MultiSensor AI Holdings, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. ​ Table of Contents ​ ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID: No. 34 ) 61 Consolidated Balance Sheets 62 Consolidated Statements of Operations 63 Consolidated Statements of Changes in Shareholders’ Equity 64 Consolidated Statements of Cash Flows 65 Notes to the Consolidated Financial Statements 66 - 83 ​ ​ 60 Table of Contents 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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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 ​ Houston, TX March 28, 2025 ​ We have served as the Company's auditor since 2021. ​ ​ 61 Table of Contents MultiSensor AI Holdings, Inc. Consolidated Balance Sheets ( Amounts in thousands of U.S. dollars, except share and per share data ) ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2024 ​ 2023 Assets ​ ​ Current assets ​ ​ Cash and cash equivalents ​ $ 4,358 ​ $ 1,155 Trade accounts receivable, net of allowances of $ 35 and $ 180 , respectively ​ 838 ​ 2,440 Inventories, current ​ 4,180 ​ 6,930 Other current assets ​ 1,140 ​ 1,988 Total current assets ​ 10,516 ​ 12,513 Property, plant and equipment, net ​ 3,963 ​ 3,084 Right-of-use assets, net ​ 134 ​ 129 Inventories, noncurrent ​ 865 ​ 643 Other noncurrent assets ​ — ​ 3 Total assets ​ $ 15,478 ​ $ 16,372 Liabilities and shareholders’ deficit ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ Accounts payable ​ $ 825 ​ $ 2,630 Income taxes payable ​ 59 ​ 991 Accrued expense ​ 1,095 ​ 3,543 Contract liabilities ​ 483 ​ 1,944 Line of credit ​ — ​ 622 Related party promissory note ​ — ​ 575 Legacy SMAP promissory notes ​ 172 ​ 200 Right-of-use liabilities, current ​ 138 ​ 138 Other current liabilities ​ 245 ​ 114 Total current liabilities ​ 3,017 ​ 10,757 Contract liabilities, noncurrent ​ 83 ​ 121 Convertible notes, noncurrent ​ ​ — ​ ​ 5,695 Warrants ​ ​ 10 ​ ​ 49 Deferred tax liabilities, net ​ 80 ​ 18 Total liabilities ​ $ 3,190 ​ $ 16,640 Commitments and contingencies (Note 15) ​ — ​ — Shareholders’ equity (deficit) ​ ​ ​ ​ Common stock, $ 0.0001 par value; 300,000,000 shares authorized as of December 31, 2024 and 2023 and 30,526,052 and 11,956,823 shares issued and outstanding as of December 31, 2024 and 2023, respectively ​ 3 ​ 1 Additional paid-in capital ​ 66,911 ​ 32,862 Accumulated deficit ​ ( 54,626 ) ​ ( 33,131 ) Total shareholders’ deficit ​ 12,288 ​ ( 268 ) Total liabilities and shareholders’ deficit ​ $ 15,478 ​ $ 16,372 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 62 Table of Contents 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, ​ ​ 2024 ​ 2023 Revenue, net ​ $ 7,402 $ 5,430 Cost of goods sold (exclusive of depreciation) ​ ​ 2,582 ​ ​ 2,297 Inventory impairment ​ 2,272 ​ 1,689 Operating expenses: ​ ​ ​ Selling, general and administrative ​ 15,655 ​ 8,044 Share-based compensation expense ​ ​ 3,382 ​ ​ 14,061 Depreciation ​ 1,140 ​ 872 Loss (gain) on asset disposal ​ ​ 322 ​ ​ ( 56 ) Other Loss ​ 930 ​ — Total operating expenses ​ 21,429 ​ 22,921 Operating loss ​ ( 18,881 ) ​ ( 21,477 ) Interest expense ​ 63 ​ 94 Change in fair value of convertible notes ​ 475 ​ ( 970 ) Tariff refund ​ — ​ ( 2,401 ) Change in fair value of warrants liabilities ​ ​ ( 39 ) ​ ​ ( 195 ) Loss on financing transaction ​ ​ 1,553 ​ ​ 4,043 Other expenses, net ​ 1,027 ​ 12 Loss before income taxes ​ ​ ( 21,960 ) ​ ​ ( 22,060 ) Income tax expense (benefit) ​ ​ ( 465 ) ​ ​ 208 Net loss ​ $ ( 21,495 ) ​ $ ( 22,268 ) Weighted-average shares outstanding, basic and diluted ​ ​ ​ Basic ​ 20,119,161 ​ 6,257,476 Diluted ​ 20,119,161 ​ 6,257,476 Net loss per share, basic and diluted ​ ​ ​ ​ Basic ​ ( 1.07 ) ​ ( 3.56 ) Diluted ​ ( 1.07 ) ​ ( 3.56 ) ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 63 Table of Contents MultiSensor AI Holdings, Inc. Consolidated Statements of Changes in Shareholders’ Equity ( Amounts in thousands of U.S. dollars, except share data ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ Additional ​ Retained ​ Shareholders’ ​ ​ Class A Common Stock ​ Paid- In ​ Earnings ​ Equity ​ Shares Amount Capital (Deficit) (Deficit) Balance at December 31, 2022 5,292,384 ​ $ — ​ $ 2,654 ​ $ ( 10,863 ) ​ $ ( 8,209 ) Net loss — ​ — ​ — ​ ( 22,268 ) ​ ( 22,268 ) Conversion of shareholder promissory note 1,459,700 ​ — ​ 18,501 ​ — ​ 18,501 Conversion of convertible notes 550,486 ​ — ​ 2,054 ​ — ​ 2,054 Financing transaction shares ​ 680,500 ​ ​ — ​ ​ 4,641 ​ ​ — ​ ​ 4,641 Issuance of common stock 282,074 ​ — ​ — ​ — ​ — Merger recapitalization ​ 3,691,679 ​ ​ 1 ​ ​ ( 1,454 ) ​ ​ — ​ ​ ( 1,453 ) Deferred transaction costs — ​ — ​ ( 7,595 ) ​ — ​ ( 7,595 ) Equity-based compensation transactions, net — ​ — ​ 14,061 ​ — ​ 14,061 Balance at December 31, 2023 11,956,823 ​ $ 1 ​ $ 32,862 ​ $ ( 33,131 ) ​ $ ( 268 ) Net loss — ​ — ​ — ​ ( 21,495 ) ​ ( 21,495 ) Conversion of debt ​ 1,442,163 ​ ​ — ​ ​ 7,751 ​ ​ — ​ ​ 7,751 Equity-based compensation transactions, net 186,408 ​ — ​ 3,015 ​ — ​ 3,015 Equity Line of Credit commitment fee 171,821 ​ — ​ 500 ​ — ​ 500 Issuance of common stock 10,166,398 ​ 1 ​ 13,891 ​ — ​ 13,892 Issuance of Pre-funded warrants — ​ — ​ 8,892 ​ — ​ 8,892 Conversion of Pre-funded warrants 6,602,439 ​ 1 ​ — ​ — ​ 1 Balance at December 31, 2024 30,526,052 ​ $ 3 ​ $ 66,911 ​ $ ( 54,626 ) ​ $ 12,288 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 64 Table of Contents MultiSensor AI Holdings, Inc. Consolidated Statements of Cash Flows ( Amounts in thousands of U.S. dollars ) ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 ​ 2023 Operating Activities ​ ​ Net loss ​ $ ( 21,495 ) ​ $ ( 22,268 ) Adjustments to reconcile net loss to net cash: (used in) provided by operating activities ​ ​ ​ ​ Depreciation ​ 1,140 ​ 872 Bad debt expenses ​ 41 ​ 194 Inventory impairment ​ 2,272 ​ 1,689 Non-cash lease expense ​ 154 ​ ( 26 ) Deferred income tax expense (benefit) ​ 62 ​ ( 72 ) Share-based compensation ​ 3,382 ​ 14,061 Non-cash PIK interest ​ — ​ 30 Other (income) expenses, net ​ ​ 1,430 ​ ​ — Loss (Gain) on disposal of equipment ​ ​ 322 ​ ​ ( 18 ) Loss on financing transaction ​ 1,553 ​ 4,043 Change in fair value of warrants liabilities ​ ​ ( 39 ) ​ ​ ( 195 ) Change in fair value of convertible notes ​ 475 ​ ( 970 ) Increase (decrease) in cash resulting from changes in: ​ ​ ​ ​ Trade accounts receivable ​ 1,561 ​ ( 928 ) Deferred transaction costs ​ — ​ ( 1,098 ) Inventories ​ 256 ​ 372 Other current assets ​ 68 ​ 1,145 Other noncurrent assets ​ 3 ​ — Trade accounts payable ​ ( 1,479 ) ​ ( 14 ) Income taxes payable ​ ( 932 ) ​ 480 Contract liability ​ ( 1,461 ) ​ 1,657 Other current liabilities ​ 131 ​ ( 110 ) Right of use liabilities ​ ( 159 ) ​ ( 163 ) Accrued expenses ​ ( 2,814 ) ​ ( 3,343 ) Other noncurrent liabilities ​ ( 38 ) ​ 111 Net cash used in operating activities ​ ( 15,567 ) ​ ( 4,551 ) Investing Activities ​ ​ ​ ​ Capital expenditures ​ ( 2,667 ) ​ ( 1,542 ) Proceeds from sale of equipment ​ ​ — ​ ​ 30 Net cash used in investing activities ​ ( 2,667 ) ​ ( 1,512 ) Financing Activities ​ ​ ​ ​ Proceeds from lines of credit ​ — ​ 1,547 Repayments of lines of credit ​ ( 622 ) ​ ( 925 ) Proceeds from promissory notes ​ ​ — ​ ​ 2,099 Repayments of promissory notes ​ ​ ( 575 ) ​ ​ ( 100 ) Proceeds from issuance of common stock ​ ​ 22,726 ​ ​ 6,287 Proceeds from Equity Line of Credit issuances ​ ​ 58 ​ ​ — Merger recapitalization ​ — ​ ( 2,344 ) Net cash provided by financing activities ​ 21,587 ​ 6,564 Net increase/(decrease) in cash, cash equivalents, and restricted cash equivalents ​ 3,353 ​ 501 Cash, cash equivalents, and restricted cash equivalents beginning of year ​ 1,155 ​ 654 Cash, cash equivalents, and restricted cash equivalents end of the year ​ $ 4,508 ​ $ 1,155 ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents and restricted cash equivalents at end of period ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ 4,358 ​ ​ 1,155 Restricted cash equivalents included in other current assets ​ ​ 150 ​ ​ — Cash, cash equivalents, and restricted cash equivalents end of the year ​ ​ 4,508 ​ ​ 1,155 ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow information ​ ​ ​ ​ Interest paid ​ $ 63 ​ $ 52 Income taxes paid ​ 2,331 ​ 6 ​ ​ ​ ​ ​ ​ ​ Non-cash investing and financing transactions ​ ​ ​ ​ ​ ​ Conversion of promissory notes ​ $ — ​ $ 18,501 Conversion of convertible notes ​ $ 6,170 ​ $ 2,054 Conversion of Legacy SMAP loan into common stock ​ $ 200 ​ $ 1,000 Shares issued for Equity Line of Credit commitment fee ​ $ 500 ​ $ 1,324 Inducement shares from Financing Transaction ​ $ 1,381 ​ $ 4,641 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 65 Table of Contents 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 provide turnkey predictive maintenance and process control solutions, which combine cutting edge imaging and sensing technologies with AI-powered enterprise software. Our software leverages a continuous stream of data from thermal imaging, visible imaging, acoustic imaging, vibration sensing, and laser sensing devices to provide comprehensive, real-time condition monitoring for a customer’s critical assets, processes, and manufactured outputs. Our cloud and edge solutions are deployed by organizations to protect critical assets across a wide range of industries including distribution & logistics, manufacturing, and oil & gas. In tandem with these solutions, we provide various services for our customers including training, calibration, and repair. 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 SMAP 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. 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 66 Table of Contents 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 accompanying consolidated financial statements of the Company and its wholly owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and regulations of the U.S. Securities and Exchange Commission (“SEC”). All intercompany transactions and balances have been eliminated upon consolidation. 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. Reclassifications The Company has reclassified certain prior-year amounts to conform to the current-year presentation. 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’s liquidity has improved with the Public Equity Offering and Private Placement Equity Offering (see Note 11), which both closed in July 2024. However, the Company is still 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 will 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 will continue to pursue obtaining additional liquidity which may include raising additional funds from investors (in the form of debt, equity, or equity-like instruments), reducing operating expenses and increasing revenues. 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 estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results may differ materially from those estimates. Significant estimates reflected in the condensed consolidated financial statements include, but are not limited to revenue recognition, inventory classification, useful life of fixed assets, allowance for credit losses, warranty reserves, amortization of internal-use software, share-based compensation, contingencies and income taxes. Customer Concentration For the twelve months ended December 31, 2024, three customers accounted for 25 %, 11 % and 11 % or $ 1,840 , $ 817 and $ 799 of total net revenue, which is recorded under the entity’s one operating segment. 67 Table of Contents ​ Fair Value 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: ​ Level 1: observable inputs such as quoted prices in active markets; Level 2: inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3: unobservable inputs in which there is little or no market data, which requires that the Company develop its own assumptions. ​ 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 represents amounts that the Company is unable to access for operational purposes. ​ Hardware Warranties The Company provides a warranty for the repair or replacement of any defective hardware 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. ​ Inventory Inventory is stated at the lower of cost and net realizable value (“NRV”). NRV is based upon an estimated average selling price reduced by the estimated costs of disposal. The determination of net realizable value involves certain judgments including estimating average selling prices based on recent sales. The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV. The valuation of inventory requires the Company to evaluate whether inventory held is in excess of future estimated market demand or has become technologically obsolete. The Company believes the risk of technological obsolescence of hardware is not significant, as device technology and functionality is stable and the devices that the Company has in its inventory are deployable with the Company’s integrated solutions offerings. The Company’s excess and obsolescence analysis is therefore focused on assessing the extent to which inventory is in excess of future estimated market demand. The determination of excess inventory is estimated based on a comparison of the quantity and cost of inventory on hand to the Company’s forecast of customer demand, which is dependent on various internal and external factors requiring the use of judgment. The Company evaluates the short-term and long-term classification of hardware and component inventory quarterly using the Company’s forecast of customer demand, which is dependent on various internal and external factors requiring the use of judgment. The Company classifies as short-term inventory as hardware or components that are expected to be sold in the subsequent twelve months. The Company classifies as long-term inventory as hardware or components 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. ​ 68 Table of Contents 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: ​ ​ ​ ​ Assets Estimated Useful Life Vehicles 5 years Buildings 25 - 39 years Computer equipment 3 - 5 years Furniture and fixtures 7 years Machinery and equipment 4 - 7 years Internal use software ​ 5 years ​ Revenue Recognition Revenue is recognized net of any sales taxes collected from customers. 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; and ● Recognize revenue when or as the Company satisfies a performance obligation. ​ Hardware Revenue The Company sells a dynamic range of advanced infrared cameras, optical gas imaging cameras and acoustic imagers, designed and manufactured by us or through various partnerships with other manufacturers. In accordance with the Company’s sales policy, the Company does not accept returns of hardware once sold. Revenue is recognized when control of the hardware is transferred to the customer. Software Revenue MSAI Connect is an innovative, cloud-based, AI-Powered software, that revolutionizes predictive asset reliability and process control in industrial environments. This technology harnesses the power of continuous data inputs from advanced thermal imaging, acoustic imaging, visible imaging, and vibration sensing hardware solutions, which are strategically placed in customer's facilities to continuously monitor the health and performance of a customer's critical equipment and processes. MSAI Connect is a subscriptions service and is generally contracted for a period of 12 months . Annual subscription payments are generally collected in advance and revenue is recognized ratably over the subscription period. MSAI Edge is an “on premises” software. Seamlessly integrating with existing operational systems, MSAI Edge utilizes advanced thermal imaging, acoustic imaging, visible imaging, and vibration sensing hardware solutions strategically deployed throughout facilities. This setup enables continuous monitoring of critical equipment and processes, delivering real-time insights into their health and performance, and is readily integrated into existing operational and business intelligence systems. MSAI Edge is sold as both a term-based software license which generally provides access to the software for a period of 12 months and as a perpetual license. Revenue for the software licenses are recognized upfront upon delivery of the software license. Services The Company performs condition-based monitoring and preventive maintenance inspection services. The Company also performs calibrations and maintenance on hardware for our customers along with training services. Services derived from inspections, calibrations, maintenance and training are recognized at a point in time when service is provided to the client. 69 Table of Contents Contracts with Multiple Performance Obligations Contracts with our customers may include various combinations of hardware, subscriptions and services. Our hardware has significant standalone functionalities and capabilities. Accordingly, hardware is distinct from our subscriptions and services as the customer can benefit from the product without these subscriptions or services and such subscriptions and services are separately identifiable within the contract.. The amount of consideration we expect to receive in exchange for delivering on the order is allocated to each performance obligation based on its relative standalone selling price. We establish standalone selling price using the prices charged for a deliverable when sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price based on our pricing model. As our business offerings evolve over time, we may be required to modify our estimated standalone selling prices, and as a result the timing and classification of our revenue could be affected. Contract Liabilities Contract liabilities also include customer prepayments consisting of advances from customers related to hardware, subscriptions, and services for which the Company has not yet recognized revenue. Software Development Costs Internal-use software includes software developed to deliver our cloud-based subscription offerings to our end-customers. These capitalized costs consist of internal compensation-related costs and external direct costs incurred during the application development stage. Capitalized software development costs is included in property, plant and equipment and is amortized over 5 years on the straight-line method once development is complete. Impairment of 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. ​ Leases Leases are accounted under ASC 842, 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. ​ Share-Based Compensation Compensation expense related to share-based transactions is measured at fair value on the grant date. We recognize share-based compensation expense for awards with only service conditions on a straight-line basis over the requisite service period. We recognize share-based compensation expense for awards with market conditions and awards with performance conditions on a straight-line basis over the requisite service period for each separately vesting portion of the award. We recognize share-based compensation expense for awards with performance conditions when it is probable that the performance condition will be achieved. We account for forfeitures of all share-based payment awards when they occur. Income Taxes 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 70 Table of Contents 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. Loss 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. ​ New Accounting Pronouncements Recently Adopted Accounting Standards In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See Note 18 for further details. Recently Issued Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard may have on our financial statement disclosures. ​ ​ 71 Table of Contents Note 3 — Reverse Recapitalization On December 19, 2023, the Merger was accounted for as a reverse recapitalization under U.S. GAAP. 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 Cash (Trust) ​ $ 17,996 Redemptions ​ ( 16,430 ) Less: fees to underwriters and advisors ​ ( 3,910 ) Net cash due to Merger recapitalization ​ ( 2,344 ) Issuance of Financing notes ​ 4,481 Net cash received from Financing transaction and Merger recapitalization ​ $ 2,137 ​ 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. 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 provision under the Business Combination Agreement was subsequently cancelled on March 7, 2024. ​ ​ Note 4 — Revenue The following table summarizes the Company’s revenue disaggregated by type of product and service: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 Hardware ​ $ 5,694 ​ $ 4,270 Software ​ 1,003 ​ 774 Services ​ 705 ​ 386 Total revenue ​ $ 7,402 ​ $ 5,430 ​ Contract Liabilities Contract liabilities consist of sales of software subscriptions, where in most cases, the Company receives up-front payment and recognizes revenue over the subscription term. The Company classifies these contract liabilities as either current or non- current liabilities based on the expected timing of recognition of related revenue. Current contract liabilities were $ 483 and $ 1,944 and non-current contract liabilities were $ 83 and $ 121 as of December 31, 2024 and December 31, 2023, respectively. The change in contract liabilities is primarily related to additional subscription sales, offset by revenue recognition over the subscription term, which is generally 12-months. ​ 72 Table of Contents Accounts Receivables Allowance The following table summarizes the change in the accounts receivables allowance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 ​ 2023 Beginning balance $ 180 $ 290 Write-off of accounts receivable ​ ( 186 ) ​ ( 304 ) Bad debt expense ​ 41 ​ 194 Ending balance ​ $ 35 ​ $ 180 ​ ​ Note 5 — Property, Plant and Equipment The following table summarizes our property, plant and equipment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 ​ 2023 Vehicles ​ $ 292 $ 354 Buildings ​ — ​ 43 Computer equipment ​ — ​ 25 Furniture and fixtures ​ — ​ 3 Machinery. equipment, and demo ​ 342 ​ 1,404 Internal-use software ​ 5,422 ​ 3,126 Property, plant and equipment, gross ​ $ 6,056 ​ $ 4,955 Less: accumulated depreciation ​ ( 2,093 ) ​ ( 1,871 ) Property, plant and equipment, net ​ $ 3,963 ​ $ 3,084 ​ Depreciation expense was $ 1,140 and $ 872 for the years ended December 31, 2024, and 2023, respectively. During the twelve months ended December 31, 2024, the Company disposed of certain aged or inoperable assets, primarily in the Machinery and equipment category, resulting in a loss on disposal of $ 322 . The related loss is recorded under Loss (gain) on asset disposal within the Consolidated Statements of Operations. ​ ​ Note 6 — Other Current Assets The following table summarizes our other current assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 ​ 2023 Prepaid expenses ​ $ 158 ​ 683 Restricted cash equivalents ​ ​ 150 ​ ​ — Prepaid inventory purchases and deposits ​ ​ 116 $ 1,209 Other receivables ​ 716 ​ 96 Total other current assets ​ $ 1,140 ​ $ 1,988 ​ During the twelve months ended December 31, 2024, the Company recorded a write-down of a deposit of $ 930 with a vendor. In Q3 2024, we determined specific events, including the reorganization of the vendor, which has indicated that the carrying amount of the deposit might not be recoverable or provide future economic benefit to the Company. The related loss is recorded under Other loss within the Condensed Consolidated Statements of Operations. ​ ​ 73 Table of Contents Note 7 — Inventories The following table summarizes inventories: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 ​ ​ ​ ​ ​ ​ ​ Hardware ​ $ 2,553 ​ $ 4,955 Parts and supplies ​ 1,627 ​ 1,975 Inventories, current ​ $ 4,180 ​ $ 6,930 Hardware ​ $ 248 ​ $ 389 Parts and supplies ​ 617 ​ 254 Inventories, noncurrent ​ $ 865 ​ $ 643 Total inventories ​ $ 5,045 ​ $ 7,573 ​ The Company recorded an inventory impairment of $ 2,272 and $ 1,689 for the twelve months ended December 31, 2024 and 2023, respectively. The impairment recorded during the twelve months ended December 31, 2024 was primarily related to thermal cameras specifically designed for medical applications that have been unable to be converted to alternative applications for which there is customer demand. The impairment recorded during the twelve months ended December 31, 2023 was related to temperature reference products that were not expected to be sold based on customer demand and market conditions. ​ ​ ​ Note 8 — Accrued Expense The following table summarizes accrued expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 2023 Salaries, wages, and payroll taxes payable ​ 906 ​ 121 Interest ​ — ​ 70 Professional fees ​ ​ — ​ ​ 3,298 Other ​ 189 ​ 54 Total accrued expense ​ $ 1,095 ​ $ 3,543 ​ ​ Note 9 — Debt Lines of Credit On January 22, 2023, the Company entered into an asset-based revolving credit agreement with B1 Bank. 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 was January 22, 2024. During the first half of 2023 the Company borrowed $ 900 , which was repaid in December 2023. The Line of Credit agreement has since lapsed and has not been renewed. There was no outstanding debt balance associated with the Line of Credit as of both December 31, 2024, and 2023. In December 2023, the Company entered into a line of credit agreement with First Insurance Funding. There was an outstanding balance of $ 622 as of December 31, 2023. During the twelve-month period ended December 31, 2024, the Company fully paid off and closed the line of credit. Promissory Notes In June 2020, the Company issued a promissory note to its majority shareholder in an amount of $ 29,718 . 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 74 Table of Contents 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. In August 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 2022, the Company borrowed $ 200 under an unsecured promissory note with a related party to fund short-term working capital needs. There was an outstanding balance of $ 200 , as of December 31, 2023. The promissory note was fully paid off during Q1 2024, leaving no balance outstanding as of December 31, 2024. In June 2023, the Company borrowed $ 375 under an unsecured promissory note to fund short-term working capital needs. There was an outstanding balance of $ 375 as of December 31, 2023, which was fully paid off during Q3 2024, leaving no balance outstanding as of December 31, 2024. The promissory note incurred $ 59 in interest during the twelve-month period ended December 31, 2024 In December 2023, the Company borrowed $ 200 under an unsecured non-interest-bearing promissory note with Legacy SMAP to fund short-term working capital needs. There was an outstanding balance of $ 200 , as of December 31, 2023. The $ 200 promissory note was converted into shares of Common Stock at a price of $ 3.33 per share. 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 closing. On December 19, 2023, in connection with the Business Combination, $ 1,324 of the promissory notes were 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. As of December 31, 2024, the balance outstanding was $ 172 . Convertible Notes In January 2023, the Company issued unsecured Convertible Notes with several accredited private investors in an aggregate principal amount of $ 150 . The Convertible Notes were converted to equity on December 19, 2023, as part of the Business Combination. 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. There was outstanding balance of $ 5,695 as of December 31, 2023. During the twelve months ending December 31, 2024, $ 6,170 of the Financing Notes were converted into shares of Common Stock for 949,663 shares of Common Stock, which included 41,016 shares to a related party. The Company issued an additional 492,500 shares of Common Stock to the converted principal balance of the Financing Notes which resulted in a loss of $ 1,381 recorded under Loss on Financing Transaction within the Consolidated Statements of Operations. ​ ​ Note 10 — Share-Based Compensation Stock Options On October 9, 2020, the Company implemented the 2020 Equity Incentive Plan, pursuant to which the Company’s Board of Directors may grant stock options to employees and non-employees. Stock options could be granted under the Plan with an exercise price equal to the share’s fair value at the grant date. On December 19, 2023, the Business Combination triggered accelerated vesting of 75 Table of Contents all outstanding stock options. The options expire ten years after issuance. Total share-based compensation expense related to stock options recognized in selling, general and administrative expenses in 2023 was $ 1,197 . 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: ​ ​ ​ ​ ​ ​ ​ 2023 Valuation assumptions: ​ ​ ​ ​ Exercise price per share* ​ $ 7.27 ​ Expected term (in years) ​ 6.0 ​ Expected share volatility ​ 39.14 % Expected dividend yield ​ — ​ Risk free rate ​ 4.12 % *Adjusted for the Exchange Ratio as a result of the Business Combination. ​ During the twelve-months ended December 31, 2024, no option awards were granted and 182,006 option awards were forfeited. As of December 31, 2024, 938,180 option awards remained outstanding with a weighted average exercise price of $ 6.62 . ​ Restricted Stock Units In December 2023, the Company granted 1,886,166 Transaction RSU Awards to certain employees. These 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. In April 2024, the Company granted 1,382,909 Transaction RSU Awards to certain employees upon the effectiveness of the Form S-8. These RSUs were assigned a fair value of $ 2.26 , which is based on the fair value of the Company’s common stock on the date of the grant. Each Transaction RSU Award is to be settled in twelve substantially equal monthly installments starting on the date following the first anniversary of the closing of the Business Combination. In December 2024, the Company settled 100,433 shares net of 171,990 shares withheld to cover taxes. In August 2024, the Company granted 150,000 restricted stock units at a weighted average price of $ 2.17 , which was based on the fair value of the Company’s common stock on the date of the grant. The following table summarizes the Company’s RSU activity during the year ended December 31, 2024 and 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Number ​ Average Grant ​ of shares Date Fair Value Non-vested at January 1, 2023 — ​ $ — Granted 1,886,166 ​ 6.82 Vested — ​ — Forfeited — ​ — Expired — ​ — Nonvested at December 31, 2023 1,886,166 ​ $ 6.82 Granted ​ 1,634,468 ​ 2.25 Vested ​ ( 3,370,634 ) ​ 4.81 Forfeited ​ — ​ — Expired ​ — ​ — Nonvested at December 31, 2024 ​ 150,000 ​ $ 2.17 ​ The Company recognized total share-based compensation expense related to RSUs of $ 3,161 and $ 12,864 for the twelve-month periods ended December 31, 2024 and 2023, respectively, under Share-based compensation expense on the Condensed Consolidated Statements of Operations. Equity Grants During the twelve-month period ended December 31, 2024, the Company granted non-employee directors a total of 101,559 shares at a weighted average price of $ 2.18 . The fair value was based on the Company’s common stock on the date of the grants. The 76 Table of Contents Company recognized a total share-based compensation expense related to Board of Directors equity grants of $ 221 for the twelve-month period ended December 31, 2024 under Share-based compensation expense on the Consolidated Statements of Operations. ​ ​ Note 11 — Shareholders Equity Total authorized capital stock of the Company as of December 31, 2024, is 300,000,000 shares of common stock. As of December 31, 2024, and December 31, 2023, there were 30,526,052 and 11,956,823 shares of common stock issued and outstanding and no shares of preferred stock issued or outstanding, respectively. Equity Line of Credit On April 16, 2024, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, we have the right, in our sole discretion, to sell to B. Riley up to $ 25,000 of shares of the Common Stock (subject to certain limitations contained in the Purchase Agreement), from time to time during the term of the Purchase Agreement through a Market Open Purchase or an Intraday Purchase on any Purchase Date (each term as defined in the Purchase Agreement). Sales of Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley under the Purchase Agreement (such transaction, the “B. Riley Transaction”). The Company evaluated this common stock purchase agreement to determine whether they should be accounted for considering the guidance in ASC 815-40, “Derivatives and Hedging - Contracts on an Entity’s Own Equity” (“ASC 815-40”) and concluded that it is an equity-linked contract that does not qualify for equity classification, and therefore requires fair value accounting as a derivative. The Company has analyzed the terms of the freestanding purchased put right and has concluded that it had insignificant value as of December 31, 2024. Pursuant to the terms of the Purchase Agreement, at the time the Purchase Agreement and the Registration Rights Agreement, as defined below, were signed, the Company issued 171,821 shares of common stock, to B.Riley as consideration for its commitment to purchase shares of the Company’s common stock under the Purchase Agreement. The cost of this on the effective date of the equity line of credit (“ELOC”) was $ 500 and component of Other (Income) Expenses, Net in the accompanying Consolidated Statements of Operations. Under the terms of the Common Stock Purchase Agreement, if the aggregate proceeds received by B. Riley from its resale of the Commitment Shares is less than $ 500 then, upon notice by B. Riley, the Company must pay the difference between $ 500 , and the aggregate proceeds received by B. Riley from its resale of the Commitment Shares. On December 31, 2024, the fair market value of the Commitment Shares was $ 316 . Therefore, the Company’s make-whole obligation was $ 184 , and this amount was recorded in Other Current Liabilities in the accompanying Consolidated Balance Sheets. The change in the fair value of the make-whole obligation is recorded as a component of Other (Income) Expenses, Net in the accompanying Consolidated Statements of Operations. On January 8, 2025, B.Riley notified the Company that it had sold the Commitment Shares, which resolved the liability. Through December 31, 2024, the Company utilized the B. Riley Committed Equity Facility to sell 23,999 shares of Common Stock for cash proceeds totaling $ 58 . Offering costs associated with these transactions were recorded as Other (Income) Expenses, Net in the Consolidated Statements of Operations for the twelve months ended December 31, 2024 and in operating activities in the Consolidated Statements of Cash Flow. Public Equity Offering On July 1, 2024, the Company consummated a public offering (the “Public Offering”) of 6,250,000 shares of common stock, par value $ 0.0001 per share. The common stock was sold at a public offering price of $ 1.60 per share less the underwriting discount. In connection with the Public Offering, the underwriters were granted a 45-day option from the date of the prospectus to purchase up to 937,500 additional shares of Common Stock at the public offering price, less the underwriting discount. On June 28, 2024, the underwriters fully exercised the over-allotment option. Gross proceeds from the Public Offering were $ 11,500 before deducting underwriting discounts, commissions and offering expenses of $ 1,853 . Private Placement Equity Offering On June 27, 2024, the Company entered into a placement agency agreement for the private placement (the “2024 Private Placement”) of (i) 2,772,561 shares of common stock (the “Placement Shares”); and (ii) pre-funded warrants to purchase up to 6,602,439 shares of common stock (the “Pre-Funded Warrants”). The purchase price of the Placement Shares was $ 1.60 per share and the purchase 77 Table of Contents price of each Pre-Funded Warrant was $ 1.5999 . The exercise price for each share of Common Stock issuable upon exercise of the Pre-Funded Warrants is $ 0.0001 per share. The closing of the 2024 Private Placement occurred simultaneously with the closing of the Public Offering on July 1, 2024. Upon the closing of the 2024 Private Placement, the Company entered into a voting agreement, dated as of July 1, 2024, with certain stockholders of the Company representing greater than 50% of the issued and outstanding Common Stock of the Company (prior to the Public Offering and 2024 Private Placement) to support an authorization by the Company’s stockholders for the Company to issue the share of Common Stock underlying the Pre-Funded Warrants in accordance with applicable Nasdaq rules. On August 23, 2024, the proposal was voted upon and approved by our stockholders, and on September 24, 2024, the holders of the pre-funded warrants exercised their warrants in exchange for Common Stock. Gross proceeds from the 2024 Private Placement were $ 15,000 before deducting underwriting discounts, commissions and offering expenses of $ 2,418 . ​ 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. Since the Company was in a net loss position for the years ended 2024 and 2023, 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. The following table summarizes the computation of basic and diluted earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 Numerator: ​ ​ ​ Basic and Diluted Net loss attributable to common stockholders ​ $ ( 21,495 ) ​ $ ( 22,268 ) Denominator: ​ ​ ​ ​ ​ ​ Weighted average number of shares: ​ ​ ​ ​ Basic - Common Stock ​ 20,119,161 ​ 6,257,476 Diluted - Common Stock ​ 20,119,161 ​ 6,257,476 Basic Net loss per share attributable to common stockholders ​ $ ( 1.07 ) ​ $ ( 3.56 ) Diluted Net loss per share attributable to common stockholders ​ $ ( 1.07 ) ​ $ ( 3.56 ) ​ ​ The table above does not include (i) 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, (ii) 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, (iii) up to 340,250 shares of Common Stock that will be issuable upon exercise of the Financing Warrants at an exercise price of $ 11.50 per share for cash, (iv) shares of Common Stock that will be issuable upon the exercise of Company’s Options, (v) 1,728,986 shares of Common Stock underlying the Company’s RSU Awards that were vested at January 1, 2024 but not issued as of December 31, 2024, (vi) 1,267,667 shares of Common Stock underlying the Company’s RSU Awards that were vested at April 1, 2024 but not issued as of December 31, 2024 or (vii) 150,000 RSU awards issued under the 2023 Incentive Award Plan. ​ Note 13 — Related Party Transactions Related Party Promissory Notes Please refer to the discussion in Note 9 regarding promissory notes with related parties. Leases The Company leases its corporate office and one production facility from its majority shareholder under two operating lease agreements. The Company paid the majority shareholder total lease payments $ 105 and $ 163 for the years ended December 31, 2024, and 2023, respectively. ​ 78 Table of Contents 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, 2024, and 2023, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 Assets ​ ​ ​ ​ ​ ​ Right-of-use assets, net ​ $ 134 ​ $ 129 Liabilities ​ ​ ​ ​ ​ Right-of-use liabilities, current ​ ​ 138 ​ 138 ​ Components of operating lease cost for the twelve months ending December 31, 2024, and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 Components operating lease cost ​ ​ ​ ​ Operating lease cost ​ $ 166 ​ $ 134 Short-term leases ​ ​ 30 ​ 40 ​ For the years ended December 31, 2024, and 2023, the Company incurred operating lease expense totaling $ 196 and $ 174 , 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, 2024, and 2023, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 ​ Weighted-average remaining lease term (years) 0.9 ​ 0.9 ​ Weighted-average discount rate 8 % 8 % ​ Supplemental cash flow information related to leases for the twelve months ending December 31, 2024, and 2023, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 Right of use assets obtained in exchange for lease liabilities ​ $ 182 ​ $ 376 Cash paid for amounts included in the measurement of lease liabilities ​ ​ 166 ​ 163 Operating lease payments ​ ​ 30 ​ 40 ​ Maturities of operating lease liabilities for continuing operations are as follows: ​ ​ ​ ​ For the twelve months ending December 31, ​ 2025 ​ $ 138 2026 ​ — 2027 ​ — 2028 ​ — 2029 ​ — Thereafter ​ — Total operating lease payments ​ $ 138 Less: imputed interest ​ — Present value of operating lease liabilities ​ $ 138 ​ ​ 79 Table of Contents 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, 2024, and 2023, the Company was not involved in any material claims or legal actions. ​ Note 16 — Income taxes The components of the provision (benefit) for income taxes for the years ended December 31, 2024, and 2023 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ ( 446 ) ​ $ 272 State ​ ( 80 ) ​ 7 Total current ​ ( 526 ) ​ 279 Deferred: ​ ​ ​ ​ Federal ​ 61 ​ ( 71 ) State ​ — ​ — Total deferred ​ 61 ​ ( 71 ) Total income tax provision ​ $ ( 465 ) ​ $ 208 ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 Deferred Tax Assets: ​ ​ ​ ​ ​ ​ Accruals, Others ​ $ 46 ​ $ 107 Reserves ​ 15 ​ 52 UNICAP & Inventoriable Costs ​ 272 ​ 175 Inventory Impairment ​ ​ 1,612 ​ ​ 1,134 Leases ​ ​ 31 ​ ​ 31 Interest Carryforward ​ ​ 30 ​ ​ 31 Financial Instruments ​ 367 ​ 1,392 Intangibles ​ 265 ​ 982 Other ​ 255 ​ 29 Net Operating Losses ​ ​ 7,109 ​ ​ 3,849 Valuation Allowance ​ ​ ( 9,350 ) ​ ​ ( 7,011 ) Total deferred tax assets ​ $ 652 ​ 771 Deferred Tax Liabilities : ​ ​ ​ ​ ​ ​ Prepaid Expense ​ $ ( 62 ) ​ ( 162 ) Book Tax Depreciation ​ ( 640 ) ​ ( 597 ) Other ​ ​ — ​ ​ — Leases ​ ( 30 ) ​ ( 30 ) Total deferred tax liabilities ​ ( 732 ) ​ ( 789 ) Deferred tax (liabilities) assets, net ​ $ ( 80 ) ​ $ ( 18 ) ​ 80 Table of Contents The total provision (benefit) for income taxes for the years ended December 31, 2024, and 2023 varies from the federal statutory rate as a result of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 Loss before income tax expense ​ $ ( 21,960 ) ​ $ ( 22,060 ) ​ Statutory tax rate ​ 21 % 21 % Income tax expense (benefit) ​ ( 4,612 ) ​ ( 4,633 ) ​ Increase (decrease) resulting from: ​ ​ ​ ​ ​ Permanent Differences ​ 1,681 ​ 2,300 ​ State Income Tax, net of FBOS ​ — ​ ( 177 ) ​ Movement in receivables ​ ​ ( 619 ) ​ ​ — ​ Valuation Allowance ​ ​ 2,338 ​ ​ 3,428 ​ Deferred Adjustment ​ 665 ​ — ​ Other, net ​ 82 ​ ( 710 ) ​ Income tax expense (benefit) ​ ( 465 ) ​ 208 ​ Current income tax expense (benefit) ​ ( 526 ) ​ 279 ​ Deferred income tax (benefit) ​ 61 ​ ( 71 ) ​ Total ​ $ ( 465 ) ​ $ 208 ​ ​ 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, 2024, the Company recognized an income tax benefit primarily driven by federal tax refunds. 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. During 2024, the Company determined that it experienced an ownership change as defined under Internal Revenue Code Section 382. The result of the ownership change is subjecting tax attributes to an annual limitation which includes the utilization of the Company's net operating losses. As a result of the merger with Legacy SMAP, the Company acquired a federal net operating loss tax attribute. These net operating losses are fully limited under section 382. The Company will continue to monitor ownership changes throughout future periods. Changes in the valuation allowance are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 Balance, beginning of the year ​ $ 7,011 ​ $ 3,583 Additions to valuation allowance ​ ​ 2,339 ​ 3,428 Balance, end of the year ​ ​ 9,350 ​ 7,011 ​ 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 $ 30,797 and state net operating loss carryforward of $ 39,677 . For federal income tax purposes the $ 30,797 of net operating losses will not expire. For state income tax purposes, the Company has $ 36,298 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 2037 and the latest year being 2044. The Company experienced an ownership change on July 1, 2024, and as a result both federal and state net operating losses before that date are subject to 382 limitations. In addition, the Company also had U.S. interest limitation carryforwards of $ 133 with an indefinite expiration date. ​ There were no unrecognized tax benefits or activity for the years ended December 31, 2024 and 2023. ​ 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, 2024, and 2023. 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. 81 Table of Contents ​ ​ Note 17 — Fair Value Measurements 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 fair value of the Company’s outstanding warrants as of December 31, 2024, and 2023 was $ 10 and $ 49 , respectively, and was classified as Level 3 within the fair value hierarchy. ​ ​ ​ ​ ​ ​ Fair Value Assumption – Warrants December 31, 2024 Exercise Price ​ $ 11.50 ​ Warrant term ​ ​ 3.97 years ​ Maturity date ​ 12/19/2028 ​ Stock Price ​ $ 1.84 ​ Risk rate ​ 4.27 % Volatility ​ ​ 42.26 % ​ ​ ​ ​ ​ Fair Value Assumption – Warrants December 31, 2023 Exercise Price ​ $ 11.50 Warrant term ​ ​ 4.97 years Maturity date ​ 12/19/2028 Stock Price ​ $ 3.35 Risk rate ​ 3.75 Volatility ​ 33.29 ​ The Financing Notes (see Note 9) which were converted to equity during the twelve months ending December 31, 2024, were valued as of December 31, 2023 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. 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. ​ ​ ​ ​ ​ ​ Fair Value Assumption – Financing Note December 31, 2023 Principal ​ $ 6,805 ​ Discount rate ​ 20.00 % Note term ​ 2.97 years ​ Stock Price ​ $ 3.35 ​ Maturity date ​ 12/19/2026 ​ Risk rate ​ 3.92 % Volatility ​ 32.49 % ​ ​ Note 18 — Segments and geographical information The Company has one reportable and operating segment, the manufacturing and distributing of sensor-based systems, software, and services. The Company holds 99 % of its assets within the United States. The Company derives revenue primarily in North America and manages the business activities on a consolidated basis. The following table summarizes revenue based upon the customers’ country of origin: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 United States ​ $ 5,825 ​ ​ 4,361 International ​ 1,577 ​ 1,069 Total revenue, net ​ $ 7,402 ​ ​ 5,430 ​ The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The CODM uses consolidated net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the segment or 82 Table of Contents into other parts of the entity, such as for acquisitions. Net income is used to monitor budget versus actual results and to perform competitive analysis through benchmarking to competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation. The table below summarizes the significant expense categories regularly reviewed by the CODM for the years ended December 31, 2024, and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 2023 Revenue, net ​ $ 7,402 ​ 5,430 Cost of goods sold (exclusive of depreciation) ​ 2,582 ​ 2,297 Inventory Impairment ​ 2,272 ​ 1,689 Operating expenses: ​ ​ Selling, general and administrative ​ 15,655 ​ ​ 8,044 Payroll Expenses (including bonus) ​ 6,563 ​ 3,913 Professional Fees ​ 6,160 ​ 1,702 Other selling, general and administrative ​ 2,932 ​ 2,429 Other operating expenses ​ 5,774 ​ 14,877 Non-operating (income) expenses, net ​ 3,079 ​ 583 Provision for income taxes ​ ( 465 ) ​ 208 Net loss ​ ( 21,495 ) ​ ( 22,268 ) ​ See the consolidated financial statements for other financial information regarding the Company’s operating segment. ​ Note 19 — Subsequent Events On January 7, 2025, the Company sold 1,581,213 shares of the Company’s common stock via the Company’s Equity Line of Credit (see Note 11). As a result of such sales, the Company received net proceeds of $ 4,324 . ​ 83 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.