MultiSensor AI Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited; Amounts in thousands of U.S. dollars, except share data)

Note 1 — Organization and Business Operations

MultiSensor AI Holdings, Inc. (“MSAI,” “the Company,” “we” or “our”) and its wholly owned subsidiaries provide turnkey 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 & logistics, manufacturing, and oil & gas. In tandem with these solutions, we provide various services for our customers including training, calibration, and repair. The Company is domiciled in Delaware and is a C corporation for tax purposes.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company and its wholly owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The interim financial information is unaudited but reflects all normal adjustments that are necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2024 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. The condensed consolidated balance sheet as of December 31, 2024 was derived from our audited financial statements.

Principles of Consolidation

The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated.

Going Concern

These condensed consolidated financial statements have been prepared in accordance with U.S. GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company is still developing its customer base and has not completed its efforts to establish a stabilized source of revenue sufficient to cover its expenses. The Company has suffered net losses, negative cash flows from operations, and negative net working capital. The Company expects to continue to incur losses or limited income in the future. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In response to these conditions, 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. However, these plans are subject to market conditions, and are not within the Company’s control, and therefore, cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results may differ materially from those estimates.

Customer Concentration

For the three months ended March 31, 2025, one customer accounted for 20% or $229 of total net revenue, which is recorded under the entity’sone operating segment.

New Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 “Income Taxes (Topics 740): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard may have on our financial statement disclosures.

In November 2024, the FASB issued guidance that requires disaggregation of specific expense categories in disclosures within the footnotes to the financial statements on an annual and interim basis. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Prospective or retrospective application is allowed, and early adoption is permitted. We are currently evaluating the potential effect that the updated standard may have on our financial statement disclosures.

Note 3 — Revenue

The following tables summarize the Company’s revenue, net disaggregated by type of product and service:

The Company’s sales policy is not to accept returns of hardware once sold. However, in the first quarter of 2024, the Company recorded a sales return of $2,880, which was a reduction against revenue. This sales return was related to a transaction with a long-standing customer who also was a launch customer for MSAI Connect. There isno sales return reserve as of March 31, 2025 and December 31, 2024.

Contract Liabilities

Contract liabilities consist of sales of software subscriptions and related services, as well as repair and service agreements, where in most cases, the Company receives up-front payment and recognizes revenue over the term of 12-60 months. The Company classifies these contract liabilities as either current or non-current liabilities based on the expected timing of recognition of related revenue. Contract liabilities were $220 and $483 and non-current contract liabilities were $73 and $83 as of March 31, 2025 and December 31, 2024, respectively.

Note 4— Property, Plant and Equipment

The following table summarizes our property, plant and equipment, net:

Depreciation expense was $280 and $273 for the three months ended March 31, 2025, and 2024, respectively.

Note 5 — Other Current Assets

The following table summarizes other current assets:

Note 6 — Inventories

The following table summarizes inventories:

The Company recorded an inventory impairment of $0 and $234 for the three months ended March 31, 2025 and 2024.

Note 7 — Accrued Expense

The following table summarizes accrued expenses:

Note 8 — Debt

Line of Credit

In December 2023, the Company entered into a line of credit agreement with First Insurance Funding. During the three months ended March 31, 2024, the Company fully paid off and closed the line of credit. There wasno outstanding balance as of March 31, 2025 and December 31, 2024.

Promissory Notes

In 2022, the Company borrowed $200 under an unsecured promissory note with a related party to fund short-term working capital needs. In the three months ended March 31, 2024, the Company repaid the promissory note in full. There wasno outstanding balance as of March 31, 2025 and December 31, 2024.

In June 2023, the Company borrowed $375 under an unsecured promissory note to fund short-term working capital needs, which was fully repaid in July 2024. There wasno outstanding balance as of March 31, 2025 and December 31, 2024.

In December 2023, the Company borrowed $200 under an unsecured non-interest-bearing promissory note with Legacy SMAP to fund short-term working capital needs. In the three months ended March 31, 2024, the promissory note was converted into shares of Common Stock at a price of $3.33 per share. There wasno outstanding balance as of March 31, 2025 and December 31, 2024.

In April, May and November 2023, Legacy SMAP secured operational working capital of $1,524. The promissory notes were not interest bearing and were not convertible into any securities of the company. The promissory notes were to be payable upon consummation of an initial business combination; provided that the Company has the right to extend the repayment date for up to 12 months thereafter in the event that the minimum cash transaction is not met or would not be met but for such extension. The minimum cash transaction proceeds were not met at the closing of the Business Combination, and as such, the Company has elected to extend repayment of the promissory notes beyond closing. On December 19, 2023, in connection with the Business Combination, $1,324 of the promissory notes were exchanged for an equal amount of financing notes (the “Financing Notes”). As of December 31, 2024, the balance outstanding was $172, which was repaid during the three months ended March 31, 2025.

Financing Notes

On December 19, 2023, in connection with the Business Combination, the Company issued the Financing Notes to several accredited private investors in an aggregate principal amount of $6,805, including $2,324 of which were issued in exchange for other debt instruments as part of the Business Combination. During the three months ending March 31, 2024, $4,475 of the Financing Notes were converted into shares of Common Stock at a price of $5 per share, which resulted in a loss of $740 being recorded under Loss on Financing Transaction within the Consolidated Statements of Operations.

Note 9 — Share-Based Compensation

Stock Options

During the three-months ended March 31, 2025, no option awards were granted and 28,777 option awards were forfeited. As of March 31, 2025,909,402 option awards remained outstanding with a weighted average exercise price of $6.64.

Restricted Stock Units

During the three months ended March 31, 2025, the Company granted 1,600,631 restricted stock units (“RSUs”) at a weighted average price of $1.70, which was based on the fair value of the Company’s common stock on the dates of the grants. During the three months ended March 31, 2024, no RSUs were granted.

These RSUs primarily vestedone-fourth of the award value on the date of grant, with the remaining restricted shares vesting in equal installments on January 1, 2026, January 1, 2027, and January 1, 2028. Accordingly, the Company recognized share-based compensation expense related to RSUs of $827 and $0 for the three-month period ended March 31, 2025 and March 31, 2024,

respectively, under Share-based compensation expense on the Condensed Consolidated Statements of Operations. During the three-month period ended March 31, 2025, the Company’s non-employee board of directors earned $80 in compensation for their service on the board, which is classified as a liability as of March 31, 2025. This liability was settled by issuance of RSUs on April 28, 2025, and therefore is recognized as Share-based compensation expense on the Condensed Consolidated Statement of Operations.

Note 10 — Shareholders’ Equity

Total authorized capital stock of the Company as of March 31, 2025, is 300,000,000 shares of common stock. As of March 31, 2025 and December 31, 2024, there were 32,957,641 and 30,526,052 shares of common stock issued andoutstanding andno shares of preferred stock issued or outstanding, respectively.

Equity Line of Credit

On April 16, 2024, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, we have the right, in our sole discretion, to sell to B. Riley up to $25,000 of shares of the Common Stock (subject to certain limitations contained in the Purchase Agreement), from time to time during the term of the Purchase Agreement through a Market Open Purchase or an Intraday Purchase on any Purchase Date (each term as defined in the Purchase Agreement). Sales of Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley under the Purchase Agreement. The Company evaluated the Purchase Agreement to determine whether they should be accounted for considering the guidance in ASC 815-40, “Derivatives and Hedging - Contracts on an Entity’s Own Equity” and concluded that it is an equity-linked contract that does not qualify for equity classification, and therefore requires fair value accounting as a derivative. The Company has analyzed the terms of the freestanding purchased put right and has concluded that it had insignificant value as of March 31, 2025.

Pursuant to the terms of the Purchase Agreement, at the time the Purchase Agreement and the Registration Rights Agreement, as defined below, were signed, the Company issued 171,821 shares of common stock, to B.Riley as consideration for its commitment to purchase shares of the Company’s common stock under the Purchase Agreement (the “Commitment Shares”). The cost of this on the effective date of the equity line of credit (“ELOC”) was $500. Under the terms of the Purchase Agreement, if the aggregate proceeds received by B. Riley from its resale of the Commitment Shares is less than $500 then, upon notice by B. Riley, the Company must pay the difference between $500, and the aggregate proceeds received by B. Riley from its resale of the Commitment Shares. On January 8, 2025, B.Riley notified the Company that it had sold the Commitment Shares, which resolved the liability. Accordingly, $185 was recorded in Other Income, Net in the Condensed Consolidated Statement of Operations.

During the three months ended March 31, 2025, the Company utilized the B. Riley Committed Equity Facility to sell a total of 1,791,732 shares of Common Stock for cash proceeds totaling$4,657.

At the Market Sales Agreement

On March 28, 2025, the Company 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 may offer and sell shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), having an aggregate market value of up to $8,625 from time to time through B. Riley Securities. B. Riley Securities will be 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 March 31, 2025, we soldno shares under the Sales Agreement.

Note 11 — Earnings per Share

The following table summarizes the computation of basic and diluted earnings per share:

The table above does not include the following potential anti-dilutive shares: (i) up to 8,625,000 shares of new Common Stock that will be issuable upon exercise of the Company’s outstanding public warrants at an exercise price of $11.50 per share for cash, (ii) up to 506,250 shares of new Common Stock that will be issuable upon exercise of the Company’s outstanding private warrants at an exercise price of $11.50 per share, (iii) up to 340,250 shares of Common Stock that will be issuable upon exercise of the financing warrants at an exercise price of $11.50 per share for cash, (iv) shares of Common Stock that will be issuable upon the exercise of Company’s Options, (v)1,414,625 shares of Common Stock underlying the Company’s RSU Awards that were vested at January 1, 2024 but not issued as of March 31, 2025 (vi)1,037,182 shares of Common Stock underlying the Company’s RSU Awards that were vested at April 1, 2024 but not issued as of March 31, 2025 or (vii)1,360,563 RSU awards issued under the 2023 Incentive Award Plan as of March 31, 2025.

The Company’s RSU Awards which vested on January 1, 2024 and April 1, 2024 described above will continue being settled in shares of Common Stock in 12 equal monthly installments, with the first installment on December 20, 2024.

Note 12— Related Party Transactions

Related Party Promissory Note

See Note 8.

Leases

The Company leases its corporate office and production facility from a related party. Total cash payments to the related party for the leases were $27 and $26 for the three-month periods ended March 31, 2025 and 2024, respectively.

Note 13 — Commitment and Contingency

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

In the ordinary course of the business, the Company is subject to periodic legal or administrative proceedings. As of March 31, 2025, the Company is not involved in any material claims or legal actions which, in the opinion of management, the ultimate disposition would have a material adverse effect on the Company’s condensed consolidated financial position, results of operations, or liquidity.

Note 14 — Fair value measurements

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, and accounts payable where the carrying value approximates fair value due to the short - term nature of each instrument.

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. A three-tiered hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires that the Company use observable market data, when available, and minimize the use of unobservable inputs when determining fair value:

The fair value of the Company’s outstanding warrants as of March 31, 2025, and December 31, 2024, was $10 and $10, respectively, and was classified as Level 3 within the fair value hierarchy.

Note 15 — Income Taxes

The Company has determined that a discrete year-to-date method of reporting would provide more reliable results for the three months ended March 31, 2025, and March 31, 2024, due to the difficulty in projecting future results. The Company recorded income tax expense of $8 and $31 for the three months ended March 31, 2025 and 2024, respectively. The Company maintains a valuation allowance on its deferred tax assets and intends to do so until there is sufficient evidence to support the reversal of all or some portion of this allowance.

For the three months ended March 31, 2025, and 2024, the Company’s effective income tax rates were (0.17)% and (0.78)%, respectively. The effective tax rates for the three months ended March 31, 2025 and March 31, 2024 are below the U.S. statutory tax rate of 21% primarily due to losses generated by the Company and the Company's valuation allowance. During 2024, the Company determined that it experienced an ownership change as defined under Internal Revenue Code Section 382. The result of the ownership change is subjecting tax attributes to an annual limitation which includes the utilization of the Company’s net operating losses. The Company will continue to monitor ownership changes throughout future periods.

Note 16 — Segments and geographical information

The Company hasone reportable and operating segment, the manufacturing and distributing of sensor-based systems, software, and services. The Company holds 99% of its assets within the United States. The Company derives revenue primarily in North America and manages the business activities on a consolidated basis. The following table summarizes revenue based upon the customers’ country of origin:

The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The CODM uses consolidated net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the segment or into other parts of the entity, such as for acquisitions. Net income is used to monitor budget versus actual results and to perform competitive analysis through benchmarking to competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.

The table below summarizes the significant expense categories regularly reviewed by the CODM for the three-month periods ended March 31, 2025, and 2024:

See the condensed consolidated financial statements for other financial information regarding the Company’s operating segment.