STAI 10-K & 10-Q changes, risk factors and insider trading

Our Commoncommon Stockstock is listed on the Nasdaq Stock Market (“Nasdaq”) under the symbol “STAI.” If we fail to comply with Nasdaq’s rules for continued listing, Nasdaq may take steps to delist our Commoncommon Stock.stock. On May 27, 2025, the Company received an additional deficiency letter from Nasdaq (the “MVLS Notice”), notifying the Company that, based on the market value of listed securities for the previous 30 consecutive business days, the listing of the Company’s Commoncommon Stockstock was not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) to maintain a minimum market value of listed securities of at least $50 million (the “MVLS Requirement”). In accordance with Nasdaq rules, the Company has a period of 180 calendar days (or until November 24, 2025) to regain compliance with the MVLS Requirement. To regain compliance during this 180-day compliance period, the minimum market value of listed securities must close at $50 million or more for a minimum of 10 consecutive business days. TheOn MVLSNovember Notice26, has no immediate effect on2025, the listingStaff ofnotified the Company’sCompany Common(the Stock“Notice”) onthat its securities are subject to delisting from The Nasdaq Global Market.Market as a result of not satisfying the requirement by the aforementioned deadline.

On August 26, 2025, the Company received a deficiency letter (the “Periodic Report Notice”) from Nasdaq Listing Qualifications notifying the Company that it is not in compliance with the requirements of Nasdaq Listing Rule 5250(c)(1) as a result of not having timely filed with the SEC its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025. The Periodic Report Notice had no immediate effect on the listing of the Company’s Commoncommon Stockstock on The Nasdaq Global Market, and the filingCompany of this Quarterly Report onfiled Form 10-Q/A resolvesfor the basisquarterly forperiod delisting.ended June 30, 2025 on November 28, 2025.

In the event that the Company does not regain compliance with the MVLS Requirement, or Bid Price Requirement, or MVPHS Requirement prior to the expiration of each respective 180-day compliance period, the Company will receive written notification from Nasdaq that the Company’s securities are subject to delisting. Alternatively, the Company may transfer the listing of its securities to The Nasdaq Capital Market, provided the Company will only be able to transfer the listing to The Nasdaq Capital Market if the Company then meets the continued listing requirements on The Nasdaq Capital Market.

If we fail to regain compliance with the MVLS Requirement, or Bid Price Requirement, or MVPHS Requirement, or for any other reason, Nasdaq delists our Commoncommon Stockstock from trading on its exchange and we are unable to obtain listing on another national securities exchange or take action to restore our compliance with the Nasdaq continued listing requirements, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our stockholders:

The discussions in this Quarterly Report on Form 10-Q (“Report”) contain forward-looking statements reflecting our current expectations that involve risks and uncertainties. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. When used in this Report, the words “anticipate,” “expect,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on May 14, 2025. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below as well as those discussed elsewhere in this Quarterly Report on Form 10-Q (including under “Risk Factors”) and in our Annual Report on Form 10-K filed with the SEC on May 14, 2025. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and we caution investors against unduly relying upon these statements. In all events, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, change in circumstances, future events or otherwise, and you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including annualAnnual reportsReports on Form 10-K, quarterlyQuarterly reportsReports on Form 10-Q, and current reports on Form 8-K. Forward-looking statements speak only as of the date they are made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

SENTINEL’s fix-gantry CT architecture incorporates four discrete pairs of fixed multi-energy X-ray generators and detector arrays. Each generator/ detector pair is optimally configured to provide non- traditional planar slices significantly expanding the robustness, reliability and repeatability of image data reconstruction and improving the system’s ability to discriminate/interrogate threat materials and hidden objects. The orientation of the generators/detectors yield three discrete slices of the target for interrogation: 1) Perpendicular to the tunnel; 2) 45° angle along the Belt from Entrance to Exit, and; 3) 45° angle backwards along the Belt from Exit to Entrance. The three slices of metadata are used to reconstruct a three- dimensional map of the effective atomic numbers (Zeff) and mass densities of the scanned contents. The projections in this innovative geometry provide three unique planes while the projections of conventional CT systems are essentially in a single plane. Three integrated &and interlaced slices through an object versus the typical single plane slice of data in rotating-gantry CT improves spatial recognition, particularly in high clutter situations, as the four X-ray projections are traveling through unique paths for a given area of interest. Coupled with few-view CT reconstruction and advanced threat detection algorithms, SENTINEL’S architecture expands the robustness, reliability and repeatabilityrepetition of the measurement data.

SENTINEL systems are based on the company’s proprietary fixed-gantry CT technology, which employs four fixed X-ray generators and detector arrays to create a three-dimensional visualization of the object being scanned. Each generator/detector array is optimally configured to provide planar projections that significantly expand the robustness, reliability and repeatabilityrepetition of image data and volumetric reconstruction to improve the discrimination and interrogation of threat materials and hidden objects.

Components of Results of Operations

We have not been profitable since inception. As of JuneSeptember 30, 2025, our accumulated deficit was $208.3$219.0 million and as of December 31, 2024, our accumulated deficit was $184.5 million. Since inception, we have financed our operations primarily through different forms of debt, primarily promissory notes.

Operating expenses primarily consist of general and administrative costs, including payroll, as well as research and development expenses. As of JuneSeptember 30, 2025, and December 31, 2024, general and administrative expenses represented the largest component of our operating expenses. These costs have increased significantly over the past 12 months, primarily due to expenses associated with capital markets activities related to the Business Combination.

For the three months ended JuneSeptember 30, 2025 and 2024, operating expenses were $3.3$5.1 million and $2.3$2.2 million, respectively, an increase of 43%229% during the period. For the sixnine months ended JuneSeptember 30, 2025 and 2024, operating expenses were $9.1$21.9 million and $4.3$3.9 million, respectively, an increase of 112%467% during the period.

Research and Development ExpenseExpenses

WeResearch expenseand development expenses consist primarily of engineering and regulatory activities. R&D costs are expensed as incurred. We recognize expenses for certain development activities, such as software and hardware development and manufacturing, based on an evaluation of the progress totoward completion of specific tasks using data or other information provided to us by our vendors. Payments for these activities are based onfollow the terms of the individualunderlying agreements, which may differ from the patterntiming of expensesexpense incurred.recognition. Nonrefundable advance payments for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses.expenses These amounts areand recognized as an expense as the goods are delivered or the related services are performed, or untilwhen it is no longer expectedanticipated that the goods will be delivered,delivered or the services rendered. R&D activities account forrepresent a significant portion of our operating expenses. We expect our R&D expenses are expected to increaserise significantlysubstantially in future periods as we continue to implement our business strategy, which includesincluding advancing our business plan, expanding our R&D efforts, includingprograms, hiring additional personnel to support our R&Dthese efforts, and seekingpursuing regulatory approvals.

General and Administrative ExpenseExpenses

General and administrative expenses consist primarily of personnel-related expensescosts for our finance, legal, human resourcesresources, and administrative personnel,teams, as well as the costs of information technology,technology expenses, professional services, insurance, travel, and other administrative expenses.costs. WeThe expectCompany has invested and will continue to invest in ourits corporate organization and incurhas incurred additional expenses associated with transitioning to,to and operating as,as a public company, including increasedhigher legal, audit, tax and accounting costs,fees, investor relations costs, higherincreased insurance premiumspremiums, and compliancecompliance-related costs. As a result, we expect that general and administrative expenses willare increasepositioned to rise in absolute dollars in future periods. General and administrative expenses consist primarily of personnel-related expenses for our finance, legal, human resources and administrative personnel, as well as the costs of information technology, professional services, insurance, travel, and other administrative expenses.

The results of operations presented below should be reviewed in conjunction with the Company’s condensed consolidated financial statements for the three and sixnine months ended JuneSeptember 30, 2025 and for the year ended December 31, 2024, and other information included elsewhere in this filing.

The following table sets forth our condensed consolidated statement of operations for the three and sixnine months ended JuneSeptember 30, 2025 and 2024, respectively.

For the three and sixnine months ended JuneSeptember 30, 2025, the Company reported a net loss of $21.1$9.7 million and $23.8$34.5 million. The primary driver of net loss during the period was de-SPAC transaction costscosts, non-redemption compensation expenses and equity recapitalization that occurred upon the Closing of the Business Combination.

As of January 2, 2025, nearly all lenders agreed to convert their outstanding principal and accrued interest balances into the Company’s common stock, withexcept the exception offor Aegus Corporation, Azure SJBT, LAM LHA, Polar, Seaport Group SIBS, and Steele loans.Steele. The Azure SJBT loans were consolidated into a new $2.9 million loan with SJBT bearing interest at 12% per annum. The Polar loan was settled through the issuance of 1,500,000 shares of the Company’s Common Stock, and the LAM LHA loan was settled pursuant to the arrangement with Silverback Capital Corporation. As a result of these conversions, the Company recognized a net loss on extinguishment of debt of $7.8 million for the three months ended June 30, 2025, and a net gain of $4.8 million for the six months ended June 30, 2025. For the six months ended June 30, 2025, the Company also recorded transaction costs of $18.2 million, primarily related to the de-SPAC transactions.

For the three and sixnine months ended JuneSeptember 30, 2024, the Company reported a net loss of $5.7$23.4 million and $24.1$47.6 million. The loss was primarily driven by a non-cash increase in warrant and derivative liabilities, as well as higher interest expenses, reflecting the impact of increased outstanding debt and fair value adjustments related to warrants and derivative instruments during the period.

For the three months ended JuneSeptember 30, 2025 and 2024, general and administrative expenses were $2.0$4.5 million and $1.4 million, respectively, representing a year-over-year increase of 44%.229%. For the sixnine months ended JuneSeptember 30, 2025 and 2024, general and administrative expenses were $6.8$21.9 million and $2.5$3.9 million, respectively, representing a year-over-year increase of 172%.467%. This significant increase was primarily driven by higher professional service fees related to the Business Combination and stock-basedshare-based compensation issued to legacy Mars shareholders for retaining their public shares and service providers who supported the completion of the Business Combination.

Pursuant to BCA Amendment No. 4, the Company agreed to issue 4.9 million non-redemption shares to legacy Mars shareholders for not redeeming their public shares prior to the business combination, for which $10.8 million of compensation expense was recorded in the first quarter of 2025. Several vendors provided critical services in connection with the Business Combination, and the Company agreed to compensate them with shares of Commoncommon Stockstock upon the completion of the Business Combination. On January 2, 2025, the Company also issued 75,000 shares to MG Partners, LLC; 50,000 shares to Outside The Box Capital Inc; 100,000 shares to Roth Capital Partners LLC; and 50,000 shares to Maximcash Solution LLC. The aggregate fair value of these shares was $518.0 thousand, which the Company recorded as stock-basedshare-based compensation expense for the sixnine months ended JuneSeptember 30, 2025. In addition, the Company incurred legal service fees totalingof $3.0$1.1 million to Ellenoff Grossman & Schole LLP in connection with the Business Combination, of which $2.1 million were payable to Ellenoff Grossman & Schole LLP.Combination.

For the three months ended JuneSeptember 30, 2025 and 2024, research and development expenses were $1.3$0.5 million and $914.6$0.8 thousand,million, respectively, a 42%36% increasedecrease during the period. For the sixnine months ended JuneSeptember 30, 2025 and 2024, research and development expenses were $2.3$2.8 million and $1.8$2.6 million1,million, respectively, a 29%9% increase during the period.

For the three months ended JuneSeptember 30, 2025 and 2024, depreciation and amortization expenses were $8.9$5.2 thousand and $8.1 thousand, respectively. For the sixnine months ended JuneSeptember 30, 2025 and 2024, depreciation and amortization expenses were $17.1$22.3 thousand and $16.2$24.4 thousand, respectively. The change was not material.

For the three months ended JuneSeptember 30, 2025 and 2024, interest expense was $631.6$0.7 thousandmillion and $3.0$3.2 million, respectively, representing a decrease of 79%80% year over year. For the sixnine months ended JuneSeptember 30, 2025 and 2024, interest expense was $1.4$2.0 million and $5.9$9.1 million, respectively, representing a decrease of 77%78% year over year. Interest expense includes accrued interest and any penalties, including default interest, on outstanding promissory notes. The decrease in interest expense is primarily attributable to the settlement of a majority of the Company’s debt obligations through conversion into Commoncommon Stockstock upon the completion of the Business Combination. As a result, only a limited number of debt instruments remained outstanding on the Company’s condensed consolidated Balancebalance Sheetssheets as of JuneSeptember 30, 2025.

For the sixthree months ended JuneSeptember 30, 2025 and 2024, the Company recorded total other expenses of $15.1$4.8 million and $19.9$21.2 millionmillion, respectively. The decrease was primarily attributabledriven toby a net $12.2$17.5 million decreasereduction in the fair value of warrant liabilitiesliabilities, and pledged security, a $4.52.6 million reduction in interest expense, a $1.4 million gain on settlement of the forward purchase agreement, and a $4.8 million gain from extinguishment of debt. These favorable impacts wereexpenses, partially offset by $18.2a $4.3 million increase in loss on extinguishment of transaction costs expensed.debt.

Upon completion of the Business Combination, all outstanding warrants and options were exercised and converted into shares of the Company’s common stock, except for the options related to Seaport’s second bridge loan, which were exercised on January 7, 2025. The options and warrants were fair valued prior to conversion, and the resulting changes in the fair value of derivative and warrant liabilities were recorded accordingly. As of JuneSeptember 30, 2026,2025, no derivative or warrant liabilities were recorded in the Company’s condensed consolidated Balancebalance Sheets.sheet.

To date, we have financed our operations primarily through the issuance of debt. Since our inception, we have incurred significant operating losses and negative cash flows. As of JuneSeptember 30, 2025 and December 31, 2024, we had an accumulated deficit of $208.3$219.0 million and $184.5 million ,million, respectively. The Company’s liabilities ae significantly greater than its assets.

We did not receive sufficient proceeds from the Business Combination to fund our operating expenses for at least 12 months after the date of our condensed consolidated financial statements included in this filing. As a result, management has determined that there is substantial doubt about our ability to continue as a going concern.

For the foreseeable future, we expect to continue financing our operations through the sale of equity, debt, borrowings under credit facilities or through potential collaborations with other companies, other strategic transactions or government or other grants. Adequate capital may not be available to us when needed or on acceptable terms. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholdersshareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders.shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures. Debt financing would also result in fixed payment obligations. If we are unable to raise additional funds through equity or debt financing or other arrangements when needed, we may be required to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. See the section entitled “Risk Factors” for additional risks associated with our substantial capital requirements.

The Company’s operating losses raise substantial doubt about our ability to continue as a going concern for one year from the date the condensed consolidated financial statements are issued or available to be issued. As of JuneSeptember 30, 2025 and December 31, 2024, our cash balance was $41.1 thousand$157,646 and $22.3 thousand,$22,317, respectively. As a result, our independentprevious registered public accounting firmauditor included an explanatory paragraph in its report on our consolidated financial statements for the year ended December 31, 2024 with respect to this uncertainty.

Following the completion of restructuring the Company’s condensedbalance consolidated Balance Sheets,sheet, recapitalizing outstanding indebtedness and converting it into equity as described above, our liquidity needs will depend on both the performance of our business and our ability to obtain additional financing. If we do not generate sufficient proceeds from operations or financing activities to execute our business plan or if our business underperforms relative to expectations, we may need to seek additional funding or implement other measures to enhance our liquidity position. See “Risk Factors — We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on May 14, 2025.

For the sixnine months ended JuneSeptember 30, 2024,2025, cash used in operating activities was $3.0$4.4 million, reflecting a net loss of $24.1$34.5 million, adjusted for non-cash charges of $14.1$23.8 million and changes in operating assets and liabilities of $7.0$6.4 million. Non-cash charges primarily included $14.1$10.8 million of change in fair value expense.of shares issued as non-redemption compensation and $8.8 million of transaction costs expensed, and 1.3 million on shares to settle debt issuance cost.

For the sixnine months ended JuneSeptember 30, 2025, cash used in investing activities was $16.0$16 thousand, consisting of purchases of property, plant and equipment of $16.0$16 thousand.

For the sixnine months ended JuneSeptember 30, 2024, cash providedused byin financinginvesting activities was $2.8$1 million,thousand, consisting of proceeds from loanspurchases of $2.8property, million.plant and equipment of $1 thousand.

The Company continuously worked with its creditors to secure agreements to convert its existing indebtedness to equity for the sixnine months ended JuneSeptember 30, 2025.

On March 20, 2025, the Company entered into a settlement agreement and stipulation with Silverback Capital Corporation (“SCC”). Under the terms of the agreement, SCC agreed to acquireassume the Company liabilities totaling $8,230,977 in exchange for shares of Commoncommon Stockstock at a conversion price of $1.50 per share. On March 26, 2025, SCC completed the first tranche of the agreement, acquiring $1,378,303 in accounts payable and receiving 918,869 shares of Commoncommon Stockstock in exchange. In addition, the Company agreed to issue 33,000 shares as settlement fees and 150,000 shares for legal fees.fees, Thefor a total numberof of1,101,869 shares issued to SCC underin the first tranche. The Company subsequently issued 1,500,000 shares to SCC on May 7, 2025 for the second tranche wasto 1,101,869acquire shares.$540,000 of accounts payable and $600,000 of loans; 1,600,000 shares on May 21, 2025 for the third tranche to acquire $742,033 of accounts payable and $42,966 of loans; 2,298,000 shares on June 11, 2025 for the fourth tranche to acquire $554,300 of accounts payable and $250,000 of loans; 1,500,000 and 1,565,762 on July 18 and July 29, 2025 respectively for the fifth tranche to acquire $1,064,489 of accounts payable; 2,680,000 and 1,165,503 shares on July 30 and July 31, 2025 respectively for the sixth tranche to acquire $993,185 of accounts payable and $300,000 of loans; and 2,700,000 and 2,800,000 on August 19 and September 4, 2025 respectively for the seventh tranche to acquire $1,120,606 of accounts payable.

On March 31, 2025, the Company entered into an amendment to the Seaport bridge loan agreements. Under the terms of the amendment, Seaport agreed to convert the cumulative principal and accrued interest from the first and second bridge loans, purchase order loans, and OPG loans into 5,350,000 shares of the Company’s Commoncommon Stock.stock. 5,350,000 shares of Commoncommon Stockstock were subsequently issued to Seaport on April 17, 2025. InThe addition,fair value of the shares was recorded in theadditional samepaid-in amendment,capital on the Companyissuance granteddate, Seaportand the related liability of $4,693,210 was derecognized from the condensed consolidated balance sheets, with the difference recognized as a warrant$6,196,441 to purchase 3,000,000 shares of Common Stock at an exercise price of $0.01 per share. Seaport exercised the warrantloss on Marchdebt 31, 2025 by paying $30,000 in cash, and 3,000,000 shares of Common Stock were subsequently issued to Seaport on April 2, 2025.extinguishment.

On May 19, 2025, the Company issued 1,700,000 shares of common stock in full settlement of the $2,326,241 liability to York pursuant to the Fifth Amended and Restated Operating Agreement of SIBS. On the same date, the Company also issued 1,500,000 shares of common stock to fully settle the $1,250,000 loan owed to Polar Multi-Strategy Master Fund.

We did not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC, over the past three fiscal years, as of December 31, 2024 and for the sixnine month ending JuneSeptember 30, 2025.