MultiSensor AI Holdings, Inc. 10-Q

Item 2. 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. 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. This discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and in our unaudited condensed consolidated financial statements and notes thereto, included elsewhere in this Quarterly Report (collectively, the “consolidated financial statements”). This Quarterly Report includes forward-looking statements based on the Company’s current assumptions, expectations and projections about future events that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report. For more information on these and other factors, see “Forward-Looking Statements” herein. 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. Our software leverages a continuous stream of data from thermal imaging, visible imaging, acoustic imaging, vibration sensing, and laser sensing devices to provide comprehensive, real-time condition monitoring for a customer’s critical assets, processes, and manufactured outputs. Our cloud and edge solutions are deployed by organizations to protect critical assets across a wide range of industries. Our mission is to deliver monitoring, expertise, and reliability engineering that help our customers detect problems early, prevent failures, and extend the life of critical assets. We are focused on growing our position as a Software as a Service (“SaaS”) leader in predictive maintenance. As of September 30, 2025, the Company has approximately 665 active sensors connected to our cloud-based software platform, MSAI Connect (“MSAI Connect”), as compared to approximately 610 as of June 30, 2025, and 249 as of September 30, 2024. This represents an 9.2% increase quarter over quarter and a 167% increase year over year. We anticipate significant opportunities to drive increased recurring revenues with our solutions. In the distribution and logistics market, we believe our solutions, through enhanced predictive maintenance, provide value by minimizing unplanned downtime to reduce labor and maintenance costs and increase throughput. During the quarter, we have also continued to refine our solutions and associated hardware with the global distributor to maximize the return on investment realized, including utilizing less costly sensors with narrower field-of-view, where the application allows. Overall, we believe the relationship with our global distributor launch customer remains healthy. We successfully implemented MSAI solutions in the United States with a global distribution leader, marking the first wave of North American deployments following multiple successful programs across Europe and the United Kingdom : In the manufacturing market, our go-to market strategy centers on our early threat detection solution. We continue to work closely with two of the Big 3 automakers on our ongoing pilot programs for lithium ion battery pack monitoring and the application of dual vision hardware sensors, and remain engaged in identifying additional applications for our solutions. In the data center market, we have narrowed our focus to the infrastructure surrounding and supporting a data center. This includes using MSAI Connect solutions to monitor power and cooling control systems. During the quarter, we began discussions to pilot these solutions with several large data center owners and operators. 17 Table of Contents Merger On December 19, 2023, SportsMap Tech Acquisition Corp. (“Legacy SMAP”), through its subsidiary (“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”). Pursuant to the terms of the Business Combination Agreement, a merger of Legacy SMAP and Legacy ICI was effected by the merger of Merger Sub with and into Legacy ICI, with Legacy ICI surviving the Business Combination as a wholly-owned subsidiary of Legacy SMAP. As a result of the consummation of the Business Combination, Legacy SMAP changed its name from “SportsMap Tech Acquisition Corp.” to “Infrared Cameras Holdings, Inc.” (“ICI”). In February 2024, ICI changed its name to “MultiSensor AI Holdings, Inc.” (“MSAI”). ​ The Business Combination was accounted for as a reverse acquisition. Under this method of accounting, Legacy SMAP is treated as the “acquired” company for accounting purposes. The net assets of Legacy SMAP were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination were those of Legacy ICI. 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. ​ Strategic Cost Optimization Initiatives We have executed and continue to execute strategic cost optimization initiatives to align our expense base with current operations to enhance long-term profitability, preserve agility, and position MSAI for scalable and efficient growth. These initiatives include a reduction in employee headcount and professional fees, a consolidation of real estate, employee benefits realignment and vendor renegotiations. Specifically, in July 2025, the Company implemented a reduction in force impacting 10 employees across various departments. The Company incurred approximately $65 thousand of expense, primarily related to severance payments recorded in Sales, general and administrative on the Condensed Consolidated Statements of Operations for the three month period ended September 30, 2025. ​ 18 Table of Contents Results of Operations Three months ended September 30, 2025 compared to three months ended September 30, 2024 The following table presents summary results of operations for the periods indicated in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, Amount % ​ ​ 2025 2024 ​ Change ​ Change ​ Revenue, net ​ $ 1,574 ​ $ 1,602 ​ $ (28) (2) % Cost of goods sold (exclusive of depreciation) ​ ​ 566 ​ ​ 533 ​ ​ 33 6 % Inventory impairment ​ ​ — ​ ​ 2,038 ​ ​ (2,038) ​ (100) % Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ ​ 2,164 ​ ​ 6,098 ​ ​ (3,934) (65) % Share-based compensation expense ​ ​ 205 ​ ​ 29 ​ ​ 176 ​ 607 % Depreciation ​ ​ 342 ​ ​ 307 ​ ​ 35 11 % Loss (gain) on asset disposal ​ ​ (9) ​ ​ 342 ​ ​ (351) ​ (103) % Other loss ​ ​ — ​ ​ 930 ​ ​ (930) ​ (100) % Total operating expenses ​ ​ 2,702 ​ ​ 7,706 ​ ​ (5,004) (65) % Operating loss ​ ​ (1,694) ​ ​ (8,675) ​ ​ 6,981 (80) % Interest expense (income), net ​ ​ (5) ​ ​ — ​ ​ (5) NM % Change in fair value of convertible notes ​ ​ — ​ ​ — ​ ​ — NM % Change in fair value of warrants liabilities ​ — ​ — ​ — NM % Loss on financing transaction ​ ​ — ​ ​ — ​ ​ — ​ NM % Other expense (income), net ​ ​ (1) ​ ​ (85) ​ ​ 84 (99) % Loss before income taxes ​ ​ (1,688) ​ ​ (8,590) ​ ​ 6,902 (80) % Income tax expense (benefit) ​ ​ (11) ​ ​ (395) ​ ​ 384 (97) % Net loss ​ $ (1,677) ​ $ (8,195) ​ $ 6,518 (80) % ​ Revenue: Revenue for the three months ended September 30, 2025 was $1.6 million, compared to $1.6 million for the three months ended September 30, 2024. The decrease in revenue is primarily attributable to reduced stand-alone hardware sales, which was offset by an increase in software revenues of $0.3 million, or 114% of software revenue in line with our strategic initiative of transitioning away from a hardware provider to a solutions provider by focusing on growing our SaaS business. Revenue streams from each of our products and services are summarized below for the three months ended September 30, 2025 and 2024. ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ 2025 2024 Hardware ​ $ 853 ​ $ 1,077 Software ​ 615 ​ 287 Services ​ 106 ​ 238 Total revenue ​ $ 1,574 ​ $ 1,602 ​ Cost of Goods Sold: Cost of goods sold for the three months ended September 30, 2025 was $0.6 million, compared to $0.5 million for the three months ended September 30, 2024. The decrease in cost of goods sold was attributable to a decrease in the quantity of sensor hardware sold as well as a change in product mix. Selling, General and Administrative Expense: Selling, general and administrative expense for the three months ended September 30, 2025 was $2.2 million, compared to $6.1 million for the three months ended September 30, 2024. The decrease in selling, general and administrative expenses was primarily due to a reduction of professional fees of $2.7 million driven by the company reevaluating its professional services vendor relationships and scope of outsourced work, as well as a reduction in payroll expenses of $0.6 million primarily driven by a reduction of force in July 2025. 19 Table of Contents Share-Based Compensation Expense: Share-based compensation expense for the three months ended September 30, 2025 was $0.2 million, compared to $0.0 million for the three months ended September 30, 2024. The increase in share-based compensation expense is primarily related to the recognition of expense over the requisite service period related to awards granted throughout 2025. Loss (gain) on asset disposal: The decrease in Loss (gain) on asset disposal was primarily the result of the Company disposing of certain aged or inoperable assets in the third quarter of 2024, primarily in the machinery, equipment, and demo category, which did not occur in 2025. Other loss: The decrease in Other loss was primarily due to the write-down of a deposit of $930 which was recorded in the third quarter of 2024 which did not occur in 2025. ​ Other expense (income), net: Other expense (income), net for the three months ended September 30, 2025 was $0.0 million as compared to ($0.1) million for the three months ended September 30, 2024. The decrease was primarily associated with the Company’s ELOC. During the three months ended September 30, 2024 the Company’s make-whole obligation under the ELOC was remeasured, resulting in a $0.1 gain. 20 Table of Contents Nine months ended September 30, 2025 compared to nine months ended September 30, 2024 The following table presents summary results of operations for the periods indicated in thousands: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, Amount % ​ 2025 2024 ​ Change ​ Change ​ Revenue, net ​ $ 4,163 ​ $ 6,002 ​ $ (1,839) (31) % Cost of goods sold (exclusive of depreciation) ​ ​ 2,126 ​ ​ 2,240 ​ ​ (114) (5) % Inventory impairment ​ ​ — ​ ​ 2,272 ​ ​ (2,272) ​ (100) % Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ ​ 9,212 ​ ​ 12,072 ​ ​ (2,860) (24) % Share-based compensation expense ​ ​ 1,535 ​ ​ 3,355 ​ ​ (1,820) ​ (54) % Depreciation ​ ​ 952 ​ ​ 878 ​ ​ 74 8 % Loss (gain) on asset disposal ​ ​ (33) ​ ​ 342 ​ ​ (375) ​ (110) % Other loss ​ ​ — ​ ​ 930 ​ ​ (930) ​ (100) % Total operating expenses ​ ​ 11,666 ​ ​ 17,577 ​ ​ (5,911) (34) % Operating loss ​ ​ (9,629) ​ ​ (16,087) ​ ​ 6,458 (40) % Interest expense (income), net ​ ​ (20) ​ ​ 63 ​ ​ (83) (132) % Change in fair value of convertible notes ​ ​ — ​ ​ 475 ​ ​ (475) (100) % Change in fair value of warrants liabilities ​ — ​ (38) ​ 38 (100) % Loss on financing transaction ​ ​ — ​ ​ 1,381 ​ ​ (1,381) ​ (100) % Other expense (income), net ​ ​ (181) ​ ​ 893 ​ ​ (1,074) (120) % Loss before income taxes ​ ​ (9,428) ​ ​ (18,861) ​ ​ 9,433 (50) % Income tax expense (benefit) ​ ​ 7 ​ ​ (351) ​ ​ 358 (102) % Net loss ​ $ (9,435) ​ $ (18,510) ​ $ 9,075 (49) % ​ Revenue: Revenue for the nine months ended September 30, 2025 was $4.1 million, compared to $6.0 million for the nine months ended September 30, 2024. The decrease in revenue is primarily attributable to reduced stand-alone hardware sales, in line with our strategic initiative of transitioning away from a hardware provider to a solutions provider. Software revenue grew 50% to $1.2 million as the Company continues to focus on growing our SaaS business. Revenue streams from each of our products and services are summarized below for the nine months ended September 30, 2025 and 2024. ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ 2025 2024 Hardware ​ $ 2,480 ​ $ 4,822 Software ​ 1,266 ​ 843 Services ​ 417 ​ 337 Total revenue ​ $ 4,163 ​ $ 6,002 ​ Cost of Goods Sold: Cost of goods sold for the nine months ended September 30, 2025 was $2.1 million, compared to $2.2 million for the nine months ended September 30, 2024. The decrease in cost of goods sold was attributable to a decrease in the quantity of sensor hardware sold as well as a change in product mix. Inventory Impairment: There was no recorded inventory impairment for the nine months ended September 30, 2025, compared to a recorded inventory impairment of $2.3 million for the months ended September 30, 2024. The decrease is due to a non-cash charge in the nine-month period ended September 30, 2024 related to thermal cameras specifically designed for medical applications that were unable to be converted to alternative applications for which there is customer demand. Selling, General and Administrative Expense: Selling, general and administrative expense for the nine months ended September 30, 2025 was $9.2 million, compared to $12.1 million for the nine months ended September 30, 2024. The decrease in selling, general and administrative expenses was primarily related to decreased professional services fees of $2.5 million driven by the Company reevaluating its professional services vendor relationships and scope of outsourced work. 21 Table of Contents Share-Based Compensation Expense: Share-based compensation expense for the nine months ended September 30, 2025 was $1.5 million, compared to $3.4 million for the nine months ended September 30, 2024. The decrease in share-based compensation expense was primarily related to 1,382,909 vested restricted stock units granted during the nine months ended September 30, 2024 to certain employees. Awards granted throughout 2025 recognize expense over the requisite service period related to awards. Loss (gain) on asset disposal: The decrease in Loss (gain) on asset disposal was primarily the result of the Company disposing of certain aged or inoperable assets in the third quarter of 2024, primarily in the machinery, equipment, and demo category, which did not occur in 2025. Other loss: The decrease in Other loss was primarily due to the write-down of a deposit of $930 which was recorded in the third quarter of 2024 which did not occur in 2025. ​ Change in fair value of convertible notes: There was no recorded loss (gain) in fair value of convertible notes for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The decrease in loss (gain) in fair value of convertible notes was the result of these notes being converted in fiscal year 2024. Loss on financing transaction : There was no recorded loss on financing transaction for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The decrease in loss on financing transaction was the result of the Financing Notes being converted to equity in fiscal year 2024. Other expense (income), net: Other expense (income), net for the nine months ended September 30, 2025 was $0.9 million as compared to ($0.2) million for the nine months ended September 30, 2024. The change is primarily associated with the Company’s ELOC. During the nine months ended September 30, 2025, the Company was notified by B.Riley that the ELOC make-whole obligation was resolved resulting in a gain of $0.2 million. During the nine months ended September 30, 2024, the Company incurred a fee to enter into the ELOC arrangement of $0.5 million along with a make-whole obligation which was remeasured resulting in a $0.3 million loss based on the stock price as of September 30, 2024. Non-GAAP Financial Measures EBITDA and Adjusted EBITDA Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are supplemental non-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. We define Adjusted EBITDA as EBITDA before share-based compensation expenses, inventory impairment, loss on financing transaction, other income, net and loss (gain) on disposal of assets. 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. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income (loss) 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. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business. 22 Table of Contents The 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: EBITDA and Adjusted EBITDA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, Nine Months Ended September 30, Adjusted EBITDA 2025 2024 2025 2024 Net loss ​ $ (1,677) ​ $ (8,195) ​ $ (9,435) ​ $ (18,510) Interest expense (income), net ​ ​ (5) ​ ​ — ​ ​ (20) ​ ​ 63 Income tax expense (benefit) ​ ​ (11) ​ ​ (395) ​ ​ 7 ​ ​ (351) Depreciation ​ ​ 342 ​ ​ 307 ​ ​ 952 ​ ​ 878 EBITDA ​ $ (1,351) ​ $ (8,283) ​ $ (8,496) ​ $ (17,920) Change in fair value of convertible notes ​ — ​ — ​ — ​ 475 Change in fair value of warrants liabilities ​ — ​ — ​ — ​ (38) Share-based compensation expense ​ 205 ​ 29 ​ 1,535 ​ 3,355 Inventory impairment ​ — ​ 2,038 ​ — ​ 2,272 Loss on financing transaction ​ — ​ — ​ — ​ 1,381 Other expense (income), net ​ (1) ​ (85) ​ (181) ​ 893 Loss (gain) on asset disposal ​ ​ (9) ​ ​ 342 ​ ​ (33) ​ ​ 342 Adjusted EBITDA ​ $ (1,156) ​ $ (5,959) ​ $ (7,175) ​ $ (9,240) ​ Liquidity and Capital Resources We incurred losses for the three and nine months ended September 30, 2025. We have historically funded our operations with internally generated cash flows, equity financings, lines of credit, debt, convertible notes, and promissory notes with shareholders and related parties. We may require additional capital in order to execute on our business plan and 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, including the Sales Agreement (as defined below) and the Purchase Agreement (as defined below). 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. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all, as these plans are subject to market conditions and are not within the Company’s control. There is no assurance that the Company will be successful in implementing its plans. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities or if we issue equity or equity-linked securities to current or potential customers to further business relationships, our existing shareholders could experience significant dilution. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited and our business could be materially and adversely affected. As noted in the Company’s condensed 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. We have assessed our ability to continue as a going concern, and, based on uncertainty related to obtaining shareholder approval of the Purchase Agreement (as defined below) to finance our future operations, recurring losses from operations incurred since inception, and 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 condensed consolidated financial statements are issued. 23 Table of Contents Equity Line of Credit On April 16, 2024, we entered into a common stock purchase agreement (the “Purchase Agreement”) with B. Riley. Pursuant to the Purchase Agreement, we have the right, but not the obligation, to sell to B. Riley up to $25.0 million worth of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) (such shares when issued, the “Purchase Shares”) over the term of the Purchase Agreement, beginning only after certain conditions set forth in the Purchase Agreement have been satisfied, including that an amendment to the registration statement registering the Purchase Shares for resale shall have been declared effective under the Securities Act of 1933, as amended. During the three months ended September 30, 2025 and 2024, the Company did not utilize the ELOC to sell shares. During the nine months ended September 30, 2025 and 2024, the Company utilized the ELOC to sell a total of 1,791,732 and 23,999 shares of Common Stock for cash proceeds totaling $4.7 million and $58 thousand, respectively. ​ At the Market Sales Agreement On March 28, 2025, we entered into an at market issuance sales agreement (the “Sales Agreement”) with B. Riley Securities, Inc., as sales agent or principal (“B. Riley Securities”), pursuant to which the Company could offer and sell shares of the Company’s Common Stock, having an aggregate market value of up to $8,6 million from time to time through B. Riley Securities. B. Riley Securities is entitled to compensation at a fixed commission rate of the gross sales price of the shares of Common Stock sold pursuant to the Sales Agreement. During the three months ended September 30, 2025, we sold 41,683 shares under the Sales Agreement for cash proceeds totaling $33. During the nine months ended September 30, 2025, we sold 151,072 shares under the Sales Agreement for cash proceeds totaling $116. On November 4, 2025, the Company filed a prospectus supplement to reduce the amount available under the Sales Agreement to an aggregate market value of up to $50. 2025 Private Placement On October 24, 2025, the Company entered into a placement agency agreement (the “Placement Agreement”) with Roth Capital Partners, LLC (“Roth”),pursuant to which the Company engaged Roth to act as the exclusive placement agent in connection with a private placement of (i) an aggregate of 34,229,826 shares (the “2025 Private Placement Shares”) of the Company’s Common Stock, and (ii) warrants (the “Warrants”) to purchase up to 68,459,652 shares of Common Stock (collectively, the “2025 Private Placement”). Pursuant to the Placement Agreement, the Company agreed to pay Roth a cash fee equal to 5.0% of the gross proceeds received by the Company from the 2025 Private Placement. ​ On October 24, 2025 (the “Subscription Date”), the Company entered into a securities purchase agreement (the “Purchase Agreement”) with 325 Capital, LLC (“325 Capital”) and certain other accredited investors signatory thereto (collectively with 325 Capital, the “Investors”), pursuant to which it agreed to sell to the Investors (i) the 2025 Private Placement Shares at a purchase price of $0.409 per share and (ii) the Warrants, with an exercise price of $0.409 per share, for an aggregate purchase price of $14 million before deducting placement agent fees and offering expenses. 325 Capital and its affiliates beneficially own more than 5.0% of the outstanding Common Stock. In addition, Daniel M. Friedberg, who is a Managing Member of 325 Capital, serves on the Company’s board of directors. ​ The Purchase Agreement and the Warrants provide that each Investor’s beneficial ownership of Common Stock, including after taking into account the full exercise of such Investor’s Warrant, shall in no event exceed 49.5% of the issued and outstanding Common Stock (the “Maximum Ownership Limitation”). In the event that an Investor’s Warrant is not exercisable for shares of Common Stock due to the beneficial ownership of such Investor exceeding the Maximum Ownership Limitation, the applicable Warrant will be exercisable for shares of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), that are convertible into an equivalent number of shares of Common Stock for which the Warrant is exercisable. The Warrants will expire seven years from the date of issuance. ​ At the initial closing of the Private Placement on October 30, 2025 (the “Initial Closing”), the Company issued to the Investors a number of 2025 Private Placement Shares equal to 19.99% of the number of shares of Common Stock issued and outstanding immediately prior to the Subscription Date, or 6,970,890 shares of Common Stock (the “Initial Shares”), and Warrants to purchase up to 13,941,780 shares of Common Stock (the “Initial Warrant Shares”), for gross proceeds of $2.85 million before deducting placement agent fees and offering expenses. The gross proceeds from the sale of the remaining 27,258,936 shares of Common Stock (the “Additional Shares”) and Warrants to purchase up to 54,517,872 shares of Common Stock (the “Additional Warrants”) was funded by the Investors into a third-party escrow account.. The Additional Shares and Additional Warrants will be issued upon the Company’s receipt of stockholder approval of the 2025 Private Placement. ​ 24 Table of Contents ​ 2025 Registered Direct Offering ​ On November 4, 2025, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) with a single institutional investor, pursuant to which the Company agreed to issue and sell (i) 4,595,000 shares (the “2025 Registered Direct Shares”) of the Company’s Common Stock and (ii) pre-funded warrants (the “2025 Pre-Funded Warrants”) to purchase up to 6,100,000 shares of Common Stock (the “2025 Pre-Funded Warrant Shares”) in a registered direct offering (the “2025 Registered Direct Offering”). The 2025 Registered Direct Shares, 2025 Pre-Funded Warrants and 2025 Pre-Funded Warrant Shares are registered pursuant to an effective shelf registration statement on Form S-3 (File No. 333-284437), and a base prospectus and prospectus supplement relating to the 2025 Registered Direct Offering, in each case filed with the SEC. The offering price was $1.35 per share of Common Stock and $1.3499 per Pre-Funded Warrant, which is the price of each share of Common Stock sold in the 2025 Registered Direct Offering, minus the $0.0001 exercise price per 2025 Pre-Funded Warrant. ​ The 2025 Registered Direct Offering closed on November 5, 2025, and resulted in net proceeds to the Company of approximately $13.6 million, after deducting advisory fees and other estimated offering expenses payable by the Company. Following the delivery of exercise notices to the Company on November 5, 2025 and November 6, 2025, the 2025 Pre-Funded Warrants were exercised in full. ​ The Company currently intends to use the net proceeds from the 2025 Registered Direct Offering for working capital and other general corporate purposes, including driving strategic growth initiatives and continuing to advance the development of the MSAI Connect platform. ​ Cash Flows Nine months ended September 30, 2025, compared to nine months ended September 30, 2024 The following table summarizes our cash flows for the periods indicated, in thousands: ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ 2025 2024 ​ ​ ​ ​ ​ ​ ​ Net cash provided by (used in) operating activities ​ $ (5,783) ​ $ (12,510) Net cash provided by (used in) investing activities ​ (1,244) ​ (1,600) Net cash provided by (used in) financing activities ​ 3,683 ​ 21,588 Net increase/(decrease) in cash, cash equivalents, and restricted cash equivalents ​ $ (3,344) ​ $ 7,478 ​ Operating Activities Net cash used in operating activities was $5.8 million for the nine months ended September 30, 2025, a decrease of $6.7 million as compared to $12.5 million of net cash used by operating activities for the nine months ended September 30, 2024. The decrease in net cash used in operating activities was primarily related to our strategic cost optimization initiatives to align our expense base with current operations to enhance long-term profitability, preserve agility, and position MSAI for scalable and efficient growth. These initiatives have included a reduction in employee headcount and professional fees, a consolidation of real estate, employee benefits realignment and vendor renegotiations. ​ Investment Activities Net cash used in investing activities was $1.2 million for the nine months ended September 30, 2025, a decrease of $0.4 million as compared to $1.6 million of net cash used in investing activities for the nine months ended September 30, 2024. The decrease is primarily related to a decrease in cash paid for capital expenditures. 25 Table of Contents Financing Activities Net cash provided by financing activities was $3.7 million for the nine months ended September 30, 2025, a decrease of $17.9 million as compared to $21.6 million of net cash provided by financing activities for the nine months ended September 30, 2024. The decrease in net cash provided by financing activities is primarily attributable to $22.8 million in net proceeds from stock sales during the nine months ended September 30, 2024, as compared to $4.8 million in proceeds from stock sales during the nine months ended September 30, 2025. ​ Contractual Obligations Our principal commitments consist of lease obligations for our corporate office and production facility. The net present value of operating lease liabilities as of September 30, 2025 is $0.0 million. The net present value of operating lease liabilities as of December 31, 2024 is $0.1 million. Off-Balance Sheet Arrangements As of September 30, 2025, we did not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in our 2024 Annual Report. There have been no significant and material changes in our Critical Accounting Polices and Estimates since the 2024 Annual Report. Recently Issued Accounting Standards See Note 2 of the notes to our annual consolidated financial statements in the 2024 Annual Report 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. 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. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation or (v) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. However, we have elected to opt out of this extended exemption period discussed (v) and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards are required for non-emerging growth companies. 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 will cease to be an emerging growth company prior to the end of such five-year period if certain earlier events occur, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period. Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. 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 26 Table of Contents 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.