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What changed in MultiSensor AI Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of MultiSensor AI Holdings, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+365 added−676 removedSource: 10-K (2025-03-28) vs 10-K (2024-03-29)

Top changes in MultiSensor AI Holdings, Inc.'s 2024 10-K

365 paragraphs added · 676 removed · 257 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

109 edited+30 added−33 removed14 unchanged
Biggest changeWe have invested thousands of hours of engineering R&D in creating and refining this calibration process and believe it to be a distinct competitive advantage in the infrared industry. 9 Table of Contents We offer a wide range of form factors for our sensor devices, ranging from small to large handheld designs with built-in displays and controls, fixed-mounted single- and multi-sensor camera systems with or without displays and controls, fixed-mounted pan-tilt-zoom (“PTZ”) single- and multi-sensor camera standalone systems, and mobile multi-sensor payload and gimbal systems for UAVs and unmanned ground vehicles (“UGVs”).
Biggest changeWe offer a wide range of form factors for our sensor devices, including small to large handheld designs with built-in displays and controls, fixed-mounted single- and multi-sensor camera systems with or without displays and controls, fixed-mounted pan-tilt-zoom single- and multi-sensor camera standalone systems, and mobile multi-sensor payload and gimbal systems for UAVs and unmanned ground vehicles (“UGVs”). 5 Table of Contents Sensor Software We have developed a suite of edge and cloud software systems to acquire, store, analyze, action and archive sensor data.
This oil & gas TAM includes gas and liquid leak detection, tank level and flare monitoring, pipeline leak detection, and gas processing safety monitoring, as well as more general manufacturing reliability and predictive maintenance, among other applications. We expect demand to be stimulated by both increased regulations and the general demand for safe and cost-effective thermal sensing and monitoring solutions.
This oil and gas TAM includes gas and liquid leak detection, tank level and flare monitoring, pipeline leak detection, and gas processing safety monitoring, as well as more general manufacturing reliability and predictive maintenance, among other applications. We expect demand to be stimulated by both increased regulations and the general demand for safe and cost-effective thermal sensing and monitoring solutions.
Oil & Gas Our customers in the oil & gas market leverage our technologies for a wide variety of uses, including facilities maintenance, asset performance assessment, tank level monitoring, leak detection, pipeline monitoring, and processing safety. This market includes commercial businesses as well as some governmental agencies. Traditionally, our solutions have been sold to maintenance professionals, safety professionals, and engineers.
Oil & Gas Our customers in the oil and gas market leverage our technologies for a wide variety of uses, including facilities maintenance, asset performance assessment, tank level monitoring, leak detection, pipeline monitoring, and processing safety. This market includes commercial businesses as well as some governmental agencies. Traditionally, our solutions have been sold to maintenance professionals, safety professionals, and engineers.
Recently developed acoustic imaging technology combines an array of microphones surrounding a visible imaging sensor to both detect soundwaves and to estimate their source location within the camera’s field of view using sophisticated software. The software analysis of these soundwaves can then identify, quantify, and localize compressed air or gas leaks as well as partial discharge in industrial equipment.
Recently developed acoustic imaging technology combines an array of microphones surrounding a visible imaging sensor to both detect soundwaves and to estimate their source location within the camera’s field of view using sophisticated software. The software analysis of these soundwaves can then identify, quantify, and localize compressed air or gas leaks as well as partial electrical discharge in industrial equipment.
Newer and lower-cost manufacturers, both domestic and overseas, have made inroads into the market in recent decades, contributing to a meaningful decline in sensing device prices as well as an expansion of device capabilities. This in turn has led to new end market applications for which infrared sensing devices are a useful and cost- effective solution.
Newer and lower-cost manufacturers, both domestic and overseas, have made inroads into the sensor market in recent decades, contributing to a meaningful decline in sensing device prices as well as an expansion of device capabilities. This in turn has led to new end market applications for which infrared sensing devices are a useful and cost-effective solution.
Products Infrared Sensing Technology Infrared is a portion of the electromagnetic spectrum that is adjacent to the visible spectrum, but is invisible to the human eye due to its longer wavelengths. Unlike visible light, infrared radiation (or heat) is emitted directly by all objects above absolute zero in temperature.
Technology Infrared Sensing Technology Infrared is a portion of the electromagnetic spectrum that is adjacent to the visible spectrum but is invisible to the human eye due to its longer wavelengths. Unlike visible light, infrared radiation (or heat) is emitted directly by all objects above absolute zero in temperature.
While there is demand for our products today, we believe such acquisitions could create more expansive use cases for our products or provide greater access to our current target markets or access additional markets. Manufacturing We leverage our years of expertise in infrared and related sensors and devices to design, develop, source, and manufacture a variety of engineered products.
While there is demand for our products today, we believe such acquisitions could create more expansive use cases for our products, provide greater access to our current target markets, or serve additional applications. Manufacturing We leverage our years of expertise in infrared and related sensors and devices to design, develop, source, and manufacture a variety of engineered products.
In oil & gas, we generally compete with handheld sensor devices offered by large scale manufacturers, with smaller integrators that offer sensing device payloads for fixed-wing or UAV applications, and with fixed camera solutions installed by industry specialists that offer more fully-featured software solutions that sometimes include basic AI/ML capabilities.
In the oil and gas market, we generally compete with handheld sensor devices offered by large scale manufacturers, with smaller integrators that offer sensing device payloads for fixed-wing or UAV applications, and with fixed camera solutions installed by industry specialists that offer more fully featured software solutions that sometimes include basic AI/ML capabilities.
In manufacturing, we generally compete with handheld sensor devices offered by large scale manufacturers as well as less-common fixed camera solutions installed by industry-specialist consultants and integrators that source and install sensor devices from large scale manufacturers and offer limited software solutions without cloud or AI/ML feature sets.
In manufacturing, we generally compete with handheld sensor devices offered by large scale manufacturers as well as fixed camera solutions installed by industry-specialist consultants and integrators that source and install sensor devices from large scale manufacturers and offer limited software solutions without cloud or AI/ML feature sets.
While we have a long history of selling, implementing and supporting device-only thermal systems into each of the four target markets, there are some risks inherent to selling integrated device and software multi-sensing solutions into each of these target markets. Please see Part I. Item 1A.
While we have a long history of selling, implementing and supporting device-only thermal systems into each of the three target markets, there are some risks inherent to selling integrated device and software multi-sensing solutions into each of these target markets. Please see Part I. Item 1A.
This radiometric capability enables the full analytical power of infrared cameras to be harnessed in the cloud as well as at the edge. In particular, this cloud radiometry enables vastly broader AI/ML capabilities, as models can be trained on radiometric data from enormous infrared datasets gathered from every camera connected at the edge.
This radiometric capability enables the full analytical power of infrared cameras to be harnessed in the cloud as well as at the edge. In particular, this cloud radiometry enables vastly broader AI/ML capabilities, as models can be trained on radiometric data from large infrared datasets gathered from every camera connected at the edge.
Although the numbers of facilities used in our calculation were specific to each of the target markets (e.g. the number of distribution centers for warehouse and logistics or the number of steel mills for manufacturing), the rules for inclusion and exclusion were common to all four target markets.
Although the numbers of facilities used in our calculation were specific to each of the target markets (e.g., the number of distribution centers for warehouse and logistics or the number of steel mills for manufacturing), the rules for inclusion and exclusion were common to all three target markets.
We believe the high performance of our thermal sensors, in conjunction with the flexibility of our software will allow us to continue providing new solutions to our customers, and further expand the use cases for our systems across various vertical markets.
We believe the high performance of our thermal sensors, in conjunction with the flexibility of our software will allow us to continue providing new solutions to our customers and further expand the use cases for our systems across various target markets.
We believe our competitive landscape varies somewhat across our four target markets. In distribution & logistics, we mainly compete with large scale manufacturers of handheld sensor devices that provide on- device thermal image display and basic on-device software.
We believe our competitive landscape varies somewhat across our three target markets. In distribution and logistics, we mainly compete with large scale manufacturers of handheld sensor devices that provide on-device thermal image display and basic on-device software.
For these reasons, we feel the potential of our core technology to grow in prevalence and importance is significant, particularly as the cost of the technology continues to decline, opening up large new end markets. Acoustic Imaging Technology Audible and ultrasonic sounds across the mechanical wave spectrum have historically been detected and analyzed using single point microphones.
For these reasons, we feel that the potential of our core technology to grow in prevalence and importance is significant, particularly as the cost of the technology continues to decline, opening up large new end applications. Acoustic Imaging Technology Audible and ultrasonic sounds across the mechanical wave spectrum have historically been detected and analyzed using single point microphones.
Competition The global market for infrared sensing devices is well established with large scale manufacturers, such as Teledyne FLIR and Fortive, selling primarily into military and commercial applications.
Competition The global market for infrared sensing devices is highly competitive and well established with large scale manufacturers, such as Teledyne FLIR and Fortive, selling primarily into military and commercial applications.
In the late 20 th century, infrared technology was incorporated into thermal cameras, used in manufacturing and other industrial settings to identify faulty equipment in need of maintenance, as well as other potential operational and safety issues by sensing “hotspots” or raised temperatures that often presage equipment failure.
In the late 20th century, infrared technology was incorporated into thermal cameras, used in manufacturing and other industrial settings to identify faulty equipment in need of maintenance, as well as other potential operational and safety issues by sensing “hotspots” or raised temperatures that often presage equipment failure.
This distribution & logistics TAM includes conveyor system anomaly detection, hotspot detection, process automation, predictive maintenance, and failure avoidance, among other applications, with demand expected to be driven by both financial incentives related to process improvements and increased regulation pertaining to facility safety. Manufacturing Market Opportunity We believe that the manufacturing TAM in 2023 was approximately $2.5 billion.
This distribution and logistics TAM includes conveyor system anomaly detection, hotspot detection, process automation, predictive maintenance, and failure avoidance, among other applications, with demand expected to be driven by both financial incentives related to process improvements and increased regulation pertaining to facility safety. Manufacturing Market Opportunity We believe that the manufacturing TAM in 2024 was approximately $3.2 billion.
Additionally, our cloud software can receive vibration monitor data from 3 rd -party wireless vibration sensor product solutions. We believe incorporating acoustic, vibration, thermal, and visible imager data into one ‘single-pane-of-glass’ monitoring solution provides enhanced value for our customers.
Additionally, our cloud software can receive vibration monitor data from third-party wireless vibration sensor product solutions. We believe incorporating acoustic, vibration, thermal, and visible imager data into one ‘single-pane-of-glass’ monitoring solution provides enhanced value for our customers.
The information on any of our websites is deemed not to be incorporated in this Annual Report on Form 10-K or to be part of this Annual Report on Form 10-K. ​ 19 Table of Contents
The information on any of our websites is deemed not to be incorporated in this Annual Report on Form 10-K or to be part of this Annual Report on Form 10-K. ​ ​ ​ 14 Table of Contents
We are a provider of sensing systems built around high-resolution thermal imagers along with visible and acoustic imagers, as well as vibration and laser spectroscopy sensors, that perceive and measure heat, sound, vibration, and gas in industrial assets and the surrounding environment, helping companies gain insight to efficiently manage their most important assets and infrastructure.
We are a provider of sensing systems built around high-resolution thermal imagers, visible and acoustic imagers, as well as vibration and laser spectroscopy sensors, that perceive and measure heat, sound, vibration, and gas in industrial assets and the surrounding environment, helping companies gain insight to protect and manage their most important assets and infrastructure.
We have developed a flexible manufacturing strategy combining contract manufacturing for high-volume products and in-house manufacturing for lower- volume specialized products. For our in-house manufacturing we purchase many subcomponents pre- assembled, including certain detectors, coolers and optics, as well as other sensors.
We have developed a flexible manufacturing strategy combining contract manufacturing with certain third-parties for high-volume products and in-house manufacturing for lower-volume specialized products. For our in-house manufacturing, we purchase many pre-assembled subcomponents, including certain detectors, coolers and optics, as well as other sensors.
For customers with multiple facilities distributed geographically, this central monitoring capability provides a new and powerful tool for thermal anomaly detection and management. Our cloud software is distinguished by its capability to not only transmit metadata and streaming RGB video from the edge to the cloud, but also transmit radiometric image data.
For customers with multiple facilities distributed geographically, this central monitoring capability provides a new and powerful tool for thermal, acoustic, and vibration anomaly detection and management. Our cloud software is distinguished by its capability to not only transmit thermal imaging metadata and RGB video from the edge to the cloud, but also transmit radiometric image data.
We plan to grow our existing network and establish new distribution partnerships in regions where we do not currently have partnerships. By leveraging these relationships, we believe we will be able to reach more customers faster and rapidly grow our sales.
We plan to grow our existing network and establish new distribution partnerships in regions and industry verticals where we do not currently have partnerships. By leveraging these relationships, we believe we will be able to reach more customers faster and grow our sales.
In particular, the Environmental Protection Agency (“EPA”) has promulgated the regulations (commonly referred to as “Quad-O/Oa”) which have 7 Table of Contents established emission standards and compliance schedules for the control of volatile organic compounds and greenhouse gases, specifically methane. These federal regulations are supplemented by state-level regulations from agencies such as the Texas Commission on Environmental Quality.
In particular, the Environmental Protection Agency (the “EPA”) has promulgated regulations (commonly referred to as “Quad-O/Oa”), which have established emission standards and compliance schedules for the control of volatile organic compounds and greenhouse gases, specifically including methane. These federal regulations are supplemented by regulations promulgated by state-level agencies, such as the Texas Commission on Environmental Quality.
As accounts grow, we maintain the right to begin selling directly to ensure close relationships with our most strategically and commercially important accounts. Pursue Strategic Acquisitions We may pursue acquisitions as a means to complement our technology and corporate capabilities should they represent a strategic fit and are consistent with our overall growth strategy.
As accounts grow, we maintain the right to begin selling directly to provide for close relationships with our most strategic and commercially important accounts. Pursue Strategic Acquisitions We may pursue acquisitions as a means to complement our technology and corporate capabilities should they represent a strategic fit and are consistent with our overall growth strategy.
Sales And Marketing We plan to expand our sales and marketing efforts to attract new customers and grow orders from existing customers. We maintain a global sales presence and sell directly to the majority of our customers. Members of our sales team are technical and understand use cases and value drivers across our four core vertical target markets.
Sales and Marketing We plan to expand our sales and marketing efforts to attract new customers and grow orders from existing customers. We maintain a global sales presence and sell directly to the majority of our customers. Members of our sales team are technical and understand use cases and value drivers across our three target markets.
Thermal sensors provide several benefits over ubiquitous visible, light-based sensing technologies, including the ability to measure temperature remotely and without touching the surface of the object, detect and image many types of otherwise invisible gases, observe in complete darkness, image through obscurants such as smoke and fog, detect and discriminate living beings in an efficient and reliable way, and see over long distances with minimal atmospheric interference.
Thermal sensors provide several benefits over ubiquitous, visible, light-based sensing technologies, including the ability to measure temperature remotely and without touching the surface of the object, detect and image many types of otherwise invisible gases, observe in complete darkness, image through obscurants such as smoke and steam, detect and discriminate living beings from other sources of heat in an efficient and reliable way, and see over long distances with minimal atmospheric interference.
We expect this “big data” capability to be a significant competitive advantage as we continue to develop transformative computer vision models for all of our customers’ use cases. 12 Table of Contents Our cloud software can also receive acoustic imager RGB video and metadata streams from our edge software, enabling remote monitoring and analysis of fixed-mount acoustic imagers.
We expect this “big data” capability to be a significant advantage as we continue to develop transformative computer vision models for all of our customers’ use cases. Our cloud software can also receive acoustic imager video and metadata streams from our edge software, enabling remote monitoring and analysis of fixed-mount acoustic imagers.
The ultimate sale by us of these devices and software subscriptions, the deployment of these devices by each of these customers at these additional sites and their timeline for doing so is subject to risks and uncertainties, including those described in Part I. Item 1A. Risk Factors of this Annual Report on Form 10-K.
The ultimate sale by us of these devices and software subscriptions, the deployment of these devices by each of these customers at these additional sites and their timeline for doing so is subject to risks and uncertainties, including those described in Part I, Item 1A “ Risk Factors ” of this Annual Report.
Our product roadmap has expanded significantly over the past several years as the company has transitioned from a transactional device and edge software focus to a comprehensive subscription service approach incorporating devices, edge software, and cloud software in combination to offer unprecedented turn-key infrared technology solutions to numerous industrial challenges.
Roadmap and Development Our hardware roadmap has expanded significantly over the past several years as the Company has transitioned from a transactional device and edge software focus to a comprehensive subscription service approach incorporating devices, edge software, and cloud software in combination to offer turn-key technology solutions to numerous industrial challenges.
In July 2022, the ecommerce company initiated a paid pilot program for approximately $350,000 for 87 integrated devices and one-year SmartIR subscriptions across 18 of its facilities in the United Kingdom. These subscriptions were each renewed for a minimum of one additional year in the third quarter of 2023.
In July 2022, the ecommerce company initiated a paid pilot program for approximately $350,000 for 87 integrated devices and one-year MSAI Connect (then known as SmartIR) subscriptions across 18 of its facilities in the United Kingdom. These subscriptions were each renewed for a minimum of one additional year in the third quarter of 2023.
Risk Factors - Risks Related to Our Business and Industry for a more detailed discussion relating to the risks that apply to each of our four target markets, particularly as they relate to the adoption of our hardware and software offerings in each of the four target markets.
“ Risk Factors — Risks Related to Our Business and Industry ” and “ Risk Factors — Risks Related to Our Products ” for a more detailed discussion relating to the risks that apply to each of our three target markets, particularly as they relate to the adoption of our hardware and software offerings in each of the three target markets.
We leverage a full technology stack, including a CRM system, marketing automation platforms, and account-based marketing tools to optimize target end user interactions and to drive efficient digital marketing efforts. We also actively pursue thought-leaderships opportunities to present and speak at market-specific conferences, executive events, trade shows and industry events to further develop our brand and reputation.
We leverage a full technology stack, including a customer relationship management system, marketing automation platforms, and account-based marketing tools to optimize target end user interactions and to drive efficient digital marketing efforts. We also actively pursue thought-leadership opportunities to present and speak at market-specific conferences, executive events, trade shows and industry events to further develop our brand and reputation.
We intend to continue to have significant internal R&D expenses in the future to provide a continuing flow of innovative and high- quality products to maintain and enhance our competitive position in each of our business segments.
We intend to continue to have significant internal research and development expenses in the future to provide a continuing flow of innovative and high-quality products to maintain and enhance our competitive position in each of our business segments.
While we maintain direct relationships with the majority of our customers, we have also developed a global network of active direct dealers and distributors to sell, install, and support our solutions. We collect feedback directly from our customers to generate insights that drive our business and innovation strategies.
While we maintain direct relationships with the majority of our customers, we have also developed a network of active direct dealers and distributors, including our strategic channel partners, to sell, install, and support our solutions. We collect feedback directly from our customers to generate insights that drive our business and innovation strategies.
We will continue to expand and optimize our dealer network to ensure that we have sufficient geographic coverage across both existing and new markets. We take a targeted, data-driven marketing approach to each of our four focused markets. We develop and publish digital content, including blogs, webinars, videos, and other digital solutions to educate potential customers and expand our reach.
We will continue to expand and optimize our dealer network so that we have sufficient geographic coverage across both existing and new markets. We take a targeted, data-driven marketing approach to each of our three target markets. We develop and publish digital content, including blogs, webinars, videos, and other digital solutions to educate potential customers and expand our reach.
In addition, there are multiple established competing technologies for methane-leak detection, specifically including hand-held and drone-based thermal camera devices and hand-held methane “sniffers.” Although we believe that our fixed-mount continuous monitoring solutions are both more efficacious and more cost-effective than competing technologies, adoption of the ICI SmartIR fixed-mount solutions will require awareness, and adoption in the face of established practice.
In addition, there are multiple established competing technologies for methane-leak detection, specifically including hand-held and drone-based thermal camera devices and hand-held methane “sniffers.” Although we believe that our fixed-mount continuous monitoring solutions are both more efficient and more cost-effective than competing technologies, adoption of the MSAI Connect fixed-mount solutions will require brand awareness, and adoption in the face of established practice.
Expand Our Distribution Network While the majority of our sales are direct to customers, we also sell our thermal sensors through a distribution network. We believe these distributors enable us to reach more end customers in an operationally efficient manner.
Expand Our Distribution Network While the majority of our sales are direct to customers, we also sell our thermal sensors through a network of strategic channel partners. We believe that these partners enable us to reach more end customers in an operationally efficient manner.
Our success has been, and will continue to be, substantially affected by our ability to innovate these new products and technologies to both augment our existing offerings and create new avenues for growth. We strive to differentiate ourselves from our competition with our R&D capabilities.
We believe that our success has been, and will continue to be, substantially affected by our ability to innovate these new products and technologies to both augment our existing offerings and create new avenues for growth. We strive to differentiate ourselves from our competition with our research and development capabilities.
We believe that our infrared sensing platform is competitive in this current market, as we offer high resolution and accuracy at an attractive price, and we offer differentiated device form factors, including multi-sensor devices.
We believe that our infrared sensors are competitive in this current market, as we offer high resolution and accuracy at an attractive price, and we offer differentiated device form factors, including multi-sensor devices.
We believe our SaaS platform represents a significant financial opportunity to continue to convert our more than 200 enterprise customers, which we define as Fortune 1000 companies, and equivalent government agencies and academic institutions, with revenues of greater than $5,000, to a recurring revenue model presented by our software solution.
We believe our SaaS platform represents a significant opportunity to continue to convert our legacy enterprise customers (which we define as Fortune 1000 companies, government agencies and academic institutions, with revenues of greater than $5 million), to a recurring revenue model presented by our software solution.
We also offers a wide range of form factors for our sensor devices, ranging from small to large handheld designs with built-in displays and controls, to fixed-mounted single- and multi-sensor camera sensor systems, with or without displays and controls, to mobile multi-sensor payload and gimbal systems for unmanned aerial vehicles (“UAVs”), and more.
We also offer a wide range of form factors for our sensor devices, including, among other form factors, small to large handheld designs with built-in displays and controls, fixed-mounted single- and multi-sensor camera sensor systems, with or without displays and controls, and mobile multi-sensor payload and gimbal systems for unmanned aerial vehicles (“UAVs”).
Our filings with the U.S. Securities and Exchange Commission (the “SEC”) are available to the public over the Internet at the SEC’s website at www.sec.gov . We make available on our website at www.multisensorai.com , free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC.
Our SEC filings are available to the public on the SEC’s website at www.sec.gov , and we make available on our website at www.multisensorai.com , free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC.
Grow Wallet Share with Enterprise Customers We possess an established customer base in each of our four target markets that we believe can be further strengthened as our relationships with customers mature. As our hardware and device customers also become users of our SmartIR SaaS solution, we expect we will be able to increase our order volumes.
Grow Wallet Share with Legacy Enterprise Customers We possess an established legacy enterprise customer base that we believe can be further strengthened as our relationships with customers mature. As our hardware and device customers also become users of our MSAI Connect SaaS solution, we expect we will be able to increase our order volumes.
Thermal imaging systems detect this infrared radiation and convert it into an electronic signal, which is then processed for display as a video signal or analyzed by sophisticated software to conduct temperature data analysis.
Thermal imaging systems detect this infrared radiation in an array of microbolometer pixels and convert individual temperature readings into an electronic signal, which is then processed for display as a video signal and/or analyzed by sophisticated software to conduct temperature data analysis.
A variation of our edge software is designed to measure human skin temperature in order to identify individuals who have an elevated body temperature.
Historically, a variation of our edge software was designed to measure human skin temperature in order to identify individuals who had an elevated body temperature.
This software provides robust analytics for measuring and responding to health trends and features AI capabilities, including computer vision modules to automatically track the location of employees who display elevated body temperature.
This software provides robust analytics, and AI capabilities, including computer vision modules to automatically track the location of employees who display elevated body temperature.
In addition to rolling out the pilot project (early fire detection in electric vehicle battery facilities) across multiple facilities, the automaker is currently evaluating the additional applications, with an eye toward broader rollout in 2024 and 2025.
In addition to rolling out the pilot project (early fire detection in electric vehicle battery facilities) across multiple facilities, the automaker is currently evaluating additional applications, with a potential broader rollout in 2025 and beyond.
These components are then assembled into finished systems, calibrated and tested at our primary production facility located in Beaumont, Texas. For both of these manufacturing approaches, we often apply our proprietary calibration process as part of final assembly, in order to achieve superior sensor accuracy than competitors.
These components are then assembled into finished systems, calibrated and tested at our primary production facility located in Beaumont, Texas. For both of these manufacturing approaches, we often apply our calibration process as part of final assembly.
We believe we have strong and positive relations with our employees. ​ 18 Table of Contents Corporate Information Prior to the Business Combination, the registrant was a blank check company incorporated as a Delaware corporation on May 14, 2021, originally formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.
Corporate Information Prior to the Business Combination, the registrant was a blank check company incorporated as a Delaware corporation on May 14, 2021, originally formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.
Edge Software Our edge software is highly specialized because, in addition to performing standard, visible-light video processing, it also processes the raw radiometric data output from our infrared sensors, consisting of high-precision absolute temperature values for every pixel in the sensor array.
MSAI Edge is highly specialized because, in addition to performing standard, visible-light video processing, it also processes the raw radiometric data output from our infrared sensors, consisting of high-precision absolute temperature values for every pixel in the sensor array (ranging from 49 thousand to 1.31 million pixels, depending on the sensor).
Our SmartIR & MSAI technology has been developed and continues to be refined primarily for use in four core industrial markets that we believe are at the forefront of the transition to continuous monitoring thermal solutions: the distribution & logistics, manufacturing, utilities, and oil & gas markets. We launched our SmartIR cloud-software product suite in the second quarter of 2023.
Our MSAI Connect technology has been developed and 6 Table of Contents continues to be refined primarily for use in three target markets that we believe are at the forefront of the transition to continuous monitoring solutions: distribution and logistics; manufacturing; and oil and gas. We launched our MSAI Connect cloud-software product suite in the second quarter of 2023.
Exporting our thermal cameras, infrared cameras, or infrared sensors to certain countries may be restricted by the United States 17 Table of Contents Government’s thermal camera export restrictions and many fall under International Traffic in Arms Regulations (ITAR). All ITAR items are designated by the U.S. Department of State.
Exporting our thermal cameras, infrared cameras, or infrared sensors to certain countries may be restricted by the United States Government’s thermal camera export restrictions and many fall under International Traffic in Arms Regulations (“ITAR”). All ITAR items are designated by the U.S. Department of State. Some of MSAI’s thermal cameras fall under specific Export Control Classification Number (“ECCN”) codes.
The edge and cloud software systems can operate independently or be combined for maximum capability. We believe 11 Table of Contents that the combination of our edge and cloud software together creates a multitude of turn-key software solutions for our customers that solve industrial problems in ways previously unavailable.
Our edge software can operate independently or be combined with our cloud system MSAI Connect. We believe that the combination of our edge and cloud software together creates a multitude of turn-key software solutions for our customers that solve industrial problems in ways previously unavailable.
In addition to receiving and storing this data, our cloud software provides a rich dashboard that enables users to simultaneously view live data and video streams from multiple sensor devices as well as related ROI temperature values and ROI temperature alerts.
In addition to receiving and storing this data, our cloud software provides an intuitive and insight-rich dashboard that enables users to simultaneously view live thermal and visible video streams from multiple sensor devices as well as related data values and alerts for temperature, sound, and vibration.
Having optimized the fixed mounted hardware and associated thermal, visible, acoustic, vibration, and spectroscopy devices, we have shifted our focus towards the acquisition, storage and analysis of data through our proprietary SmartIR and MSAI SaaS software packages.
Having optimized the fixed-mount hardware and associated thermal, visible, acoustic, vibration, and spectroscopy devices, we have shifted our focus towards the acquisition, storage and analysis of data through our proprietary edge software, MSAI Edge, and our cloud-based software, MSAI Connect.
The calculations were made with several assumptions and limitations in mind, but these were consistent across the calculations in all four of the target markets.
These calculations were made with several assumptions and limitations in mind, applied consistently across the calculations in all three of the target markets.
Distribution & Logistics Market Opportunity We believe that the distribution & logistics TAM in 2023 was approximately $2.5 billion.
Distribution and Logistics Market Opportunity We believe that the distribution and logistics TAM in 2024 was approximately $2.3 billion.
Although we believe our position as a market leader here is strong and that our continued innovation will support our position, we have faced and will continue to face competition from existing competitors and new companies, as well as the potential for customers to develop their own end-to-end infrared sensing solutions.
Although we 11 Table of Contents believe our technology is class-leading and that our continued innovation will support our position, we have faced and will continue to face competition from existing competitors and new companies, as well as the potential for customers to develop their own end-to-end sensing solutions.
We also have a pilot project in place with the automaker customer. We and the customer have identified at least 16 potential additional applications for which we believe that our technology would provide high- ROI solutions to condition monitoring challenges or productivity improvement opportunities.
We and such customer have identified at least 16 potential additional applications for which we believe our technology would provide high-ROI solutions to condition monitoring challenges or productivity improvement opportunities.
Our TAM calculation was based on a thorough bottoms-up analysis of the potential number of externally verified facilities and assets in the United States across our four target markets that could be penetrated by MSAI integrated SmartIR & MSAI SaaS and device 6 Table of Contents solutions.
Our TAM calculation was based on a thorough bottoms-up analysis of the potential number of externally verified facilities and assets in the United States across our three target markets that could be penetrated by MSAI Edge and MSAI Connect sensor and software solutions.
Some of ICI’s thermal cameras fall under specific Export Control Classification Number (ECCN) codes. ECCN items are governed by the U.S. Department of Commerce Bureau of Industry and Security. Likewise, most but not all of ICI’s cameras also have Commodity Jurisdiction (CJ) codes.
ECCN items are governed by the U.S. Department of Commerce Bureau of Industry and Security. Likewise, most but not all of MSAI’s thermal cameras also have Commodity Jurisdiction codes.
The market for turn-key infrared sensing solutions is even less mature, as complete solutions have either been “Build-Your-Own” or installed by integrators.
The market for software and turn-key solutions that support multiple sensor modalities is even less mature, as complete solutions have either been “Build-Your-Own” or installed by integrators.
In addition, there are multiple emerging technologies (e.g., satellite based thermal sensing) in the methane-detection space that may create additional competition for our commercial activity in the oil & gas vertical.
In addition, there are multiple emerging technologies (e.g., satellite based thermal sensing) in the methane-detection space that may create additional competition for our commercial activity in the oil and gas market. Customers We primarily target three markets globally: distribution and logistics; oil and gas; and manufacturing.
We believe that our fixed-mount, hand-held and drone-mounted systems are sufficient to promote compliance with the current Quad O/Oa and state-level standards for methane-leak detection and have sold devices for this specific use case for many years. The EPA is preparing a new set of regulations, which are expected to come into effect in 2024 or 2025.
We believe that our fixed-mount, hand-held and drone-mounted systems are sufficient to promote compliance with the Quad O/Oa and state-level standards for methane-leak detection and have sold devices for this specific use case for many years.
With this combination, we expect to develop new solutions for industry-specific applications, expanding our product offering without requiring significant manufacturing or inventory changes. Large and Diversified Enterprise Customer Base We believe that the diversity of our customer base and our established presence in our four target markets gives us several advantages. First, our customer diversity adds stability to our business.
With this combination, we expect to develop new solutions for industry-specific applications, expanding our product offering without requiring significant manufacturing or inventory changes. Diversified Applications We believe that the diversity of applications in which our technology can be applied in our three target markets gives us several advantages.
Finally, we believe our early entrance into these markets with our SmartIR SaaS 14 Table of Contents solution will enable us to gain market- specific expertise, informing our product development decisions so that we may more effectively customize our solutions’ fit for the end market customers’ needs.
We believe our early entrance into these markets with our MSAI Connect SaaS solution will enable us to gain expertise, informing our product development decisions so that we may more effectively customize our solutions for customers’ needs.
This software features artificial intelligence (“AI”) capabilities and includes computer vision modules to automatically detect and locate a temperature reference source, automatically detect one or more human faces in the scene, and determine if a hat, glasses, or face mask is being worn so that appropriate actions can be taken.
This software was primarily sold during the COVID-19 pandemic and featured AI capabilities and included computer vision modules used to automatically detect and locate a temperature reference source, automatically detect one or more human faces in the scene, and determine if a hat, glasses, or face mask was being worn so that appropriate actions could be taken.
These opportunities also allow us to showcase our technology and attract additional customer interest. We also sponsor universities and other non-profit organizations to increase awareness of our technology and demonstrate its capabilities. Research and Development We have invested significant resources into research and development of our infrared sensor platform.
These opportunities also allow us to showcase our technology and attract additional customer interest. Research and Development We have invested significant resources into research and development of our platform.
We believe that our data driven software and all-encompassing solutions will expand users to include operational and manufacturing leaders, as well as other organizational leaders involved in enterprise-level sales. Our Competitive Strengths We believe the following strengths will allow us to maintain and extend our position as a provider of thermal sensing and software solutions.
We believe that our data-driven software and solutions will expand users to include operational and manufacturing leaders, as well as other organizational leaders involved in enterprise-level sales.
For the year ended December 31, 2023, one customer accounted for 44% of total net revenue and no other customer accounted for more than 10% of total net revenue. Distribution & Logistics Our customers in the distribution & logistics market are generally engaged in the maintenance and upkeep of facilities and their critical assets.
No other customer accounted for more than 10% of total net revenue. ​ Distribution and Logistics Our customers in the distribution and logistics market are generally engaged in the maintenance and upkeep of facilities and their critical material-handling equipment assets. This includes conveyor systems, transportation and machinery, and electrical infrastructure.
Our product development is therefore focused on improving and expanding our sensor portfolio to include sensors with superior performance, price, or sensing capabilities, improving our sensor device portfolio to incorporate superior form factors with improved performance, including handheld, fixed, and mobile device forms, and improving our edge and cloud software to incorporate superior performance and additional functionality, with a particular focus on utilizing AI to automate and improve industrial anomaly detection and response.
Our hardware development is therefore focused on improving and expanding our sensor portfolio to include sensors with superior performance, price, or sensing capabilities. We also look to improve our sensor device portfolio to incorporate form factors with improved performance, including handheld, fixed, and mobile device forms.
As our software solutions continue to evolve, we are increasingly targeting process design, safety, and operational leaders whose priorities involve process waste reduction, enhanced safety protocols, and improved consistency and quality in manufacturing outputs. 13 Table of Contents Utilities Our customers in the utilities market include all organizations involved in electrical power generation, transmission, and distribution.
Our target users in the manufacturing market traditionally include mechanical engineers and facilities and maintenance professionals. As our software solutions continue to evolve, we are increasingly targeting process design, safety, and operational leaders whose priorities involve process waste reduction, enhanced safety protocols, and improved consistency and quality in manufacturing outputs.
We believe that our digital multi-sensor technology platform positions us at the center of a global revolution in thermal and related sensing, as the introduction of continuous streaming thermal data alongside other adjacent sensor data and coupled with automated insights replaces intermittent manual thermal and physical inspections, and cloud-connected thermal, visible, acoustic, vibration, and spectroscopy big data capture enables artificial intelligence and machine learning (“AI/ML”) to elevate critical asset management to a new level.
We believe that our digital multi-sensor software technology platform positions us to become a leader in thermal and related sensing as the introduction of continuous streaming thermal data alongside other adjacent sensor data, coupled with automated insights, replaces intermittent manual thermal and physical inspections.
This includes conveyor systems, transportation and machinery, facilities and building envelopes and electrics, and much more. Traditionally, target users include mechanical engineers and maintenance and facilities professionals. We believe that our data driven solutions will expand the user base to include operations and safety executives, process engineers, and other process- oriented leaders.
Traditionally, target users include mechanical engineers and maintenance and facilities professionals. We believe that our data-driven solutions will expand the user base to include operations and safety executives, process engineers, and other process-oriented leaders. Manufacturing Our customers in the manufacturing market primarily include automotive and vehicle manufacturers, chemical and paper manufacturers, and aerospace and defense manufacturers.
Depending on the sensor size and pixel pitch, ICI can export many of its thermal imaging cameras to most non U.S.-embargoed countries without restriction. Other countries can receive thermal imaging cameras with restrictions and proper licensing and documentation. Intellectual Property We own and control various intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names, and copyrights.
We believe that depending on the sensor size and pixel count, MSAI can export many of its thermal imaging cameras to most non-U.S.-embargoed countries (particularly to signatories of the Wassenaar Agreement) without restriction. Other countries can receive thermal imaging cameras with restrictions and proper licensing and documentation.
Partnering with several blue-chip multinational customers throughout the development process, we have validated dozens of high-value use cases for our SmartIR and MSAI cloud-software across our four core verticals.
In partnering with several blue-chip multinational customers throughout the development process, we have illustrated several high-value use cases for our MSAI Edge and MSAI Connect software across our three target markets, as described below.
Our edge software can be run on many types of edge devices, generally any PC, workstation, or server, and can be run on either Windows or Linux operating systems. Customer implementation needs will determine the type and location of the edge device relative to the sensor device.
Our edge software can be run on many types of edge devices, generally any PC, workstation, or server. Customer implementation needs determine the type and location of the edge device relative to the sensor device. Cloud Software MSAI Connect is our innovative, cloud-based software, that utilizes AI and enables predictive asset reliability and process control in industrial environments.
Originally used for radiation detection, the technology began being used in military applications for night vision, as well as in scientific and astronomical applications throughout the early portions of the 20 th century.
Industry Background A Brief History of Applied Infrared Technology Thermal imaging and sensing technologies were first discovered and leveraged in the early part of the 19th century. Originally used for radiation detection, the technology began being used in military applications for night vision, as well as in scientific and astronomical applications throughout the early portions of the 20th century.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCertain factors that could alone or in combination prevent us from successfully commercializing these solutions or our other products include: ● our reliance on third parties to supply significant parts of our production process or to manufacture our products; ● our ability to establish and maintain successful relationships with our suppliers or manufacturers; ● our ability to achieve commercial scale production of our products on a cost-effective basis and in a timely manner; ● our ability to successfully expand our product offerings; ● our ability to develop and protect intellectual property; ● our ability to gain market acceptance of our products with customers and maintain and expand customer relationships, whether through strategic customer agreements or otherwise; ● the adaptability of our products and the ability of our customers to integrate our products into their products and processes in a timely and effective manner; 21 Table of Contents ● the actions of direct and indirect competitors that may seek to enter the markets in which we expect to compete or that may seek to impose barriers to one or more markets that we intend to target; ● the long lead time for development of market opportunities for which we are only at an early stage of development; ● our ability to forecast our revenue and budget for, and manage, our expenses; ● our ability to comply with existing and new or modified laws and regulations applicable to our business, or laws and regulations applicable to our customers for applications in which they may use our products; ● our ability to plan for and manage capital expenditures for our current and future products, and manage our supply chain and supplier relationships related to these current and future products; ● our ability to anticipate and respond to macroeconomic changes and changes in the markets in which we operate and expect to operate; ● our ability to maintain and enhance the value of our reputation and brand; ● our ability to effectively manage our growth and business operations; and ● our ability to recruit and retain talented people at all levels of our organization.
Biggest changeCertain factors that could alone or in combination prevent us from successfully commercializing these solutions include: ● our ability to gain market acceptance of our SaaS solutions with customers and maintain and expand customer relationships, whether through strategic customer agreements or otherwise; ● the long lead time for development of market opportunities for which we are only at an early stage of deployment; ● the adaptability of our SaaS solutions and the ability of our customers to integrate our SaaS solutions into their products and processes in a timely and effective manner; ● our ability to successfully expand our SaaS offerings; ● our ability to develop and protect intellectual property; ● the actions of direct and indirect competitors that may seek to enter the markets in which we expect to compete or that may seek to impose barriers to one or more markets that we intend to target; ● our ability to forecast our revenue and budget for, and manage, our expenses; ● our ability to comply with existing and new or modified laws and regulations applicable to our business, or laws and regulations applicable to our customers for applications in which they may use our solutions; ● our ability to anticipate and respond to macroeconomic changes and changes in the markets in which we operate and expect to operate; ● our ability to maintain and enhance the value of our reputation and brand; ● our ability to effectively manage our growth and business operations; and ● our ability to recruit and retain talented people at all levels of our organization.
Item 1A. Risk Factors. RISK FACTORS You should carefully consider the risks described below, as well as the other information in this Annual Report on Form 10-K, including our financial statements and the related notes and Part II. Item 7.
Item 1A. Risk Factors. You should carefully consider the risks described below, as well as the other information in this Annual Report on Form 10-K, including our financial statements and the related notes and Part II. Item 7.
Our ability to accurately forecast demand for our products could be affected by many factors, including the rapidly changing nature of its current target markets, the uncertainty surrounding the market acceptance and commercialization of its technology, the emergence of new markets, an increase or decrease in customer demand for its products or for products and services of its competitors, product introductions by competitors, health epidemics and outbreaks, and any associated work stoppages or interruptions, unanticipated changes in general market conditions and the weakening of economic conditions or consumer confidence in future economic conditions.
Our ability to accurately forecast demand for our products could be affected by many factors, including the rapidly changing nature of our current target markets, the uncertainty surrounding the market acceptance and commercialization of our technology, the emergence of new markets, an increase or decrease in customer demand for our products or for products and services of our competitors, product introductions by competitors, health epidemics and outbreaks, and any associated work stoppages or interruptions, unanticipated changes in general market conditions and the weakening of economic conditions or consumer confidence in future economic conditions.
The already competitive landscape of the thermal infrared technology market, along with both foreseeable and unforeseeable entries of competitors and similar technology from those competitors in our target markets, may result in pricing pressure, reduced margins and may impede our ability to increase the sales of our products or cause us to lose market share, any of which will adversely affect its business, results of operations and financial condition.
The already competitive landscape of the thermal infrared technology market, along with both foreseeable and unforeseeable entries of competitors and similar technology from those competitors in our target markets, may result in pricing pressure, reduced margins and may impede our ability to increase the sales of our products or cause us to lose market share, any of which will adversely affect our business, results of operations and financial condition.
Some errors or defects in our products may only be discovered after they have been tested, commercialized and deployed by customers. If that is the case, we may incur significant additional development costs and product recall, repair or replacement costs. These problems may also result in claims, including class actions, against us by its customers or others.
Some errors or defects in our products may only be discovered after they have been tested, commercialized and deployed by customers. If that is the case, we may incur significant additional development costs and product recall, repair or replacement costs. These problems may also result in claims, including class actions, against us by our customers or others.
If our product sales do not increase as planned, or if our SaaS offerings are not sufficiently adopted by our customers, we may be unable to obtain anticipated material cost benefits or expected levels of fixed cost absorption that are needed to achieve its targeted margins and its operating results, business and prospects will be harmed.
If our product sales do not increase as planned, or if our SaaS offerings are not sufficiently adopted by our customers, we may be unable to obtain anticipated material cost benefits or expected levels of fixed cost absorption that are needed to achieve our targeted margins and our operating results, business and prospects will be harmed.
These lower average selling prices on large volume purchases may cause fluctuations in revenue and gross margins on a quarterly and annual basis and ultimately adversely affect its profitability. We may also experience declines in the average selling prices of our products generally as our customers negotiate lower prices and as our competitors produce and commercialize lower cost competing technologies.
These lower average selling prices on large volume purchases may cause fluctuations in revenue and gross margins on a quarterly and annual basis and ultimately adversely affect our profitability. We may also experience declines in the average selling prices of our products generally as our customers negotiate lower prices and as our competitors produce and commercialize lower cost competing technologies.
We may incur significant direct or indirect liabilities in connection with its product warranties which could adversely affect our business and operating results. We typically offer a limited product warranty that requires our products to conform to the applicable specifications and be free from defects in materials and workmanship for a limited warranty period.
We may incur significant direct or indirect liabilities in connection with our product warranties which could adversely affect our business and operating results. We typically offer a limited product warranty that requires our products to conform to the applicable specifications and be free from defects in materials and workmanship for a limited warranty period.
If we are unable to build confidence with its existing customers, either through these preliminary agreements (due to any failure to enter into or perform under the agreements) or otherwise, or if we are unable secure opportunity from these non-binding agreements, involving strategic customer agreements, we may be unable to produce accurate forecasts or increase our sales.
If we are unable to build confidence with our existing customers, either through these preliminary agreements (due to any failure to enter into or perform under the agreements) or otherwise, or if we are unable to secure opportunity from these non-binding agreements, involving strategic customer agreements, we may be unable to produce accurate forecasts or increase our sales.
If our contract manufacturers experience financial, operational, manufacturing capacity, or other difficulties, or experience shortages in required components, or if they are otherwise unable or unwilling to continue to manufacture our products in required volumes or at all, our supply may be disrupted, we may be required to seek alternate manufacturers and we may be required to re-design its products.
If our contract manufacturers experience financial, operational, manufacturing capacity, or other difficulties, or experience shortages in required components, or if they are otherwise unable or unwilling to continue to manufacture our products in required volumes or at all, our supply may be disrupted, we may be required to seek alternate manufacturers and we may be required to re-design our products.
Even if we successfully develop and sell our devices and software solutions, there can be no assurance that it will be commercially successful. We believe achieving sustained profitability will be dependent upon the successful development and successful commercial introduction and acceptance of its solutions, which may not occur.
Even if we successfully develop and sell our devices and software solutions, there can be no assurance that it will be commercially successful. We believe achieving sustained profitability will be dependent upon the successful development and successful commercial introduction and acceptance of our solutions, which may not occur.
Our future products, such as any software solutions we develop, may be products we have limited or no experience commercializing. In launching such products, we may face foreseen and unforeseen difficulties that adversely affect such commercialization and could have a material adverse effect on our operations and business.
Our future products, such as any additional software solutions we develop, may be products we have limited or no experience commercializing. In launching such products, we may face foreseen and unforeseen difficulties that adversely affect such commercialization and could have a material adverse effect on our operations and business.
Even when we succeed in securing contracts, these large companies have been and may continue to be uncertain about their technical specifications for our products and terminate its agreement or make a later determination that our products are not satisfactory.
Even when we succeed in securing contracts, these large companies have been and may continue to be uncertain about their technical specifications for our products and terminate our agreement or make a later determination that our products are not satisfactory.
If we are unsuccessful in introducing these products in accordance with its product launch plans or any publicly announced launch dates, it may be injurious to our reputation and brand and adversely affect our ability to be competitive in our target and new markets.
If we are unsuccessful in introducing these products in accordance with our product launch plans or any publicly announced launch dates, it may be injurious to our reputation and brand and adversely affect our ability to be competitive in our target and new markets.
The promise of new products and successful research and development may even decrease our expected and actual revenue attributable to existing products as customers may delay or cancel outstanding purchasing commitments for current generation products in anticipation of the release of new generation products from us.
The promise of new products and successful research and development may decrease our expected and actual revenue attributable to existing products as customers may delay or cancel outstanding purchasing commitments for current generation products in anticipation of the release of new generation products from us.
We currently have agreements with certain contract manufacturers to provide contract manufacturing, testing, and delivery of certain of our products. These arrangements are intended to lower our operating costs, but they also reduce our direct control over certain aspects of its operations.
We currently have agreements with certain contract manufacturers to provide contract manufacturing, testing, and delivery of certain of our products. These arrangements are intended to lower our operating costs, but they also reduce our direct control over certain aspects of our operations.
We incur significant costs related to procuring the materials and components required to manufacture and assemble its high-performance products as well as related to designing and developing our software solutions.
We incur significant costs related to procuring the materials and components required to manufacture and assemble our high-performance products as well as related to designing and developing our software solutions.
Our reputation or brand may be damaged as a result of these problems and customers may be reluctant to buy our products, which could adversely affect our ability to retain existing customers and attract new customers and could adversely affect our financial results. 32 Table of Contents In addition, we could face material legal claims for breach of contract, product liability, fraud, tort or breach of warranty as a result of these problems.
Our reputation or brand may be damaged as a result of these problems and customers may be reluctant to buy our products, which could adversely affect our ability to retain existing customers and attract new customers and could adversely affect our financial results. 27 Table of Contents In addition, we could face material legal claims for breach of contract, product liability, fraud, tort or breach of warranty as a result of these problems.
To date, we have limited experience with acquisitions and the integration of acquired technology and personnel. Acquisitions may divert our attention from its core business.
To date, we have limited experience with acquisitions and the integration of acquired technology and personnel. Acquisitions may divert our attention from our core business.
Further, we are subject to the risk that customers cancel or postpone implementation of its technology solution or our customers are unable to integrate its technology solution successfully into a larger system. If our customers face financial difficulties, they may also cancel current or future product programs that could materially and adversely impact our financial results.
Further, we are subject to the risk that customers cancel or postpone implementation of our technology solutions or our customers are unable to integrate our technology solution successfully into a larger system. If our customers face financial difficulties, they may also cancel current or future product programs that could materially and adversely impact our financial results.
If we are unable to grow our sales and marketing organization, we may not be able to increase our revenue, which would adversely affect our business, financial condition and results of operations. 27 Table of Contents Additionally, we rely on a network of independent distributors to help generate sales of our products.
If we are unable to grow our sales and marketing organization, we may not be able to increase our revenue, which would adversely affect our business, financial condition and results of operations. 22 Table of Contents Additionally, we rely on a network of independent distributors to help generate sales of our products.
To achieve profitability and maintain margins, we will also need to continually reduce product and manufacturing costs. Reductions in product and manufacturing costs are principally achieved by scaling production volumes and through step changes in manufacturing and continued engineering of the most cost-effective designs for its products.
To achieve profitability and maintain margins, we will also need to continually reduce product and manufacturing costs. Reductions in product and manufacturing costs are principally achieved by scaling production volumes and through step changes in manufacturing and continued engineering of the most cost-effective designs for our products.
With respect to new customers, they may be less confident in our business and less likely to purchase our products because of a lack of awareness about our products. They may also not be convinced that our business will succeed because of the absence of an established sales, service, support and operating history.
With respect to new customers, they may be less confident in our business and less likely to purchase our solutions because of a lack of awareness about our solutions. They may also not be convinced that our business will succeed because of the absence of an established sales, service, support and operating history.
This disparate power has required, and may require in the future, that we accept less favorable contract terms. These large corporations also have exacting technical specifications and requirements that we may be unable to meet, thereby precluding its ability to secure sales.
This disparate power has required, and may require in the future, that we accept less favorable contract terms. These large corporations also have exacting technical specifications and requirements that we may be unable to meet, thereby precluding our ability to secure sales.
Our revenue from U.S. government contracts depends on the continued availability of funding from the U.S. government, and, accordingly, we have the risk that funding for our existing contracts may be canceled or diverted to other uses or delayed or that funding for new programs will not be available.
Our revenue from government contracts depends on the continued availability of funding, and, accordingly, we have the risk that funding for our existing contracts may be canceled or diverted to other uses or delayed or that funding for new programs will not be available.
While we work with system integrators that lend their experience to these workstreams, there is no guarantee that unforeseen delays or setback would not arise that would impair our ability to launch with key programs across our sectors of focus.
While we work with system integrators that lend their experience to these workstreams, there is no guarantee that unforeseen delays or setbacks would not arise that would impair our ability to launch with key programs across our sectors of focus.
To build and maintain our business, we must maintain confidence in our products, long-term financial viability and business prospects. Failure to establish and maintain customer confidence may also adversely affect our reputation and business among our suppliers, analysts, ratings agencies and other interested parties.
To build and maintain our business, we must maintain confidence in our solutions, long-term financial viability and business prospects. Failure to establish and maintain customer confidence may also adversely affect our reputation and business among our suppliers, analysts, ratings agencies and other interested parties.
As a manufacturer and distributor of a wide variety of products used in the oil and gas, distribution and logistics, manufacturing and utilities markets, our results of operations are susceptible to adverse publicity regarding the quality or safety of its products.
As a manufacturer and distributor of a wide variety of products used in the oil and gas, distribution and logistics and manufacturing markets, our results of operations are susceptible to adverse publicity regarding the quality or safety of our products.
We are continuing to establish, develop and refine its disclosure controls, internal control over financial reporting, and other procedures that are designed to ensure that information required to be disclosed in the reports that we will file with the SEC are recorded, processed, summarized, and reported within the time periods specified in the rules of and on the forms required by the SEC, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
We are continuing to establish, develop and refine our disclosure controls, internal control over financial reporting, and other procedures that are designed to ensure that information required to be disclosed in the reports that we will file with the SEC are recorded, processed, summarized, and reported within the time periods specified in the rules of and on the forms 28 Table of Contents required by the SEC, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
We believe that we may continue to incur operating and net losses each quarter until at least such time as we begin to realize the anticipated benefits of our investment in sales and marketing efforts, though those benefits may not be as great as we anticipate or may occur later that we anticipate or not at all.
We believe that we may continue to incur operating and net losses each year until at least such time as we begin to realize the anticipated benefits of our investment in sales and marketing efforts, though those benefits may not be as great as we anticipate or may occur later than we anticipate or not at all.
In addition, these inaccuracies or errors may cause us to misallocate capital and other critical business resources, which could harm our business. Even if our total addressable market meets our size estimates and experiences growth, we may not continue to grow our share of the market.
In addition, these inaccuracies or errors may cause us to misallocate capital and other critical business resources, which could harm our business. Even if our TAM meets our size estimates and experiences growth, we may not continue to grow our share of the market.
The loss of business from our large customers (whether by lower overall demand for our products, cancellation of existing contracts or product orders or the failure to incorporate our product designs or award us new business) could have a material adverse effect on our business.
The loss of business from our large customers (whether by lower overall demand for our products, cancellation of 23 Table of Contents existing contracts or product orders or the failure to incorporate our product designs or award us new business) could have a material adverse effect on our business.
Whether this expansion will be successful and will accomplish our business and financial objectives is subject to uncertainties, including, but not limited to, customer demand, attach and renewal rates, channel adoption, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, and the related costs.
Whether this expansion will be successful and will accomplish our business and financial objectives is subject to uncertainties, including, but not limited to, customer demand, attach and renewal rates, channel adoption, our ability to further develop and scale infrastructure, our 16 Table of Contents ability to include functionality and usability in such offerings that address customer requirements, and the related costs.
Other of our end markets are similarly subject to potential volatility, including as a result of general economic factors. We are exposed to credit risk on our trade accounts receivable, supplier non-trade receivables, prepayments to manufacturers and software as a service subscription agreements, and this risk is heightened during periods when economic conditions worsen.
Other of our end markets are similarly subject to potential volatility, including as a result of general economic factors. We are exposed to credit risk on our trade accounts receivables, supplier non-trade receivables, prepayments to manufacturers and SaaS subscription agreements, and this risk is heightened during periods when economic conditions worsen.
If one or more of these markets experience a shift in customer or prospective customer demand, our products may not compete as effectively, if at all, and they may not be designed into commercialized products.
If one or more of these markets experience a shift in customer or prospective 18 Table of Contents customer demand, our products may not compete as effectively, if at all, and they may not be designed into commercialized products.
We may continue to incur losses or limited income in future periods as we: ● expand our sales and marketing presence; ● increase investment in SaaS solutions; ● execute on our product roadmaps; ● grow wallet share with enterprise customers; ● expand our distribution network; and ● pursue strategic acquisitions.
We may continue to incur losses or limited income in future periods as we: ● expand our sales and marketing presence; 15 Table of Contents ● increase investment in SaaS solutions; ● execute on our product roadmaps; ● grow wallet share with enterprise customers; ● expand our distribution network; and ● pursue strategic acquisitions.
If demand does not develop or if we cannot accurately forecast customer demand, the size or timing of our markets, inventory requirements, or our future financial results, our business, results of operations, and financial condition will be adversely affected. Our estimate of total addressable market is subject to numerous uncertainties.
If demand does not develop or if we cannot accurately forecast customer demand, the size or timing of our markets, inventory requirements, or our future financial results, our business, results of operations, and financial condition will be adversely affected. Our estimate of TAM is subject to numerous uncertainties.
If these components have a manufacturing, design or other defect, they can cause our sensors to fail and render them permanently inoperable. As a result, we may have to replace these sensors at our sole cost and expense.
If these components have a manufacturing, design or other defect, they can cause our sensors to fail and render them permanently inoperable. 26 Table of Contents As a result, we may have to replace these sensors at our sole cost and expense.
We may experience delays in shipments or issues concerning product quality from its contract manufacturers.
We may experience delays in shipments or issues concerning product quality from our contract manufacturers.
If any of our major third-party component suppliers experience interruptions, delays or disruptions in supplying their products or services, including by natural disasters, health epidemics and outbreaks, or work stoppages or capacity constraints, our ability to ship products to distributors and customers may be delayed.
We rely on third parties to supply key components of our products. If any of our major third-party component suppliers experience interruptions, delays or disruptions in supplying their products or services, including by natural disasters, health epidemics and outbreaks, or work stoppages or capacity constraints, our ability to ship products to distributors and customers may be delayed.
We cannot assure you of the accuracy or completeness of our estimates. While we believe our market size estimates are reasonable, such information is inherently imprecise. If internally-generated data used in our estimates proves to be inaccurate or we make errors in our assumptions based on such data, our actual market may be more limited than our estimates.
While we believe our market size estimates are reasonable, such information is inherently imprecise. If internally-generated data used in our estimates proves to be inaccurate or we make errors in our assumptions based on such data, our actual market may be more limited than our estimates.
There is no assurance that our efforts will be successful. If we do not successfully manage our lines of business or product lines, or any other similar activities that we may undertake in the future, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.
If we do not successfully manage our lines of business or product lines, or any other similar activities that we may undertake in the future, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.
Performance under government contracts has inherent risks that could have a negative effect on our business, results of operations, and financial condition. 30 Table of Contents Government contracts are conditioned upon the continuing availability of congressional appropriations and the failure of Congress to appropriate funds for programs in which we participate could negatively affect our results of operations.
Performance under government contracts has inherent risks and unfavorable contract terms that could have a negative effect on our business, results of operations, and financial condition. Government contracts are conditioned upon the continuing availability of appropriations and the failure to secure appropriate funds for programs in which we participate could negatively affect our results of operations.
Both of these markets are competitive and customers often have strict functional and pricing requirements for products. If we are unable to make products that meet these requirements, or sell products at the required price point, we could lose this business to competitors or competitive technologies. Our target markets involve risks of program delay, loss, and cancellation.
If we are unable to make products that meet these requirements, or sell products at the required price point, we could lose this business to competitors or competitive technologies. Our target markets involve risks of program delay, loss, and cancellation.
Uncertainty over budgets or priorities with the U.S. presidential administration could result in further delays in funding and the timing of awards, and changes in funded programs that could have a material impact on our revenues.
These delays could impact our revenues. Uncertainty over budgets or priorities could result in further delays in funding and the timing of awards, and changes in funded programs that could have a material impact on our revenues.
Our estimates of total addressable market are based on a combination of the total number of estimated potential customers in a given market, our expectations regarding the scope of potential use cases for our thermal infrared technology solutions in such markets, our estimates of average selling prices for our products in those markets and the potential opportunity for software solutions to increase the utility of thermal infrared technology solutions.
Our estimates of TAM are based on a combination of the total number of estimated potential customers in a given market, our expectations regarding the scope of potential use cases for our thermal infrared technology solutions in such markets, our estimates of average selling prices for our products in those markets and the potential opportunity for software solutions to increase the utility of thermal infrared technology solutions. ​ We cannot assure you of the accuracy or completeness of our estimates.
If we have overestimated the size of our total addressable market now or in the future, our future growth rate may be limited.
If we have overestimated the size of our TAM now or in the future, our future growth rate may be limited.
Cost-cutting initiatives adopted by our customers can place increased downward pressure on our average selling prices. We also expect that any long-term or high-volume agreements with customers may require step-downs in pricing over the term of the agreement. Our average selling price may be driven down by customer-specific selling price fluctuations such as non-standard discounts on large volume purchases.
We also expect that any long-term or high-volume agreements with customers may require step-downs in pricing over the term of the agreement. Our average selling price may be driven down by customer-specific selling price fluctuations such as non-standard discounts on large volume purchases.
Furthermore, many of the factors that impact our operating costs are beyond its control. For example, the costs of our materials and components could increase due to shortages as global demand for these products increases or the cost of maintaining our proprietary SaaS cloud could increase.
Furthermore, many of the factors that impact our operating costs are beyond our control. For example, the costs of our materials and components could increase due to shortages as global demand for these products increases.
Our growth is subject to many factors, including the successful implementation of our business strategy, which is subject to many risks and uncertainties. Accordingly, the estimates of our total addressable market included in this Annual Report on Form 10-K should not be taken as indicative of our ability to grow.
Our growth is subject to many factors, including the successful implementation of our business strategy, which is subject to many risks and uncertainties. Accordingly, the estimates of our TAM included in this Annual Report should not be taken as indicative of our ability to grow.
If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. 26 Table of Contents Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would adversely affect our financial results, including our gross margin, and have a negative effect on our brand.
Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would adversely affect our financial results, including our gross margin, and have a negative effect 21 Table of Contents on our brand.
Also, government spending does not necessarily correlate to continued business for us, because not all of the programs in which we have participated, or may participate, or have current capabilities may be provided with continued funding.
Also, government spending does not necessarily correlate to continued business for us, because not all of the programs in which we have participated, or may participate, or have current capabilities may be provided with continued funding. It is also not uncommon for governmental entities to delay the timing of awards or change orders for major programs.
If we are unable to maintain our relationships with our large customers, or if arrangements are modified so that the economic terms become less favorable to us, then our business, financial results and position could be materially adversely affected. We generate revenue from companies in certain industries that may be subject to significant levels of volatility.
If we are unable to maintain our relationships with our large customers, or if arrangements are modified so that the economic terms become less favorable to us, then our business, financial results and position could be materially adversely affected.
If we are unsuccessful in overcoming these barriers, it may affect our entrance into, or adoption by, these target or new markets, which could adversely affect our future results of operations. 22 Table of Contents Our products are used in a wide variety of existing and emerging use cases in the distribution and logistics market, where our products provide conveyor system monitoring solutions assisting customers with process automation, predictive maintenance and failure avoidance.
If we are unsuccessful in overcoming these barriers, it may affect our entrance into, or adoption by, these target or new markets, which could adversely affect our future results of operations. 17 Table of Contents Our products are used in a wide variety of existing and emerging use cases in the distribution and logistics market.
In addition, unfavorable economic conditions could result in financial distress among third-party suppliers upon which we rely, thereby increasing the risk of disruption of supplies necessary to fulfill our production requirements and meet customer demands.
In addition, unfavorable economic conditions could result in financial distress among third-party suppliers upon which we rely, thereby increasing the risk of disruption of supplies necessary to fulfill our production requirements and meet customer demands. For example, in 2024, due to the reorganization of a vendor, we recorded a write down of a deposit of approximately $930,000.
This risk may be exacerbated by the fact that we may not carry or be able to obtain from our suppliers a significant amount of inventory to satisfy short-term demand increases.
This risk may be exacerbated by the fact that we may not carry or be able to obtain from our suppliers a significant amount of inventory to satisfy short-term demand increases. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale.
We manufacture products used in the detection of gas or liquid leaks, monitoring of tank levels and flares, detection of pipeline leaks and safety monitoring of gas processing activities. When crude oil and natural gas prices are low, the level of midstream oil and gas activity typically decreases, potentially resulting in reduced demand for our products used in such activities.
When crude oil and natural gas prices are low, the level of midstream oil and gas activity typically decreases, potentially resulting in reduced demand for our products used in such activities.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, and the rules and regulations of Nasdaq. We expect that the requirements of these rules and regulations will increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly and place significant strain on our personnel, systems, and resources.
We expect that the requirements of these rules and regulations will increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly and place significant strain on our personnel, systems, and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.
For example, we have experienced significant increases in prices for certain electronic components, as well as significantly increased lead times. We sought to address these increases by carrying safety stock of critical components on deposit with our suppliers, evaluating alternative components, suppliers and processes, reviewing component substitution opportunities, and aggressively negotiating larger quantities with our vendors to ensure adequate supply.
We sought to address these increases by carrying safety stock of critical components on deposit with our suppliers, evaluating alternative components, suppliers and processes, reviewing component substitution opportunities, and aggressively negotiating larger quantities with our vendors to provide for adequate supply. Certain of our key component manufacturers and suppliers have the ability, in our contracts, to periodically increase their prices.
While we take measures to protect our trade secrets, the use of third-party suppliers may also risk disclosure of our innovative and proprietary manufacturing methodologies, which could adversely affect our business. 31 Table of Contents We believe there are a limited number of competent, high-quality suppliers in the industry that meet our strict quality and control standards, and as we seek to obtain additional or alternative supplier arrangements in the future, there can be no assurance that we would be able to do so on satisfactory terms, in a timely manner, or at all.
We believe there are a limited number of competent, high-quality suppliers in the industry that meet our strict quality and control standards, and as we seek to obtain additional or alternative supplier arrangements in the future, there can be no assurance that we would be able to do so on satisfactory terms, in a timely manner, or at all.
We generate revenue from companies in certain industries that may be subject to significant levels of volatility, such as the oil and gas industry. The oil and gas industry has historically been cyclical and characterized by significant changes in the levels of exploration and development activities, with resulting changes in midstream activities.
We generate revenue from companies in certain industries that may be subject to significant levels of volatility. We generate revenue from companies in certain industries that may be subject to significant levels of volatility, such as the oil and gas industry.
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.
As previously reported, in connection with the preparation of the audited consolidated financial statements for the year ended December 31, 2023, we identified material weaknesses in our internal controls over financial reporting. As of December 31, 2024, management has remediated the material weakness. See
We cannot ensure that insurance carriers will be willing to renew coverage or provide new coverage for product liability. Product recalls can be expensive and tarnish our reputation and have a material adverse effect on the sales of its products. We cannot assure that we will not have additional product liability claims or that we will not recall any products.
Product recalls can be expensive and tarnish our reputation and have a material adverse effect on the sales of our products. Awarded damages could be more than our accruals. We cannot assure that we will not have product liability claims or that we will not recall any products.
Further, our revenue could be less than forecasted if the system, product, or process that includes our products is unsuccessful, including for reasons unrelated to our technology.
Further, our revenue could be less than forecasted if the system, product, or process that includes our products is unsuccessful, including for reasons unrelated to our technology. Long selling cycles and product cancellations or postponements may adversely affect our business, results of operations, and financial condition.
Should we have a widespread problem of this kind, our reputation in the market could be adversely affected and our replacement of these sensors would harm our business. Product integration could face complications or unpredictable difficulties, which may adversely impact customer adoption of our products and our financial performance.
Should we have a widespread problem of this kind, our reputation in the market could be adversely affected and our replacement of these sensors would harm our business.
Our customers must also be comfortable that the integration of our products will not disrupt our supply chain operations, which are typically continuous in nature.
Our customers must also be comfortable that the integration of our products will not disrupt our supply chain operations, which are typically continuous in nature. Customers must be convinced that their legacy systems alone are not adequate for predictive-maintenance, process-improvement or safety tasks.
Our suppliers could raise prices on key components, which may adversely affect our profitability. Significant increases in the cost of certain components used in our products, to the extent they are not timely reflected in the price we charge our customers, could materially and adversely impact our results.
Significant increases in the cost of certain components used in our products, to the extent they are not timely reflected in the price we charge our customers, could materially and adversely impact our results. For example, we have experienced significant increases in prices for certain electronic components, as well as significantly increased lead times.
Using third parties for distribution exposes us to many risks, including concentration risk, credit risk and legal risk because, under certain circumstances, we may be held responsible for the actions of those third-party sales channels. We may rely on one or more key distributors for selling a product, and the loss of these distributors could reduce its revenue.
We sell a portion of our products through third parties such as distributors and manufacturers representatives. Using third parties for distribution exposes us to many risks, including concentration risk, credit risk and legal risk because, under certain circumstances, we may be held responsible for the actions of those third-party sales channels.
This is a nascent market, and while this industry is experimenting with the use of thermal imaging in these applications, our customers may decide that thermal imaging is not a feasible solution for one of a variety of reasons, including current price points of sensors using thermal imaging technology.
Our products also are used in a wide variety of existing and emerging use cases in the oil and gas market. This is a nascent market, and while this industry is experimenting with the use of thermal imaging in these applications, our customers may decide that thermal imaging is not a feasible solution.
If we are unable to maintain competitive average selling prices, increase our sales volume or successfully introduce new, low-cost products, our revenue and overall gross margin would likely decline. If we fail to successfully manage the expansion of our SaaS capabilities and offerings, our business and financial results could be adversely affected.
If we are unable to maintain competitive average selling prices, increase our sales volume or successfully introduce new, low-cost products, our revenue and overall gross margin would likely decline. 19 Table of Contents We face risks related to sales through distributors and other third parties which could harm our business.
In addition, if the sale of any non-strategic business cannot be consummated or is not practical, alternative courses of action, including relocation of product lines or closure, may not be available to us or may be more costly than anticipated. 28 Table of Contents Risks Related to Our Customers and Suppliers Certain of our commercial contracts with our customers, agreements with suppliers or co-development agreements with partners could be terminated or may not materialize into long-term contract partnership arrangements.
In addition, if the sale of any non-strategic business cannot be consummated or is not practical, alternative courses of action, including relocation of product lines or closure, may not be available to us or may be more costly than anticipated.
Risks Related to Our Business and Industry We have a history of losses or low income, and may continue to incur losses or limited income in the future. We have incurred net losses or low income in recent years, as we pivoted the company from primarily stand-alone device sales to pairing device sales with sales of our software solutions.
We have incurred net losses or low income in recent years, as we pivoted the Company from primarily stand-alone device sales to pairing device sales with sales of our software solutions. We incurred a net loss of approximately $22,268,000 for the year ended December 31, 2023, and approximately $21,495,000 for the year ended December 31, 2024.
To ensure the correct level of inventory supply, we forecast inventory needs and expenses, places orders sufficiently in advance with its suppliers and manufacturing partners and manufactures products based on our estimates of future demand. Fluctuations in the adoption of our products may affect our ability to forecast our future operating results, including revenue, gross margins, cash flows and profitability.
To provide for an appropriate level of inventory supply, we forecast inventory needs and expenses, places orders sufficiently in advance with our suppliers and manufacturing partners and manufactures products based on our estimates of future demand.
If a major customer were to enter into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, we could be forced to record a substantial loss. 29 Table of Contents We also have unsecured supplier non-trade receivables resulting from purchases of components by contract manufacturers and other vendors that manufacture sub-assemblies or assemble final products for us.
If a major customer were to enter into bankruptcy proceedings or similar proceedings whereby contractual commitments are subject to stay of execution and the possibility of legal or other modification, we could be forced to record a substantial loss.
In addition to the technical risks of integrating our products into our customers’ workflows, applications and other technology solutions, our customers must be comfortable with the cybersecurity and software integrity of our products, including the SmartIR system.
One risk specific to the manufacturing target market is that many manufacturing customers have some form of legacy system, usually vibration monitors, that perform functions that overlap with some of the MSAI Connect functionality In addition to the technical risks of integrating our products into our customers’ workflows, applications and other technology solutions, our customers must be comfortable with the cybersecurity and software integrity of our products, including the MSAI Connect system.
It would be time-consuming, and could be costly and impracticable, to begin to use new manufacturers or designs, and such changes could cause significant interruptions in supply. Such changes could also have an adverse effect on our ability to meet our scheduled product deliveries and may subsequently lead to the loss of sales.
It would be time-consuming, and could be costly and impracticable, to begin to use new manufacturers or designs, and such changes could cause significant interruptions in supply.
Certain of our key component manufacturers and suppliers have the ability, in our contracts, to periodically increase their prices. Accordingly, we cannot assure that it will not face increased prices in the future or, if we do, whether we will be effective in containing margin pressures from any further component price increases.
Accordingly, we cannot assure that it will not face increased prices in the future or, if we do, whether we will be effective in containing margin pressures from any further component price increases. Key components in our products come from limited or single source third party suppliers. Interruptions in our relationships with these third parties could adversely impact our business.
U.S. government shutdowns have resulted in delays in anticipated contract awards and delayed payments of invoices for several of its businesses and any new shutdown could have similar or worse effects. The failure by Congress to approve future budgets on a timely basis could delay procurement of our products and services and cause us to lose future revenues.
Government shutdowns have resulted in delays in anticipated contract awards and delayed payments of invoices for several of our businesses and any new shutdown could have similar or worse effects.
The loss of large customers could result in a material adverse effect to our financial results. For the years ended December 31, 2023 and 2022, our top customers represented approximately 44% and 17% of our revenue, respectively, which percentages may increase going forward as we continue to grow or develop additional relationships with new large customers.
Risks Related to Our Customers and Suppliers The loss of large customers could result in a material adverse effect to our financial results. For the years ended December 31, 2024 and 2023, our top three customers represented approximately 47% and 19% of our revenue, respectively.
Over the years, we have also reorganized certain of our product lines, for example, to de-emphasize products used primarily for biorisk applications as the impact of the global COVID-19 pandemic began to lessen, among other reasons. We may not be able to realize efficiencies and cost savings from our reorganization activities.
Consistent with our strategy to emphasize growth in our target markets, we continually evaluate our businesses so that they are aligned with our strategy and objectives. Over the years, we have also reorganized certain of our product lines, for example, to de-emphasize products used primarily for biorisk applications as the impact of the global COVID-19 pandemic began to lessen.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur cybersecurity risk management program includes a cybersecurity incident response plan. ​ 52 Table of Contents We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF).
Biggest changeWe design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (the “NIST CSF”).
See “ Risk Factors – We are subject to cybersecurity risks to operational systems, security systems, infrastructure, firmware in our thermal infrared technology and customer data processed by us or third-party vendors or suppliers and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent us from effectively operating our business .” ​ Cybersecurity Governance ​ Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (Committee) oversight of cybersecurity and other information technology risks.
See “ Risk Factors – We are subject to cybersecurity risks to operational systems, security systems, infrastructure, firmware in our thermal infrared technology and customer data processed by us or third-party vendors or suppliers and any material failure, weakness, interruption, cyber event, incident or breach of security could prevent us from effectively operating our business .” ​ Cybersecurity Governance ​ Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) oversight of cybersecurity and other information technology risks.
This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business. ​ Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas. ​ Our cybersecurity risk management program includes: ​ ● risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; ​ ● the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; ​ ● cybersecurity awareness training of our employees, incident response personnel, and senior management; and ​ ● a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents. ​ We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business. 47 Table of Contents Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas. ​ Our cybersecurity risk management program includes: ​ ● risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment; ● the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; ● cybersecurity awareness training of our employees, incident response personnel, and senior management; and ● a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents. ​ We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. ​ Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment. 53 Table of Contents
The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. ​ Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment. ​
Item 1C. Cybersecurity. ​ Cybersecurity Risk Management and Strategy ​ We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information.
Item 1C. Cybersecurity. ​ Cybersecurity Risk Management and Strategy ​ We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our corporate headquarters is located in Beaumont, Texas where we lease approximately 6,380 square feet of office space and 7,320 square feet of warehouse space.
Biggest changeItem 2. Properties. Our corporate headquarters is located in Beaumont, Texas where we lease approximately 6,380 square feet of office space and 7,320 square feet of warehouse space. Our office space is leased pursuant to two one-year leases which both expire on December 31, 2025. Our warehouse space is leased pursuant to a one-year which expires July 31, 2025.
Our warehouse space houses our inventory, stock items and quality control operations. We believe that our office and warehouse space is adequate for our current needs and, should we need additional space, we believe we will be able to obtain additional space on commercially reasonable terms.
We believe that our office and warehouse space is adequate for our current needs and, should we need additional space, we believe we will be able to obtain additional space on commercially reasonable terms.
Our warehouse space is leased pursuant to a one-year written lease that expires on July 20, 2024. We expect to be able to extend these leases prior to their expiration on commercially reasonable terms. Our office space contains engineering, manufacturing, research and development and administrative functions of the company.
We expect to be able to extend these leases prior to their expiration on commercially reasonable terms. Our office space contains engineering, manufacturing, research and development and administrative functions of the Company. Our warehouse space houses our inventory, stock items and quality control operations.
Removed
Our office space is leased pursuant to two three-year written leases that expired on December 31, 2023, but which automatically renewed for a one-year term, commencing January 1, 2024, as written notice of termination was not provided by either party by the requisite date.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not currently a party to any actions, claims, suits or other legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, and results of operations. Item 4. Mine Safety Disclosures. Not Applicable. ​ 54 Table of Contents PART II
Biggest changeWe are not currently a party to any actions, claims, suits or other legal proceedings the outcome of which, 48 Table of Contents if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, and results of operations. Item 4. Mine Safety Disclosures.
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Not Applicable. ​ ​ 49 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness it or its subsidiaries incur. Recent Sales of Unregistered Securities None. Purchases of equity securities by the issuer and affiliated purchasers None. Item 6. [Reserved]. ​
Biggest changeIn addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. Recent Sales of Unregistered Securities There was no unregistered sale of our equity securities during the year ended December 31, 2024 that were not otherwise disclosed in a Current Report on Form 8-K.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information On December 20, 2023, MSAI’s common stock and SPAC Warrants began trading on the Nasdaq Global Market under the symbols “MSAI” and “MSAIW,” respectively. Prior to that time, there was no public market for MSAI’s securities.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information On December 20, 2023, our Common Stock and SPAC Warrants began trading on the Nasdaq Global Market under the symbols “MSAI” and “MSAIW,” respectively. Prior to that time, there was no public market for our securities.
Holders As of March 18, 2024, there were approximately 118 holders of record of our common stock. Dividends We have never declared or paid cash dividends on our capital stock.
Holders As of March 10, 2025, there were approximately 80 holders of record of our Common Stock. Dividends We have never declared or paid cash dividends on our capital stock.
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Purchases of equity securities by the issuer and affiliated purchasers None. ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents a reconciliation of EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin to the GAAP financial measure of net income for each of the periods indicated (unaudited), in thousands: ​ 60 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ (22,268) ​ $ (13,290) ​ Interest expense ​ 64 ​ 32 ​ Interest expense, related parties ​ 30 ​ 83 ​ Income tax expense ​ 208 ​ 1,205 ​ Depreciation ​ 872 ​ 561 ​ EBITDA ​ $ (21,094) ​ $ (11,409) ​ EBITDA margin % (of revenue) ​ (388) % (157) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ (22,268) ​ $ (13,290) ​ Interest expense ​ 64 ​ 32 ​ Interest expense, related parties ​ 30 ​ 83 ​ Income tax expense ​ 208 ​ 1,205 ​ Depreciation ​ 872 ​ 561 ​ Transaction costs ​ — ​ 1,898 ​ Change in fair value of convertible notes ​ (970) ​ — ​ Change in fair value of warrants ​ (195) ​ — ​ Share based compensation expense ​ 14,061 ​ 644 ​ Casualty losses, net of recoveries ​ — ​ 155 ​ Inventories impairment ​ 1,689 ​ — ​ Loss on financing transaction ​ 4,043 ​ — ​ Tariff refund ​ (2,401) ​ — ​ Other (income) expenses, net ​ (44) ​ (48) ​ Adjusted EBITDA ​ $ (4,911) ​ $ (8,760) ​ Adjusted EBITDA margin % (of revenue) ​ (90) % (121) % ​ Liquidity and Capital Resources and Going Concern We incurred losses and negative cash flow from operations for the year ended December 31, 2023, due to a decrease in revenue, negative cash flows from operations, negative net working capital excluding deferred transaction costs and other current assets that are not settled in cash and increase in investment in technology innovation and commercial capabilities compared to the prior year periods.
Biggest changeThe following tables present a reconciliation of EBITDA and Adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited), in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Adjusted EBITDA 2024 2023 Net loss ​ $ (21,495) ​ $ (22,268) ​ Interest expense ​ 63 ​ 64 ​ Interest expense, related parties ​ — ​ ​ 30 ​ Income tax expense (benefit) ​ (465) ​ 208 ​ Depreciation ​ 1,140 ​ 872 ​ EBITDA ​ ​ (20,757) ​ ​ (21,094) ​ Change in fair value of convertible notes ​ 475 ​ (970) ​ Change in fair value of warrants liabilities ​ (39) ​ (195) ​ Share-based compensation expense ​ 3,382 ​ 14,061 ​ Inventory impairment ​ 2,272 ​ 1,689 ​ Loss on financing transaction ​ 1,553 ​ 4,043 ​ Tariff refund ​ — ​ (2,401) ​ Other expenses, net ​ 1,027 ​ 12 ​ Other Loss ​ ​ 930 ​ ​ — ​ Loss (gain) on asset disposal ​ ​ 322 ​ ​ (56) ​ Adjusted EBITDA ​ $ (10,835) ​ $ (4,911) ​ ​ Liquidity and Capital Resources We incurred losses for the year ended December 31, 2024, due to negative net working capital excluding deferred transaction costs and other current assets that are not settled in cash, and an increase in investment in technology innovation and commercial capabilities as compared to year ended December 31, 2023.
We believe EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin are useful performance measures because they facilitate comparison of our results of operations from period to period without regard to our financing methods or capital structure or other items that impact comparability of financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation, non-cash charges such as share based compensation expenses or unusual items that are not considered an indicator of ongoing performance of our operations.
We believe EBITDA and Adjusted EBITDA, are useful performance measures because they facilitate comparison of our results of operations from period to period without regard to our financing methods or capital structure or other items that impact comparability of financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation, non-cash charges such as share based compensation expenses or unusual items that are not considered an indicator of ongoing performance of our operations.
We will require additional capital in order to execute on our business plan and may additionally require capital to fund our operations or to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances, and we may determine to raise capital through equity or debt financings or enter into credit facilities for other reasons.
We will require additional capital in order to execute on our business plan and may require capital to fund our operations or to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances, and we may determine to raise capital through equity or debt financings or enter into credit facilities for other reasons.
This discussion should be read in conjunction with our audited consolidated financial statements as of and for the years ended December 31, 2023, and 2022, together with the related notes thereto, included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties.
This discussion should be read in conjunction with our audited consolidated financial statements as of and for the years ended December 31, 2024, and 2023, together with the related notes thereto, included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties.
We will be able to take advantage of these scaled disclosures for so long as our voting and non-voting 66 Table of Contents common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
We will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
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.” The Business Combination was accounted for as a reverse acquisition.
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.” (“MSAI”). The Business Combination was accounted for as a reverse acquisition.
In order to stay on our anticipated growth trajectory and to further business relationships with current or potential customers or partners, or for other reasons, we may issue equity or equity-linked securities to such current or potential customers or partners.
In order to maintain our anticipated growth trajectory and to further business relationships with current or potential customers or partners, or for other reasons, we may issue equity or equity-linked securities to such current or potential customers or partners.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations provides information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.
The following discussion and analysis of our financial condition and results of operations provides information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.
We have historically funded our operations with internally generated cash flows, lines of credit with banks, and promissory notes with shareholders and related parties.
We have historically funded our operations with internally generated cash flows, lines of credit with banks, convertible notes, and promissory notes with stockholders and related parties.
The net present value of operating lease liabilities for the years ended December 31, 2023 and 2022 is $0.1 million and $0.1 million, respectively. Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP.
The net present value of operating lease liabilities as of December 31, 2024, and 2023 is $1.1 million. Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP.
On December 19, 2023, Legacy SMAP, through its subsidiary ICH Merger Sub Inc. (“Merger Sub”), and Infrared Cameras Holdings Inc (“Legacy ICI”) 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”).
(“Legacy SMAP”), through its Merger Sub, and Infrared Cameras Holdings Inc (“Legacy ICI”) 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”).
Under this method of accounting, Legacy ICI has been determined to be the accounting acquirer, as it held the majority composition of the executive management and was greater in overall asset, revenue and employee size following the Business Combination.
Under this method of accounting, Legacy ICI has been determined to be the accounting acquirer, as it held the majority composition of the executive management and was greater in overall asset, revenue and employee size following the Business Combination. Revenue Sources Our revenues are derived from multiple sources.
The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such a time as those standards apply to private companies.
The JOBS Act provides that an emerging growth company can opt out of such “extended exemption period” and delay adopting new or revised accounting standards until such a time as those standards apply to private companies.
Inventories Inventories are stated at the lower of actual 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.
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.
As noted in the Company’s consolidated financial statements, there is substantial doubt as to our ability to fund our planned operations for the next twelve months and to continue to operate as a going concern.
As noted in the Company’s consolidated financial statements, there is substantial doubt as to our ability to fund our planned operations in both the short- and long-term and to continue to operate as a going concern.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.
We have assessed our ability to continue as a 61 Table of Contents going concern, and, based on our need to raise additional capital to finance our future operations and recurring losses from operations incurred since inception, we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that the consolidated financial statements included in this Annual Report on Form 10-K are issued.
We have assessed our ability to continue as a going concern, and, based on our need to raise additional capital to finance our future operations, recurring losses from operations incurred since inception, and an expectation of continuing operating losses for the foreseeable future, we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that these consolidated financial statements are issued.
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 and requires the Company to use judgment in forecasting future demand for its products.
The determination of excess inventory is estimated based on a comparison of the quantity and cost of inventory on hand to our forecast of customer demand, which is dependent on various internal and external factors requiring the use of judgment.
Cash Flows Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table summarizes our cash flows for the periods, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 ​ ​ ​ ​ ​ ​ ​ Net cash (used in) provided by operating activities ​ $ (4,551) ​ $ (3,170) Net cash (used in) provided by investing activities ​ (1,512) ​ (1,600) Net cash (used in) provided by financing activities ​ 6,564 ​ 2,050 Net increase (decrease) in cash and cash equivalents ​ 501 ​ (2,720) ​ Operating Activities Net cash used in operating activities was $4.6 million for the year ended December 30, 2023, an increase of $1.4 million as compared to $3.2 million of net cash used in operating activities for the year ended December 31, 2022.
Cash Flows Year ended December 31, 2024, Compared to Year ended December 31, 2023 The following table summarizes our cash flows for the periods indicated, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 2023 Net cash used in operating activities ​ $ (15,567) ​ $ (4,551) Net cash used in investing activities ​ (2,667) ​ (1,512) Net cash provided by financing activities ​ 21,587 ​ 6,564 Net increase (decrease) in cash, cash equivalents, and restricted cash equivalents ​ 3,353 ​ 501 ​ ​ ​ Operating Activities Net cash used in operating activities was $15.6 million for the year ended December 31, 2024, an increase of $11.0 million, as compared to $4.6 of net cash used in operating activities for the year ended December 31, 2023.
Financing Activities Net cash provided by financing activities was $6.6 million for the year ended December 31, 2023, an increase of $4.5 million as compared to $2.1 million of net cash provided by financing activities for the year ended December 31, 2022.
Financing Activities Net cash provided by financing activities was $21.6 million for the year ended December 31, 2024, an increase of $15.0 million, as compared to $6.6 million of net cash provided by financing activities for the year ended December 31, 2023.
We may take advantage of these exemptions until December 31, 2026, or until we are no longer an emerging growth company, whichever is earlier.
We have elected to opt out of this extended exemption period. We may take advantage of these exemptions until December 31, 2026, or until we are no longer an emerging growth company, whichever is earlier.
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.
The Pre-Funded Warrants were not exercisable unless or until approved by the Company’s stockholders, are not subject to any redemption provision and, once exercisable, can be exercised for cash or on a cashless basis at the discretion of the holder.
Our estimates are based on historical experience and 62 Table of Contents various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. The critical accounting policies, assumptions, and judgements that we believe have the most significant impact on our consolidated financial statements are described below.
Our actual results could differ from these estimates. The critical accounting policies, assumptions, and judgements that we believe have the most significant impact on our consolidated financial statements are described below. Inventory Inventory is stated at the lower of cost and net realizable value (“NRV”).
EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of EBITDA and Adjusted EBITDA may not be comparable to EBITDA or Adjusted EBITDA of other companies.
In addition, we believe that such non-GAAP financial measures are used by analysts and others in the investment community to analyze our historical results and to provide estimates of future performance. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP.
The decrease in net cash used in investing activities was primarily due to a decrease in proceeds from sale of equipment for the year ended December 31, 2023, compared to the year ended December 31, 2022.
The increase in net cash used in investing activities was primarily attributable to an increase in capital expenditures related to software development for the year ended December 31, 2024, compared to the year ended December 31, 2023.
We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business.
We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business. 54 Table of Contents EBITDA and Adjusted EBITDA, when viewed in a reconciliation to respective GAAP measures, provide an additional way of viewing the Company’s results of operations and factors and trends affecting the Company’s business.
Recently Issued Accounting Standards Refer to Note 2 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K for our assessment of recently issued and adopted accounting standards. Emerging Growth Company and Smaller Reporting Company Status We are an emerging growth company under the JOBS Act.
Management uses its best judgment in determining provisions or benefits for income taxes, and any valuation allowance recorded against previously established deferred tax assets. Recently Issued Accounting Standards Refer to Note 2 of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K for our assessment of recently issued and adopted accounting standards.
Investment Activities Net cash used in investing activities was $1.5 million for the year ended December 31, 2023, a decrease of $0.1 million as compared to $1.6 million of net cash used in investing activities for the year ended December 31, 2022.
The increase in net cash used in operating activities was primarily attributable to payments made to reduce our liabilities during the year, in an effort to improve our capital structure. Investment Activities Net cash used in investing activities was $2.7 million for the year ended December 31, 2024, as compared to $1.5 million for the year ended December 31, 2023.
We define EBITDA as net (loss) income before (i) interest expense (net interest income), (ii) depreciation and (iii) taxes. We define Adjusted EBITDA as EBITDA before share-based compensation expenses and other non-operating income and expenses. We define EBITDA Margin as EBITDA divided by revenue and Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue.
Non-GAAP Financial Measures EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA, are supplemental non-generally accepted accounting principles (“GAAP”) financial measures used by management. We define EBITDA as net (loss) income before (i) interest expense (net interest income), (ii) depreciation and (iii) taxes.
With respect to hardware, device technology and functionality is not changing very much and the devices that the Company has in its inventory are more than adequate technically for MSAI’s integrated solutions offerings. With respect to software, the Company is continuously updating and upgrading the on-device and cloud-based software on its existing devices to keep pace with technological advances.
We believe 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 more deployable with for the Company’s integrated solutions offerings.
The increase by financing activities for the year ended December 31, 2023, is primarily due to the proceeds to us from the Business Combination and related financing transactions. Contractual Obligations Our principal commitments consist of lease obligations for corporate offices and production facilities.
The increase in net cash provided by financing activities is primarily attributable to proceeds from the issuance of Common Stock, offset by repayments of borrowings. 57 Table of Contents Contractual Obligations Our principal commitments consist of lease obligations for our corporate office and production facility.
The increase in net cash used in operating activities was primarily attributable to collective changes from non-cash balances including a change of $13.4 million share-based compensation expense, a change of accrued expenses of $3.3 million, a change of $4.0 million in loss on financing transaction, a change in deferred transaction costs of $1.1 million, and a change in fair value of convertible notes of $1.0 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.
The increase in change in fair value of warrants liabilities was primarily due to the decrease in the share price during the period. Loss on financing transaction: Loss on financing transaction for the year ended December 31, 2024 was $1.6 million, compared to $4.0 million for the year ended December 31, 2023.
Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table presents summary results of operations for the periods indicated, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, Amount ​ ​ ​ 2023 2022 Change % Change ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue, net ​ $ 5,430 ​ $ 7,268 ​ $ (1,838) (25) % Cost of goods sold (exclusive of depreciation) ​ 3,986 ​ 4,964 ​ (978) (20) % Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 22,105 ​ 13,606 ​ 8,499 62 % Depreciation ​ 872 ​ 561 ​ 311 55 % Casualty losses, net of recoveries ​ — ​ 155 ​ (155) 100 % Total operating expenses ​ 22,977 ​ 14,322 ​ 8,655 60 % Operating loss ​ (21,533) ​ (12,018) ​ (9,515) 79 % Interest expense ​ 64 ​ 32 ​ 32 100 % Interest expense, related parties ​ 30 ​ 83 ​ (53) (64) % Change in fair value of convertible notes ​ (970) ​ — ​ (970) (100) % Tariff refund ​ (2,401) ​ — ​ (2,401) (100) % Change in fair value of warrant liabilities ​ (195) ​ — ​ (195) (100) % Loss on financing transaction ​ 4,043 ​ — ​ 4,043 100 % Other (income) expenses, net ​ (44) ​ (48) ​ 4 (8) % Loss before income taxes ​ (22,060) ​ (12,085) ​ (9,975) 83 % Income tax expense ​ 208 ​ 1,205 ​ (997) (83) % Net loss ​ $ (22,268) ​ $ (13,290) ​ $ (8,978) 68 % ​ Revenue: Revenue for the year ended December 31, 2023, was approximately $5.4 million, and decreased $1.8 million, or 25%, from approximately $7.3 million for the year ended December 31, 2022.
As a result of such sales, we received net proceeds of approximately $4.3 million. ​ ​ 52 Table of Contents Results of Operations Year ended December 31, 2024 compared to Year ended December 31, 2023 The following table presents summary results of operations for the periods indicated, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, Amount ​ ​ ​ 2024 2023 Change % Change Revenue, net ​ $ 7,402 ​ $ 5,430 ​ $ 1,972 36 % Cost of goods sold (exclusive of depreciation) ​ 2,582 ​ 2,297 ​ 285 12 % Inventory Impairment ​ ​ 2,272 ​ ​ 1,689 ​ ​ 583 ​ 35 % Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 15,655 ​ 8,044 ​ 7,611 95 % Share-based compensation expense ​ ​ 3,382 ​ ​ 14,061 ​ ​ (10,679) ​ (76) % Depreciation ​ 1,140 ​ 872 ​ 268 31 % Loss (gain) on asset disposal ​ ​ 322 ​ ​ (56) ​ ​ 378 ​ (675) % Other loss ​ ​ 930 ​ ​ — ​ ​ 930 ​ NM ​ Total operating expenses ​ 21,429 ​ 22,921 ​ (1,492) (7) % Operating loss ​ (18,881) ​ (21,477) ​ 2,596 (12) % Interest expense ​ 63 ​ 94 ​ (31) (33) % Change in fair value of convertible notes ​ 475 ​ (970) ​ 1,445 (149) % Tariff refund ​ — ​ (2,401) ​ 2,401 (100) % Change in fair value of warrants liabilities ​ (39) ​ (195) ​ 156 (80) % Loss on financing transaction ​ 1,553 ​ 4,043 ​ (2,490) (62) % Other (income) expenses, net ​ ​ 1,027 ​ ​ 12 ​ ​ 1,015 ​ 8,458 % Loss before income taxes ​ (21,960) ​ (22,060) ​ 100 (0) % Income tax expense (benefit) ​ (465) ​ 208 ​ (673) (324) % Net loss ​ $ (21,495) ​ $ (22,268) ​ $ 773 (3) % ​ Revenue: Revenue for the year ended December 31, 2024 was $7.4 million, compared to $5.4 million for the year ended December 31, 2023.
Using similar analyses and sources of information as for the inventory write down to net realizable value assessment, the Company makes the following determinations: ● MSAI classifies as short-term inventories that are expected to be sold in the subsequent twelve months. ● MSAI recognizes an inventory write down for inventories that cannot be sold in the market and net realizable value is below cost. ● MSAI classifies as long-term inventories the inventory 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. 63 Table of Contents We have assessed the impact of a variety of known business, competitive and economic factors on our ability to sell inventory.
We classify as long-term inventory 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 we have not identified any indicator of impairment. Revenue Recognition Contracts with our customers may include various combinations of hardware, subscriptions and services.
Gross margin for the year ended December 31, 2023, was approximately 27%, compared to 32% for the year ended December 31, 2022.
Share-Based Compensation Expense: Share-based compensation expense for the year ended December 31, 2024 was $3.4 million, compared to $14.1 million for the year ended December 31, 2023.
Depreciation Expense: Depreciation expense for the year ended December 31, 2023, was approximately $0.9 million and increased by $0.3 million, or 55%, from approximately $0.6 million for the year ended December 31, 2022. The increase in depreciation expense relates to an increase in additions to property, plant, and equipment during the year ended December 31, 2023.
The increase in depreciation expense was primarily due to increases in property, plant, and equipment, primarily software associated with our development of MSAI Connect. Loss (gain) on asset disposal: Loss on asset disposal for the year ended December 31, 2024 was $0.3 million, compared to a gain of $0.06 million for the year ended December 31, 2023.
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 the calibration of infrared cameras, maintenance and training are recognized at a point in time when service is provided to the client.
Services derived from inspections, calibrations, maintenance and training are recognized at a point in time when service is provided to the client. Recent Developments On January 7, 2025, we sold 1,581,213 shares of Common Stock under the ELOC .
Should actual market conditions differ from the Company’s estimates, future results of operations could be materially affected. 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.
We reduce the value of our 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 us to evaluate whether inventory held is in excess of future estimated market demand or has become technologically obsolete.
Removed
Overview We manufacture and distribute highly sensitive and accurate infrared cameras and other sensor systems, comprising hardware and software, for thermographic and other use in a variety of industrial applications. We also provide services, including training, calibration, and repairs for our customers.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to Legacy ICI prior to the consummation of the Business Combination and the business of MSAI after the consummation of the Business Combination.
Removed
Most of our customers are in the United States and operate in the distribution and logistics, manufacturing, utilities and oil & gas sectors. Merger The sponsor of SportsMap Tech Acquisition Corp. (“Legacy SMAP”) was SportsMap, LLC (the “Sponsor”). The registration statement for Legacy SMAP’s IPO was declared effective on October 18, 2021 (the “Effective Date”).
Added
Overview The Company and its wholly owned subsidiaries provide turn-key predictive maintenance and process control solutions, which combine cutting edge imaging and sensing technologies with AI-powered enterprise software.
Removed
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 55 Table of Contents 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.
Added
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.
Removed
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 $6.75 million.
Added
Our cloud and edge solutions are deployed by organizations to protect critical assets across a wide range of industries including distribution and logistics; manufacturing and oil and gas. In tandem with these solutions, we provide various services for our customers including training, calibration, and repair. Merger On December 19, 2023, SportsMap Tech Acquisition Corp.
Removed
Legacy ICI will be the successor for financial reporting purposes, meaning that Legacy ICI’s financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC.
Added
The following are descriptions of principal revenue generating activities: — Hardware 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.
Removed
As a result of having common stock that is registered under the Exchange Act and is listed for trading on a U.S. national stock exchange, we will need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.
Added
The Company's infrared cameras are available in multiple configurations, from lower resolution models suitable for basic equipment monitoring to high-resolution cameras that provide detailed thermal images crucial for detecting subtle anomalies in complex machinery. Each camera model also offers different field of view options, enabling precise targeting and comprehensive coverage, essential for effective predictive maintenance.
Removed
We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Added
This flexibility allows users to choose the optimal hardware setup based on their specific requirements, whether they are monitoring large production floors or focusing on high-detail components. Our acoustic imagers detect and visualize sound patterns, making them highly effective for identifying issues such as gas leaks, electrical discharge, and mechanical anomalies in industrial equipment.
Removed
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”).
Added
Revenue is recognized when control of the hardware is transferred to the customer. 51 Table of Contents — Software MSAI Connect is an innovative, cloud-based, AI-powered software, that enables predictive asset reliability and process control in industrial environments.
Removed
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.
Added
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.
Removed
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”).
Added
MSAI Connect can process and analyze vast amounts of data in real-time, providing actionable insights and predictive analytics. This enables businesses to proactively identify potential issues, prevent costly downtime, and optimize their operations for maximum efficiency and reliability. MSAI Connect is a subscription service and is generally contracted for a period of 12 months.
Removed
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.
Added
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.
Removed
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”).
Added
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.
Removed
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. 56 Table of Contents 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.
Added
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. Our mission is to help our clients transform how they approach asset management, creating safer, more efficient, and more profitable operations across a variety of industries.
Removed
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”).
Added
Inspections can include the use of thermography, optical gas imaging, and acoustic imaging to recognize future equipment failures or inefficiencies, detect spills or leaks, or identify electrical anomalies. The Company also performs calibrations and maintenance on hardware for our customers along with training services.
Removed
Failure to pay interest is deemed an event of default and the interest rate shall increase automatically to 15% per annum until repaid.
Added
The increase in revenue was primarily due to an increase in units sold, which was partially offset by $2.9 million in sales returns for the twelve months ended December 31, 2024. The sales returns are related to a transaction with a long-standing customer who also is a launch customer for MSAI Connect.
Removed
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.
Added
Under the terms of this transaction, certain biorisk-related devices sold to this customer in prior years were exchanged for devices appropriate for industrial use, when combined with the MSAI Edge and MSAI Connect software. The customer paid cash as well as credit for the returned devices. There were no sales returns for the twelve months ended December 31, 2023.
Removed
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.
Added
Cost of Goods Sold: Cost of goods sold for the year ended December 31, 2024 was $2.6 million, compared to $2.3 million for the year ended December 31, 2023. The increase in cost of goods sold was attributable to increased sales as well as a change in product mix.
Removed
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.
Added
Inventory Impairment: Inventory impairment for the year ended December 31, 2024 was $2.3 million , compared to $1.7 million for the year ended December 31, 2023. The increase in inventory impairment 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.
Removed
Growth and Long-Term Strategy Our long-term strategy is to grow hardware and software revenues over the medium term by: ● Expanding our sales and marketing capabilities .
Added
Selling, General and Administrative Expense: SG&A expense for the year ended December 31, 2024 was $15.7 million, compared to $8.0 million for the year ended December 31, 2023. The increase in SG&A expense was attributable to an increase in professional and legal expenses associated with the cost of compliance as a public company.
Removed
We will strive to increase market share by scaling our commercial capabilities, including sales, marketing, account management, and technical support, to meet customers’ requirements in the oil and gas, distribution and logistics, manufacturing, and utilities sectors. ● Increasing software capabilities and applications .
Added
The decrease in share-based compensation expense was primarily attributable to a reduced level of equity grants compared to the year ended December 31, 2023 in which the certain restricted stock units related to the Business Combination were issued, and the issuance of such grants at lower prices in the year ended December 31, 2024. 53 Table of Contents Depreciation Expense: Depreciation expense for the year ended December 31, 2024 was $1.1 million, compared to $0.9 million for the year ended December 31, 2023.
Removed
We will continue to invest in our SmartIR SaaS platform in order to increase its user-case-specific functionality and value to customers across the four main industry verticals. ● Executing on our product roadmaps. We will focus on innovation and product development in hardware, software, and implementations in our four main industry verticals.
Added
The increase in loss on asset disposal, was primarily the result of the Company disposing of certain aged or inoperable assets, primarily in the machinery and equipment category, resulting in a loss on disposal of $0.3 million during the year ended December 31, 2024.

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