What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-19 compared with 2025-03-28 · 140 added, 103 removed, 154 unchanged (61% of the section changed)

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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” and in other parts of this Annual Report on Form 10-K.

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 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.

We build and deploy integrated condition monitoring and early threat detection solutions that connect multiple sensor types through a unified edge-to-cloud software architecture.

Our software platform integrates multiple sensing modalities such as thermal, visual and acoustic, among others, to detect anomalies at earlier stages.

Our customers use our products to protect uptime, enhance safety, and extend the useful life of critical assets across industrial operations.

We are focused on growing our position as a Software as a Service (“SaaS”) leader in predictive maintenance.

As of December 31, 2025, we had approximately 730 active sensors connected to our software platform, MSAI Connect, as compared to approximately 460 as of December 31, 2024.

This represents an 59% increase year over year.

We anticipate significant opportunities to drive increased recurring revenues with our solutions.

During 2025, we realigned our market strategy to target industries and countries where, we believe, the largest opportunity exists for our current platform offerings.

These industries include distribution and logistics;

manufacturing;

and data centers in the United States, Canada, European Union member states, and the United Kingdom.

This realignment resulted in the deprioritization of certain industries, products, and services.

Regarding industries, we have deprioritized oil and gas and metals and mining, where the applications generally require specialized sensors and customized solutions to handle the often-harsh environmental conditions in which monitoring is being performed.

Regarding products, we made the strategic decision to cease marketing, development, and sale of drone related product offerings given the high degree of customization required and limited overlap with our software platform.

Regarding services, we discontinued offering training and inspection related services which were ancillary to our core offerings.

We believe this realignment will allow us to focus on our core competencies and offerings and position us for success in 2026 and beyond.

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.

We are particularly encouraged by over $1.5 million in purchase orders received in the fourth quarter of 2025 from our large global distributor customer, which will increase the number of sensors deployed in their facilities.

These orders represented approximately $0.3 million in hardware revenue recognized in the fourth quarter of 2025.

Software subscription revenue for these orders will be recognized predominately over a period of four years beginning upon the commencement of the subscriptions, which is expected to occur in the first quarter of 2026.

We are also excited by new pilots which we received purchase orders for in the fourth quarter of 2025.

Manchester Airport Group selected our platform to help elevate the reliability and performance of its baggage-handling operations.

Initial deployments at Manchester Airport were completed in the first quarter of 2026.

Additionally, we received a purchase order from a global direct-to-consumer food solutions company to leverage our solution for monitoring critical assets in cold storage facilities.

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, our focus is on the infrastructure surrounding and supporting a data center.

This includes using MSAI Connect solutions to monitor power and cooling control systems.

During the fourth quarter of 2025, we began discussions to pilot these solutions with several large data center owners and operators, and shortly after year-end, we received our first purchase order for a pilot implementation with a U.S.

based data center.

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 Selling, general and administrative on the Consolidated Statements of Operations during the year ended December 31, 2025.

On December 19, 2023, SportsMap Tech Acquisition Corp.

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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.

Recent Developments

On March 13, 2026, we entered into an at market issuance sales agreement (the “2026 Sales Agreement”) with Roth Capital Partners, LLC and H.C.

Wainwright & Co., LLC as sales agents or principals (the “Agents”), under which we may offer and sell shares of our Common Stock having an aggregate market value of up to $60 million from time to time through the Agents.

We intend to use the net proceeds from sales of Common Stock under the 2026 Sales Agreement, if any, for working capital and general corporate purposes.

Revenue Sources

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The following are descriptions of principal revenue generating activities:

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.

Our sensor hardware covers a large range of the electromagnetic and mechanical spectrums, encompassing visible-light imagers, shortwave, midwave, and longwave infrared imagers, ultraviolet imagers, acoustic imagers, and tunable diode laser emitter-detector pairs for laser absorption spectrometry.

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.

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Revenue is recognized when control of the hardware is transferred to the customer.

MSAI Connect is an innovative, cloud-based, AI-powered software, that enables predictive asset reliability and process control in industrial environments.

This technology harnesses the power of continuous data inputs from advanced thermal imaging, acoustic imaging, visible imaging, and vibration sensing hardware solutions, which are strategically placed in customer's facilities to continuously monitor the health and performance of a customer's critical equipment and processes.

MSAI Connect 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.

Annual subscription payments are generally collected in advance and revenue is recognized ratably over the subscription period.

MSAI Edge is an “on premises” software.

Seamlessly integrating with existing operational systems, MSAI Edge utilizes advanced thermal imaging, acoustic imaging, visible imaging, and vibration sensing hardware solutions strategically deployed throughout facilities.

This setup enables continuous monitoring of critical equipment and processes, delivering real-time insights into their health and performance, and is readily integrated into existing operational and business intelligence systems.

MSAI Edge is sold as both a term-based software license which generally provides access to the software for a period of 12 months and as a perpetual license.

MSAI Connect is an innovative platform that enables predictive asset reliability and process control in industrial environments, available both as cloud-based subscription service and as an on-premises deployment.

This technology harnesses the power of continuous data inputs from advanced thermal imaging, acoustic imaging, visible imaging, and vibration sensing hardware solutions,

which are strategically placed in customer's facilities to continuously monitor the health and performance of a customer's critical equipment and processes.

MSAI Connect can process and analyze vast amounts of data in real-time, providing actionable insights and enabling predictive analytics.

This supports a customer with proactively identifying potential issues, preventing costly downtime, and optimizing their operations for maximum efficiency and reliability.

MSAI Connect, when deployed and connected to the cloud, is a subscription service and is contracted for a period of 12 months to 48 months.

Subscription payments are generally collected in advance and revenue is recognized ratably over the subscription period.

MSAI Connect, when deployed on-premises, is sold as both a term-based software license which generally provides access to the software for a period of 12 months and as a perpetual license.

Revenue for the software licenses are recognized upfront upon delivery of the software license.

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.

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.

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 .

As a result of such sales, we received net proceeds of approximately $4.3 million.

The Company offers installation services that cover on-site hardware mounting, sensor commissioning, and connectivity into the MSAI Connect platform.

MSAI Solution Architects configure camera views, assists with establishing initial alerting thresholds and defining regions of interest so customers can quickly realize the full benefits of the MSAI Connect platform.

The Company also performs calibrations and maintenance on hardware.

The Company previously performed training through August 2025 and inspections through September 2025.

Services are recognized at the point in time when service is completed .

Results of Operations

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Operating loss

Interest expense

Interest expense (income), net

Change in fair value of convertible notes

Tariff refund

Change in fair value of warrants liabilities

Loss on financing transaction

Other (income) expenses, net

Other expense (income), net

Loss before income taxes

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Revenue for the year ended December 31, 2025 was $5.6 million, compared to $7.4 million for the year ended December 31, 2024.

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.

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.

The decrease in revenue is primarily attributable to reduced standalone hardware sales, which was offset by an increase in software revenues of $0.9 million, which was an 88% increase year over year.

Revenue streams from each of our products and services are summarized below for the years ended December 31, 2025 and 2024.

Year Ended December 31,

Total revenue, net

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.

Cost of goods sold for the year ended December 31, 2025 was $2.6 million, an increase of 2% compared to the year ended December 31, 2024.

The increase in cost of goods sold was attributable to a change in product mix and quantity of hardware sold.

Inventory Impairment:

Inventory impairment for the year ended December 31, 2025 was $0.5 million, compared to $2.3 million for the year ended December 31, 2024.

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.

The impairment recorded during the year ended December 31, 2025, was primarily related to drone-related sensor payloads and accessories.

The impairment recorded during the year ended December 31, 2024, was primarily related to thermal cameras specifically designed for medical applications that have been unable to be converted to alternative applications for which there is customer demand.

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.

Selling, general and administrative expense for the year ended December 31, 2025 was $11.5 million, compared to $15.7 million for the year ended December 31, 2024.

The decrease in selling, general and administrative expenses was primarily due to a reduction of professional fees of $2.6 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 $1.0 million primarily driven by a reduction of force in July 2025.

Share-Based Compensation Expense:

Share-based compensation expense for the year ended December 31, 2025 was $1.7 million, compared to $3.4 million for the year ended December 31, 2024.

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.

The decrease in share-based compensation expense was primarily related to 1,382,909 vested restricted stock units granted during the year ended December 31, 2024 to certain employees, offset by awards granted throughout 2025 which recognize expense over the requisite service period related to the awards, which is generally four years.

Depreciation Expense:

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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.

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.

Other loss for the year ended December 31, 2024 was $0.9 million due to the write-down of a deposit of $0.9 million.

Interest Expense:

Interest expense for the year ended December 31, 2024 was $0.06 million, compared to $0.09 million for the year ended December 31, 2023.

The decrease in interest expense was due to the settlement of debt during 2024.

The decrease in loss on asset disposal, was primarily the result of the Company disposing of aged or inoperable assets, primarily in the machinery, equipment, and demo category, resulting in a loss on disposal of $0.3 million during the year ended December 31, 2024, which did not occur in 2025.

The decrease in other loss was primarily due to the write-down of a deposit of $0.9 million which was recorded in the third quarter of 2024, which did not occur in 2025.

Change in fair value of convertible notes:

Change in fair value of convertible notes for the year ended December 31, 2024 was $0.5 million, compared to $(1.0) million for the year ended December 31, 2023.

The increase in change in fair value of convertible notes was the result of notes being remeasured prior to being converted in 2023 and 2024.

Change in fair value of warrants liabilities:

Change in fair value of warrants liabilities for the year ended December 31, 2024 was $(0.04) million, compared to $(0.2) million for the year ended December 31, 2023.

The increase in change in fair value of warrants liabilities was primarily due to the decrease in the share price during the period.

The decrease in loss (gain) in fair value of convertible notes was the result of the convertible notes being converted in fiscal year 2024, which did not occur in 2025.

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.

The decrease in loss on financing transaction was primarily due to the loss being incurred due to two separate transactions in each year.

Other (Income) Expenses, net:

Other (income) expenses, net for the year ended December 31, 2024 was $1.0 million, compared to $0.01 million for the year ended December 31, 2023.

Other (income) expense, net increased primarily due to costs associated with our ELOC during the twelve-month period ended December 31, 2024.

The decrease in loss on financing transaction was the result of the Financing Notes being converted to equity in fiscal year 2024, which did not occur in 2025.

Other Expenses (Income), net:

The change is primarily associated with the Company’s former equity line of credit (“ELOC”).

During the year ended December 31, 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 year ended December 31, 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 based on the stock price as of December 31, 2024 resulting in a $0.2 million loss.

Income tax expense (benefit):

Income tax benefit increase due to a $0.5 million tax benefit primarily driven by a tax refund due to the Company from the filing of the Legacy SMAP short period 2023 federal income tax return recorded during the year ended December 31, 2024.

Income tax benefit decreased due to a $0.5 million tax benefit primarily driven by a tax refund due to the Company from the filing of the Legacy SMAP short period 2023 federal income tax return recorded during the year ended December 31, 2024, which did not occur in 2025.

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.

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 and other non-operating income or expenses or other non-cash items.

We define “Adjusted EBITDA” as EBITDA before share-based compensation expenses, change in fair value of convertible notes and warrant liabilities, inventory impairment, loss on financing transaction, other expense (income) 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.

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.

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.

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These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the respective financial results presented in accordance with GAAP.

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:

The following tables present a reconciliation of EBITDA and Adjusted EBITDA to the GAAP financial measure of net income (loss) for each of the periods indicated, in thousands:

Year Ended December 31,

Adjusted EBITDA

Interest expense

Interest expense, related parties

Interest expense (income), net

Income tax expense (benefit)

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Loss on financing transaction

Tariff refund

Other expenses, net

Other expense (income), net

Loss (gain) on asset disposal

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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 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.

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.

We incurred losses for the years ended December 31, 2025 and 2024.

We have historically funded our operations with internally generated cash flows, equity financings, debt, convertible notes, and promissory notes with stockholders and related parties.

We may 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.

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.

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 their plans.

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 stockholders could experience significant dilution.

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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 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.

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 Company will continue to pursue obtaining additional liquidity which may include raising additional funds from investors (in the form of debt, equity, or equity-like instruments) and reducing operating expenses.

As a result of the Company’s equity financings in October 2025 and November 2025, detailed further below, the Company has obtained additional capital that significantly improved its liquidity position.

After considering the proceeds from these equity financings, the Company’s current cash flow forecasts, and its planned operating and investing activities, management has concluded that the previously disclosed substantial doubt regarding the Company’s ability to continue as a going concern has been alleviated for a period of at least 12 months following the date of these consolidated financial statements.

Equity Line of Credit

On April 16, 2024, we entered into the Purchase Agreement with B.

Pursuant to the Purchase Agreement, we have the right, but not the obligation, to sell to B.

Riley up to $25 million worth of Common Stock (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 the registration statement registering the Purchase Shares for resale (the “Registration Statement”) shall have been declared effective under the Securities Act of 1933, as amended.

On April 16, 2024, we entered into a purchase agreement (the “Purchase Agreement”) with B.

Riley Principal Capital II, LLC (“B.

Pursuant to the Purchase Agreement, we had the right, but not the obligation, to sell to B.

In accordance with the Purchase Agreement, on April 16, 2024, we issued shares of our Common Stock to B.

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Riley upon execution of the Purchase Agreement that were not previously resold.

On January 8, 2025, B.Riley notified the Company that it had sold the Commitment Shares, which resolved the liability.

Concurrently with entering into the Purchase Agreement, we entered into a registration rights agreement with B.

Riley pursuant to which we agreed to register the resale of the Purchase Shares and Commitment Shares that have been and may be issued to B.

Riley under the Purchase Agreement pursuant to the Registration Statement (the “Registration Rights Agreement”).

The Registration Statement was filed with the SEC on April 29, 2024 (File No.

333-278979) and was declared effective by the SEC on May 13, 2024.

Through December 31, 2024, the Company utilized the B.

Riley Committed Equity Facility to sell 23,999 shares of Common Stock for cash proceeds totaling $58 thousand.

On January 8, 2025, B.

Riley notified the Company that it had sold the Commitment Shares, which resolved the liability.

Through December 31, 2025 and 2024, the Company utilized the B.

Riley Committed Equity Facility to sell 1,814,731 and 23,999 shares of Common Stock for cash proceeds totaling $4.7 million and $58 thousand, respectively.

Effective February 2, 2026, the Company terminated the Purchase Agreement.

At the Market Sales Agreement

On March 28, 2025, we entered into an at market issuance sales agreement (the “2025 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.

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 2025 Sales Agreement.

Through December 31, 2025, 151,072 shares were sold under the 2025 Sales Agreement for cash proceeds totaling $0.1 million.

Effective February 2, 2026, the Company terminated the 2025 Sales Agreement.

2025 Private Placement

On October 24, 2025, the Company entered into a securities purchase agreement (the “2025 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) 34,229,826 shares of Common Stock at a purchase price of $0.409 per share and (ii) the warrants (the “2025 Warrants”) to purchase up to 68,459,652 shares of Common Stock (collectively, the “2025 Private Placement”), 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 2025 Purchase Agreement and the 2025 Warrants provide that each Investor’s beneficial ownership of Common Stock, including after taking into account the full exercise of such Investor’s 2025 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 2025 Warrant is not exercisable for shares of Common Stock due to the beneficial ownership of such Investor exceeding the Maximum Ownership Limitation, the applicable 2025 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 2025 Warrant is exercisable.

The 2025 Warrants will expire seven years from the date of issuance.

At the initial closing of the Private Placement on October 30, 2025, the Company issued to the Investors 6,970,890 shares of Common Stock and 2025 Warrants to purchase up to 13,941,780 shares of Common Stock, for gross proceeds of $2.85 million before deducting placement agent fees and offering expenses.

On December 23, 2025, the final closing occurred and the Company issued 27,258,936 shares of Common Stock and 2025 Warrants to purchase up to 54,517,872 shares of Common Stock to the Investors for gross proceeds of $11.15 million before deducting placement agent fees and offering expenses.

2025 Registered Direct Offering

On November 4, 2025, the Company entered into a 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 gross proceeds to the Company of approximately $14.4 million, before deducting advisory fees and 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.

2024 Public Equity Offering

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In connection with the 2024 Public Offering, the underwriters were granted a 45-day option from the date of the prospectus to purchase up to 937,500 additional shares of Common Stock at the public offering price, less the underwriting discount, and on June 28, 2024, the underwriters fully exercised the over-allotment option, generating additional gross proceeds of $1.5 million to us before deducting underwriting discounts, commissions and offering expenses.

Private Placement Equity Offering

2024 Private Placement

On July 1, 2024, we issued and sold in a private placement (the “2024 Private Placement”) (i) 2,772,561 shares (the “Placement Shares”) and (ii) pre-funded warrants to purchase 6,602,439 shares of Common Stock (the “Pre-Funded Warrants”) for aggregate gross proceeds of $15.0 million before deducting placement agent fees and offering expenses.

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The Pre-Funded Warrants do not have any voting rights but have the right to participate in any dividends or distributions made by the Company.

On June 27, 2024, we also entered into a securities purchase agreement (the “Securities Purchase Agreement”) with 325 Capital, LLC (collectively with its affiliates, the “Purchaser”), pursuant to which the Purchaser agreed to purchase all of the Placement Shares and Pre-Funded Warrants offered in the 2024 Private Placement.

On June 27, 2024, we also entered into a securities purchase agreement (the “Securities Purchase Agreement”) with 325 Capital (collectively with its affiliates, the “Purchaser”), pursuant to which the Purchaser agreed to purchase all of the Placement Shares and

Pre-Funded Warrants offered in the 2024 Private Placement.

Pursuant to the Securities Purchase Agreement, we have made the following corporate governance changes, which are to remain in effect for so long as the Purchaser beneficially owns at least 10.0% of the then-outstanding shares of Common Stock:

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● the Board amended the Amended and Restated Bylaws of the Company to permit any single director to be able to call a special meeting of the Board and bring forward business at any regular or special meeting of the Board.

In connection with the closing of the 2024 Private Placement, the Company entered into a registration rights agreement, dated as of July 1, 2024, with the Purchaser pursuant to which the Company is required to file a registration statement with the SEC to register the resale of the Placement Shares and the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants.

All fees relating to the filing of such resale registration statement shall be borne by the Company.

On January 23, 2025, the Company registered the Placement Shares.

In addition, upon the closing of the 2024 Private Placement, the Company entered into a voting agreement, dated as of July 1, 2024, with certain stockholders of the Company representing greater than 50% of the issued and outstanding Common Stock of the Company (prior to the Public Offering and 2024 Private Placement) to support the transactions contemplated by the Securities Purchase Agreement, including of the authorization by the Company’s stockholders for the Company to issue the shares of Common Stock underlying the Pre-Funded Warrants in accordance with applicable Nasdaq rules.

On August 23, 2024, the issuance of the shares of Common Stock underlying the Pre-Funded Warrants was approved by our stockholders, and on September 24, 2024, the holders of the Pre-Funded Warrants exercised their warrants in exchange for Common Stock.

O n September 24, 2024, the holders of the Pre-Funded Warrants exercised their warrants in exchange for Common Stock.

Year ended December 31, 2025, Compared to Year ended December 31, 2024

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Year ended December 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net increase/(decrease) in cash, cash equivalents, and restricted cash equivalents

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.

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.

Net cash used in operating activities was $8.0 million for the year ended December 31, 2025, a decrease of $7.6 million, as compared to $15.6 million of net cash used in operating activities for the year ended December 31, 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 $1.6 million for the year ended December 31, 2025, as compared to $2.7 million for the year ended December 31, 2024.

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.

The decrease in net cash used in investing activities was primarily attributable to a decrease in cash paid for capital expenditures.

Financing Activities

Net cash provided by financing activities was $29.6 million for the year ended December 31, 2025, an increase of $8.0 million, as compared to $21.6 million of net cash provided by financing activities for the year ended December 31, 2024.

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.

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 December 31, 2024, and 2023 is $1.1 million.

The increase in net cash provided by financing activities is primarily attributable to proceeds from 2025 Private Placement and 2025 Registered Direct Offering.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP.

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.

Our consolidated financial statements are prepared in accordance with GAAP.

The preparation of these consolidated 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.

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The valuation of inventory requires us to evaluate whether inventory held is in excess of future estimated market demand or has become technologically obsolete.

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.

We believe the risk of technological obsolescence of certain hardware is not significant, as device technology and functionality is stable and the devices that the Company has in its inventory are deployable with the Company’s integrated solutions offerings.

The Company’s excess and obsolescence analysis is therefore focused on assessing the extent to which inventory is in excess of future estimated market demand.

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To the extent we believe that we do not meet the test that recovery is more likely than not, we establish a valuation allowance.

To the extent that we establish a valuation allowance or changes this allowance in a period, we adjust the tax provision or tax benefit in the consolidated statement of operations.

To the extent that we establish a valuation allowance or change this allowance in a period, we adjust the tax provision or tax benefit in the consolidated statement of

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis