company’s Options, (viii) shares of new Common Stock underlying the Company’s RSU Awards or (ix) shares of new Common Stock that will be available for issuance under the 2023 Incentive Award Plan, which will initially be equal to 12 % of the fully-diluted shares as of the Business Combination (excluding the Earnout Shares and shares payable as interest on the Financing Notes).

Note 13 — Related Party Transactions

Shareholder and Related Party Promissory Notes

The Company leases its corporate office and one production facility from its majority shareholder under three operating lease agreements.

The Company paid the majority shareholder total lease payments $ 163 , for the years ended December 31, 2023, and 2022, under these lease agreements.

Note 14 — Leases

Operating leases

The Company leases consist of operating leases related to corporate offices and production facilities.

Supplemental Consolidated Balance Sheet information for operating leases on December 31, 2023, and 2022, is as follows:

Right-of-use assets, net

Right-of-use liabilities, current

Components of operating lease cost for the twelve months ending December 31, 2023, and 2022:

Components operating lease cost

Operating lease cost

Short-term leases

For the years ended December 31, 2023, and 2022, the Company incurred operating lease expense totaling $ 174 and $ 225 , respectively, and operating lease expense was recognized on a straight-line basis over the term of the lease.

Remaining operating lease term and discounted rates as of December 31, 2023, and 2022, are as follows:

Weighted-average remaining lease term (years)

Weighted-average discount rate

Supplemental cash flow information related to leases for the twelve months ending December 31, 2023, and 2022, is as follows:

Right of use assets obtained in exchange for lease liabilities

Cash paid for amounts included in the measurement of lease liabilities

Cash paid for short term operating leases

Operating lease payments

Maturities of operating lease liabilities for continuing operations under the new lease standard as of December 31, 2023, are as follows:

For the twelve months ending December 31,

Total operating lease payments

imputed interest

Present value of operating lease liabilities

Note 15 — Commitments and Contingencies

Contingencies

Liabilities for loss contingencies arising from claims, earn-outs, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

Legal costs incurred in connection with loss contingencies are expensed as incurred.

In the ordinary course of the business, the Company is subject to periodic legal or administrative proceedings.

As of December 31, 2023, and 2022, the Company was not involved in any material claims or legal actions which, in the opinion of management, the ultimate disposition would have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

Note 16 — Income taxes

The components of the provision for income taxes for the years ended December 31, 2023, and 2022 were as follows:

Total current

Total deferred

Total income tax provision

Deferred Tax Assets:

Interest carryforward

Net operating losses

Financial instruments

Start-up costs

Valuation allowance

Total deferred tax assets

Deferred Tax Liabilities :

Prepaid Expense

Total deferred tax liabilities

Deferred tax (liabilities) assets, net

The total provision for income taxes for the years ended December 31, 2023, and 2022 varies from the federal statutory rate as a result of the following:

Loss before income tax expense

Statutory tax rate

Income tax (benefit) expense at federal statutory rate

Increase (decrease) resulting from:

Permanent differences

State income tax, net of federal benefit

Valuation allowance

Income tax expense

Current income tax expense

Deferred income tax (benefit)

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes.

As a result of the Company’s evaluation of both the positive and negative evidence, the Company determined it does not believe it is more likely than not that its deferred tax assets will be utilized in

the foreseeable future and has recorded a valuation allowance.

For the year ended December 31, 2023, the Company recognized income tax expense because of a true-up on the federal tax payable and interest on late payment of the federal tax payable.

For the year ended December 31, 2022, the Company recognized income tax expense because of a change in valuation allowance.

Changes in the valuation allowance are as follows:

Balance, beginning of the year

Additions to valuation allowance

Balance, end of the year

The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient evidence to support reversal of all or some portion of these allowances.

The Company reported U.S.

net operating loss carryforwards of $ 16,771 and state net operating loss carryforward of $ 22,416 .

For state income tax purposes, the Company has $ 20,218 of net operating losses which are subject to expiration.

The carryforward life for the net operating losses is dependent on the rules for each jurisdiction and therefore the losses are subject to expiration with the earliest year being 2033 and the latest year being 2044.

net operating loss carryforwards of $ 16,771 of federal and $ 2,198 of state NOLs will not expire.

In addition, the Company also had U.S.

interest limitation carryforwards of $ 133 with an indefinite expiration date.

A reconciliation of unrecognized tax benefits is as follows:

Balance, beginning of the year

Balance, end of the year

The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statement of operation and as of December 31, 2023, and 2022, the Company did not accrue interest and penalties.

The Company does not expect its unrecognized tax benefits to change significantly in the next twelve months.

We file income tax returns in the U.S.

as well as in various states and the Company notes that the earliest year open to examination is 2020.

The Company is not currently under examination by any major tax jurisdiction.

Note 17 — Fair Value Measurements

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, earn-outs, and accounts payable where the carrying value approximates fair value due to the short - term nature of each instrument.

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

A three-tiered hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value.

This hierarchy requires that the Company use observable market data, when available, and minimize the use of unobservable inputs when determining fair value:

observable inputs such as quoted prices in active markets;

inputs other than the quoted prices in active markets that are observable either directly or indirectly;

unobservable inputs in which there is little or no market data, which requires that the Company develop its own assumptions.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivables and accounts payables, where the carrying amount approximates fair value due to the short-term nature of each instrument.

The common stock granted as part of the Plan were recorded in equity and classified as Level 3 within the fair value hierarchy.

On December 19, 2023, prior to the closing of the Business Combination, the Board of Directors of Legacy ICI authorized that the shares of common stock which were subject to the Transaction RSU Awards would be delivered in accordance with the terms of the Restricted Stock Unit Agreement.

All Transaction RSU Awards issued were valued using a fair value of $ 6.82 , which was the closing share price of our common stock on that date.

The common stock granted as part of the Plan were recorded in equity and classified as Level 1 within the fair value hierarchy.

The convertible note was valued using a probability-weighted expected return method (“PWERM”) based on the probabilities of different potential outcomes for the note.

The fair value of the convertible note was determined using the following significant unobservable inputs.

Fair Value Assumption – Financing Note

December 31, 2023

Discount rate

Maturity date

The fair value of the Financing Notes as of December 31, 2023 is $ 5,695 and is classified as Level 3 within the fair value hierarchy.

The fair value of the Company’s outstanding warrants as of December 31, 2023 and is classified as Level 1 within the fair value hierarchy.

Fair Value Assumption – Warrants

December 31, 2023

Exercise Price

Maturity date

Note 18 — Subsequent Events

For the consolidated financial statements as of December 31, 2023, the Company has evaluated subsequent events through March 29, 2024, the date the financial statements were available to be issued.

In March 2024, the Company entered into an earnout waiver agreement whereby the Company and other parties thereto agreed to cancel the earnout provision in the Business Combination Agreement referenced in Note 1.

In March 2024, the Company entered into an agreement to waive the lock-up restrictions with respect to 2,146,067 shares of the Company’s common stock which are currently subject to lock-up pursuant to that certain Lock-Up Agreement, dated December 19, 2023, between the Company, SportsMap, LLC, and certain other holders of the Company’s common stock.

The 2,146,067 shares being released from lock-up restrictions are held by certain holders who are not affiliates of the Company.

Without such waiver, these shares would have been subject to lock-up restrictions until June 19, 2024.

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 9A. Controls and Procedures