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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-13 · 130 added, 166 removed, 77 unchanged (79% of the section changed)

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.

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, 2025 and in our unaudited condensed consolidated financial statements and notes thereto, included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”) .

This Quarterly Report includes forward-looking statements based on our 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.

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.

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.

The Company and its wholly owned subsidiaries 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 condition intelligence platform integrates multiple sensing modalities such as thermal, visual and acoustic, among others.

Customers deploy the MSAI Connect platform to continuously monitor critical assets and identify early degradation patterns (such as elevated operating temperatures) across electrical, mechanical, and environmental systems.

This allows teams to intervene early and convert potential failures into planned maintenance before downtime, safety incidents, or operational disruption occur.

We are pursuing expansion of our position as a Software as a Service (“SaaS”) provider in predictive maintenance and believe there are significant opportunities to increase recurring revenue from our solutions.

As deployment of multiple sensor modalities within our solutions becomes more pervasive, we have determined that disclosure of an aggregate active sensor count is no longer a meaningful operating metric because each sensor modality has different economic characteristics.

For example, vibration sensors may be deployed in larger volumes at lower per-sensor subscription prices, whereas thermal sensors may be deployed in lower volumes at higher per-sensor subscription prices.

We focus on commercial environments where operational continuity is vital and automation intensity is high, including distribution and parcel logistics networks, data centers, and select manufacturing and industrial facilities.

We believe our solutions offer a compelling combination of performance, scalability, and cost efficiency relative to traditional inspection and monitoring approaches.

Our digital, multi-sensor software platform is designed to support the transition from intermittent, manual asset inspections towards continuous intelligent condition monitoring.

By streaming and analyzing radiometric thermal data in combination with other deployed sensor inputs, our MSAI Connect software platform can surface early anomaly signals that may not be visible or detected during periodic inspections.

Our system architecture is intentionally modular and extensible, allowing for the integration of additional sensing modalities and analytics capabilities over time.

While our current commercial deployments are centered primarily on thermal-based monitoring enhanced by software-driven analytics and expert review, we believe MSAI Connect’s multi-sensor foundation positions us to expand into broader predictive and prescriptive use cases.

Through collaboration with several blue-chip multinational customers during development and deployment, we have validated high-value, mission-critical use cases across our target markets:

distribution and logistics, manufacturing and data centers.

These engagements have informed our product evolution and reinforced our belief that integrated, AI-enabled multi-sensor monitoring represents a structural shift in how industrial reliability and asset protection are managed.

In the distribution and logistics market, we believe our solutions deliver meaningful operational value by enabling enhanced predictive maintenance capabilities that help minimize unplanned downtime, lower labor and maintenance costs, and improve facility throughput and operational continuity.

During the first quarter of 2026, we completed initial deployments at Manchester Airport and a global direct-to-consumer food solutions provider, further validating the applicability of our solutions across complex, mission-critical operations.

In addition, we continue to expand our relationship with a large global distribution customer, which has advised that additional projects focused on monitoring rooftop solar infrastructure and distribution facilities have been approved, with installations expected to occur throughout fiscal year 2026.

In the data center market, our focus is on the critical infrastructure systems that support data center reliability, uptime, and operational resilience.

Through our MSAI Connect solutions, we help customers identify early signs of electrical and cooling system degradation before conventional alarms are triggered across applications such as chillers, cooling towers, automatic transfer switches, backup generators, power panels, and transformers.

During the first quarter of 2026, we successfully deployed two pilot projects within the data center sector.

Initial customer feedback has been encouraging, and we are actively engaged in discussions to expand these deployments and pursue additional opportunities across other data center facilities.

In the manufacturing market, our go-to-market strategy is centered on delivering early threat detection and operational reliability solutions designed to enhance safety, reduce operational risk, and improve asset visibility.

We continue to work closely with two of the “Big 3” automakers on our ongoing pilot programs focused on lithium-ion battery pack monitoring and the deployment of dual-vision hardware sensors.

In parallel, we remain actively engaged with these customers in identifying additional high-value applications for our solutions across broader manufacturing and production environments.

Recent Developments

Reverse Stock Split

On April 13, 2026, we effected a 1-for-40 reverse stock split (the “Reverse Stock Split”) of our common stock.

As a result of the Reverse Stock Split, our outstanding common stock was reduced from 80,491,720 shares to 2,012,293 shares, and proportionate adjustments were made to the number of shares underlying our outstanding equity awards and equity incentive plans, including corresponding adjustments to exercise prices and performance thresholds, as applicable.

The total number of authorized shares, the par value and other terms of our common stock were not affected by the Reverse Stock Split.

Pursuant to the terms of the Warrant Agreement, dated October 18, 2021, by and between the Company and Continental Stock Transfer & Trust Company, and as a result of the Reverse Stock Split, the exercise price of the Company’s public warrants to purchase 8,625,000 shares of common stock at an exercise price of $11.50 per share (the “Public Warrants”), and private placement warrants to purchase up to 506,250 shares of common stock at an exercise price of $11.50 per share (the “Private Placement Warrants” and together with the Public Warrants, the “SPAC Warrants”), each issued in connection with our initial public offering, was adjusted from $11.50 to $460.00.

Additionally, the number of shares of common stock issuable upon exercise of the Public Warrants and Private Placement Warrants was proportionally reduced to 215,625 shares and 12,657 shares, respectively.

Except as provided herein, all other terms and provisions of the SPAC Warrants remain in full force and effect.

Pursuant to the terms of the Subscription Agreement, dated December 1, 2023, by and among the Company and certain investors signatory thereto, and as a result of the Reverse Stock Split, the exercise price of the Company’s warrants to purchase 340,250 shares of common stock at an exercise price of $11.50 per share (the “Financing Warrants”), issued in connection with our business combination, was adjusted from $11.50 to $460.00.

Additionally, the number of shares of common stock issuable upon exercise of the Financing Warrants was proportionally reduced to 8,507 shares.

Except as provided herein, all other terms and provisions of the Financing Warrants remain in full force and effect.

On October 24, 2025, we entered into that certain 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 we sold to the investors warrants to purchase up to 68,459,652 shares of common stock (the “2025 Warrants”).

Pursuant to the terms of 2025 Warrants, and as a result of the Reverse Stock Split, the exercise price of the 2025 Warrants was adjusted from $0.409 to $5.98 per share.

The number of shares of common stock issuable upon exercise of the 2025 Warrants was proportionately increased to 4,682,273.85 shares.

Except as provided herein, all other terms and provisions of the 2025 Warrants remain in full force and effect.

2026 Sales Agreement

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.

Results of Operations

Three months ended September 30, 2025 compared to three months ended September 30, 2024

Three months ended March 31, 2026 compared to three months ended March 31, 2025

The following table presents summary results of operations for the periods indicated in thousands:

Three Months Ended September 30,

Three months ended March 31,

Cost of goods sold (exclusive of depreciation)

Inventory impairment

Operating expenses:

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Interest expense (income), net

Change in fair value of convertible notes

Change in fair value of warrants liabilities

Loss on financing transaction

Other expense (income), net

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Income tax expense (benefit)

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,

Total revenue

Revenue for the three months ended March 31, 2026 was $1.6 million, compared to $1.2 million for the three months ended March 31, 2025.

Revenue streams from each of our products and services are summarized below for the three months ended March 31, 2026 and 2025.

Three months ended March 31,

Total revenue, net

The increase in revenue was primarily attributable to a $0.4 million or 169% increase in software revenue from sales of MSAI Connect, our condition intelligence platform, and a $0.2 million or 21% increase from sensor sales connected with new deployments of our platform and standalone hardware sales.

These increases in revenue were offset by a decrease in services revenue of $0.1 million or 84%, primarily related to the discontinuation of inspection and training services in August 2025.

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.

Cost of goods sold for the three months ended March 31, 2026 was $0.7 million, compared to $0.5 million for the three months ended March 31, 2025.

The increase in cost of goods sold was attributable to an increase 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.

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.

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.

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,

Cost of goods sold (exclusive of depreciation)

Inventory impairment

Operating expenses:

Selling, general and administrative

Selling, general and administrative expense for the three months ended March 31, 2026 was $3.0 million, compared to $4.1 million for the three months ended March 31, 2025.

The decrease in selling, general and administrative expense was primarily driven by a $0.7 million reduction in professional fees and $0.2 million reduction in payroll expenses compared to the prior year period.

Share-Based Compensation Expense:

Loss (gain) on asset disposal

Total operating expenses

Operating loss

Share-based compensation expense for the three months ended March 31, 2026 was $0.2 million, compared to $0.9 million for the three months ended March 31, 2025.

The decrease in share-based compensation expense was primarily attributable to restricted stock units granted during the first quarter of 2025, which included a provision for immediate vesting of 25% of the total award, resulting in higher expense recognized in the prior-year period.

Depreciation:

Depreciation expense was $0.4 million for the three months ended March 31, 2026, compared to $0.3 million for the three months ended March 31, 2025.

The increase in depreciation expense was primarily driven by additions to property, plant, and equipment, predominately software associated with our development of MSAI Connect, partially offset by lower depreciation expense related to machinery, equipment, and demo assets due to disposals and sales completed during fiscal year 2025.

Interest expense (income), net:

Change in fair value of convertible notes

Change in fair value of warrants liabilities

Loss on financing transaction

Other expense (income), net

Loss before income taxes

Income tax expense (benefit)

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,

Total revenue

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.

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 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.

Interest income was $0.2 million for the three months ended March 31, 2026, compared to insignificant interest income for the three months ended March 31, 2025.

The increase in interest income was primarily due to higher average cash balances invested in interest-bearing accounts.

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.

Other income, net was insignificant for the three months ended March 31, 2026, compared to $0.2 million for the three months ended March 31,2025.

The decrease in other income was primarily due to the resolution of the ELOC make-whole obligation, as notified by B.

Riley on January 8, 2025 (as discussed below), which resulted in a one-time benefit recorded in the prior-year period.

Non-GAAP Financial Measures

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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 define EBITDA as net income (loss) before (i) interest expense (net interest income), (ii) depreciation and (iii) taxes.

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, as each are applicable to the periods presented.

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 (loss) or any other measure as determined in accordance with GAAP.

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We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business.

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,

EBITDA and Adjusted EBITDA, when viewed in a reconciliation to respective GAAP measures, provide an additional way of viewing the Company’s results of operations and factors and trends affecting the Company’s business.

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 (loss) (unaudited) for each of the periods indicated, in thousands:

Three months ended March 31,

Adjusted EBITDA

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Income tax expense (benefit)

Change in fair value of convertible notes

Change in fair value of warrants liabilities

Share-based compensation expense

Inventory impairment

Loss on financing transaction

Other expense (income), net

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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.

We incurred losses for the three months ended March 31, 2026 and 2025.

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

As of March 31, 2026, we had $22.6 million of cash and cash equivalents.

We expect that our current sources of liquidity, together with our projection of cash flows from operating activities, will provide us with adequate liquidity for at least the next 12 months.

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, 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 our control.

There is no assurance that we will be successful in implementing our 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.

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.

Equity Line of Credit

On April 16, 2024, we entered into a common stock purchase agreement (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 $25.0 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.

Equity Line of Credit (“ELOC”)

On April 16, 2024, we entered into that certain common stock 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.

Riley up to $25 million worth of common stock (the “Purchase Shares”) over the term of the Purchase Agreement.

In accordance with the Purchase Agreement, on April 16, 2024, we issued 4,296 shares of our common stock to B.

Riley as consideration for its commitment to purchase the Purchase Shares under the Purchase Agreement (the “Commitment Shares”).

Under the terms of the Purchase Agreement, if the aggregate amount of cash proceeds, if any, received by B.

Riley from the resale of the Commitment Shares was less than $500, then, upon notice by B.

Riley, the Company was required to pay the difference between $500 and the aggregate cash proceeds received by B.

Riley from its resale.

On January 8, 2025, B.

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

Accordingly, $0.2 million was recorded in Other expense (income), net in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2025.

During the three months ended March 31, 2026, the Company did not utilize the B.

Riley ELOC and terminated the Purchase Agreement effective February 2, 2026.

During the three months ended March 31, 2025, the Company utilized the ELOC to sell 44,793 shares of common stock for cash proceeds totaling $4.7 million.

At the Market Sales Agreements

On March 13, 2026, the Company entered into the 2026 Sales Agreement with the Agents, under which the Company may offer and sell shares of the Company’s common stock having an aggregate market value of up to $60 million from time to time through the Agents.

The Agents are entitled to compensation at a fixed commission rate based on the gross sales price of shares sold pursuant to the 2026 Sales Agreement.

During the three months ended March 31, 2026, the Company did not sell any shares under the 2026 Sales Agreement.

On March 28, 2025, the Company entered into an at market issuance sales agreement (the “2025 Sales Agreement”) with B.

Riley Securities, Inc.

Riley Securities”) as sales agent or principal, pursuant to which the Company could offer and sell shares of its common stock, having an aggregate offering price 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 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.

Riley Securities was entitled to compensation at a fixed commission rate based on the gross sales price of shares sold pursuant to the 2025 Sales Agreement.

During the three months ended March 31, 2026 and 2025, the Company did not sell any shares under the 2025 Sales Agreement.

The Company terminated the 2025 Sales Agreement effective February 2, 2026.

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.

As previously discussed, on October 24, 2025, the Company entered into the 2025 Purchase Agreement with the Investors, pursuant to which it agreed to sell to the Investors (i) 855,745 shares of common stock at a purchase price of $16.36 per share and (ii) the 2025 Warrants (collectively, the “2025 Private Placement”), with an exercise price of $5.98 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.

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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 “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.

At the initial closing of the Private Placement on October 30, 2025, the Company issued to the Investors 174,272 shares of common stock and 2025 Warrants to purchase up to 953,543.13 shares of common stock (as adjusted for the Reverse Stock Split), 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 681,474 shares of common stock and 2025 Warrants to purchase up to 3,728,730.72 shares of common stock (as adjusted for the Reverse Stock Split) 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 (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”).

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) 114,875 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 152,500 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.

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The offering price was $54.00 per share of common stock and $53.9999 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.

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.

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.

Nine months ended September 30, 2025, compared to nine months ended September 30, 2024

Three months ended March 31, 2026 compared to three months ended March 31, 2025

The following table summarizes our cash flows for the periods indicated, in thousands:

Nine months ended September 30,

Three months ended March 31,

Net cash provided by (used in) operating activities

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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.

Net cash used in operating activities was $1.7 million for the three months ended March 31, 2026, a decrease of $1.5 million compared to $3.2 million for the three months ended March 31, 2025.

The decrease in net cash used in operating activities was primarily driven by a lower net loss during the current period, as well as changes in working capital, including the timing of customer receipts.

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.

Net cash used in investing activities was $0.1 million for the three months ended March 31, 2026, a decrease of $0.3 million as compared to $0.4 million of net cash used in investing activities for the three months ended March 31, 2025.

The decrease is primarily related to a decrease in cash paid for capital expenditures.

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.

Net cash used in financing activities was insignificant for the three months ended March 31, 2026, compared to $4.0 million of net cash provided by financing activities for the three months ended March 31, 2025.

The decrease was primarily attributable to $4.7 million of proceeds from the issuance of common stock during the three months ended March 31, 2025, with no comparable financing activity in the current period.

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.

As of March 31, 2026, we did not have any material contractual obligations.

Off-Balance Sheet Arrangements

As of September 30, 2025, we did not have any off-balance sheet arrangements.

As of March 31, 2026, 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 2025 Annual Report.

There have been no significant and material changes in our Critical Accounting Polices and Estimates since the 2024 Annual Report.

There have been no significant and material changes in our Critical Accounting Policies and Estimates since the 2025 Annual Report.

Recently Issued Accounting Standards

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Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company under the JOBS Act.

We are an emerging growth company under the Jumpstart Our Business Act of 2012 (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.

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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

revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

We will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Quantitative and Qualitative Disclosures About Market Risk.

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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-Q

Item 2. Management’s Discussion and Analysis