Core Points - Airship AI Holdings, Inc. has entered into a definitive agreement for the immediate exercise of certain outstanding warrants to purchase up to 2,162,162 shares of common stock at an exercise price of $4.50 per share [1] - The closing of the offering is expected to occur on or about October 10, 2025, subject to customary closing conditions [1] - Roth Capital Partners is acting as the financial advisor for this transaction [2] Summary of the Transaction - The holders exercising the warrants will receive new warrants to purchase an aggregate of up to 2,702,702 shares of common stock at an exercise price of $6.20 per share, with a term of 5.5 years [3] - The new warrants will be part of a private placement and have not been registered under the Securities Act of 1933 [3] - The Company will file a resale registration statement within 20 days of closing to register the resale of shares underlying the new warrants [3] Company Overview - Airship AI, founded in 2006, is a technology company based in Redmond, Washington, specializing in AI-driven video, sensor, and data management surveillance solutions [5] - The company's products aim to enhance public safety and operational efficiency for both public sector and commercial customers through predictive analysis [5] - Airship AI's product suite includes Outpost AI edge hardware and software, Acropolis enterprise management software, and Command visualization tools [5]

Core Viewpoint - Airship AI Holdings, Inc. (AISP) experienced a significant stock price increase of 19.5% to $6.98, driven by strong trading volume and a 35.8% gain over the past four weeks [1][2]. Company Summary - The stock surge was primarily due to the announcement of $11 million in fixed-price contract awards from the U.S. Department of Justice and the Department of Homeland Security for AI-driven surveillance solutions [2]. - The company is projected to report quarterly earnings of $0.02 per share, reflecting a year-over-year increase of 133.3%, with expected revenues of $8.3 million, up 189.2% from the previous year [2]. - The consensus EPS estimate for Airship AI Holdings has remained unchanged over the last 30 days, indicating a potential lack of momentum in earnings estimate revisions [4]. Industry Context - Airship AI Holdings is part of the Zacks Technology Services industry, which includes other companies like Bitdeer Technologies Group (BTDR), which saw a 7.6% increase in its stock price and a 57.3% return over the past month [4]. - Bitdeer Technologies Group's consensus EPS estimate has also remained unchanged at -$0.22, representing a year-over-year change of 37.1% [5].

Core Insights - Airship AI Holdings, Inc. has been awarded 16 contracts from the Department of Justice and Department of Homeland Security for AI-driven surveillance solutions, highlighting the growing importance of such technologies in public safety and homeland security [1][2] Company Overview - Airship AI, founded in 2006 and headquartered in Redmond, Washington, specializes in AI-driven video, sensor, and data management surveillance solutions aimed at enhancing public safety and operational efficiency [5] Product Capabilities - The company's flagship product, Outpost AI, is an advanced edge-based appliance that utilizes proprietary models to detect user-defined objects and events, allowing for autonomous actions without constant human oversight [3] - Airship AI's solutions aggregate thousands of edge-generated feeds into a unified interface, providing real-time alerts on suspicious activities, thereby maximizing resource utilization for law enforcement agencies [2] Market Position and Future Opportunities - The recent contract awards not only reinforce existing capabilities but also open avenues for new requirements, indicating a strong market position and potential for future growth [4] - The company is actively pursuing additional opportunities that have emerged in the current fiscal quarter, which could further expand its footprint in federal law enforcement operations [4]

Core Viewpoint - The small-cap tech markets are experiencing significant growth potential driven by interest rate outlook and business demand trends, with specific stocks poised for substantial price increases [1]. Group 1: Airship AI - Airship AI's stock has shown volatility since its late 2023 IPO, with a current price of $5.19 and a price target of $6.00, indicating potential for growth [3][4]. - The company operates a cloud-native platform that leverages dark data for critical information extraction, targeting institutions and law enforcement [3]. - Recent market activity includes purchases by major institutions like Bank of America and JPMorgan Chase, despite only 5% institutional ownership [4]. - A 20% share price increase in early September confirmed support at a critical trading range, suggesting a potential rise above resistance at $6.60, which represents over 100% upside from this target [5][6]. Group 2: Amprius Technologies - Amprius Technologies is currently priced at $8.36 with a price target of $11.71, driven by ramping capacity and demand for its next-gen silicon-anode lithium-ion batteries [8]. - The company is positioned for hypergrowth, particularly in aerospace and drones, while also diversifying into new markets [9]. - Analysts show a bullish sentiment with a unanimous Buy rating from nine analysts and a price target suggesting a 45% upside, potentially reaching the $18 range [10]. - The stock increased by 15% in early September, indicating strong market support and a bullish triangle pattern, with expectations to rise above $10.50 [11]. Group 3: SoundHound AI - SoundHound AI's stock is currently at $14.95 with a price target of $14.36, reflecting accelerating hyper-growth driven by demand for voice-to-meaning technology [13]. - The company is expanding its client base and deals, indicating strong growth potential in 2025 [13]. - Analysts have a Moderate Buy rating for SoundHound, with increasing coverage and a positive revision trend leading to higher price targets [14]. - The stock has shown strong support since April, with rising volume and positive indicators suggesting further upward movement [15].

```markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents unaudited condensed consolidated financial statements and management's discussion and analysis for the company [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive notes, for periods ending June 30, 2025, and December 31, 2024 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's financial position, including assets, liabilities, and stockholders' deficit, as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited) | ASSETS (in USD) | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Cash and cash equivalents | $6,306,274 | $11,414,830 | | Accounts receivable, net | $2,557,427 | $1,226,757 | | Total current assets | $8,913,791 | $12,659,470 | | TOTAL ASSETS | $10,080,678 | $13,707,454 | | **LIABILITIES AND STOCKHOLDERS' DEFICIT** | | | | Accounts payable - trade | $393,341 | $759,480 | | Advances from founders | $- | $1,300,000 | | Deferred revenue- current portion | $4,629,075 | $3,238,483 | | Total current liabilities | $5,487,730 | $5,654,790 | | Warrant liability | $33,153,619 | $34,180,618 | | Earnout liability | $15,500,664 | $23,304,808 | | Total liabilities | $56,960,068 | $66,730,591 | | Total stockholders' deficit | $(46,879,390) | $(53,023,137) | | TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $10,080,678 | $13,707,454 | - Total assets decreased from **$13.7 million** at December 31, 2024, to **$10.1 million** at June 30, 2025[12](index=12&type=chunk) - Total liabilities decreased from **$66.7 million** at December 31, 2024, to **$57.0 million** at June 30, 2025, primarily due to reductions in earnout and warrant liabilities[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This statement details the company's revenues, expenses, and net income or loss for the three and six months ended June 30, 2025, and 2024 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) | (in USD) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NET REVENUES | $2,146,890 | $6,401,031 | $7,649,918 | $16,976,046 | | COST OF NET REVENUES | $614,373 | $1,894,824 | $3,882,397 | $9,841,712 | | GROSS PROFIT | $1,532,517 | $4,506,207 | $3,767,521 | $7,134,334 | | RESEARCH AND DEVELOPMENT EXPENSES | $740,571 | $702,771 | $1,459,953 | $1,398,137 | | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | $2,813,827 | $2,827,120 | $6,043,806 | $6,162,414 | | OPERATING (LOSS) INCOME | $(2,021,881) | $976,316 | $(3,736,238) | $(426,217) | | (Loss) gain from change in fair value of earnout liability | $(7,301,585) | $14,876,927 | $2,522,020 | $(6,607,923) | | (Loss) gain from change in fair value of warrant liability | $(14,494,184) | $1,542,347 | $1,026,999 | $(5,304,744) | | NET (LOSS) INCOME | $(23,757,051) | $18,461,995 | $(49,066) | $(13,502,474) | | Basic EPS | $(0.75) | $0.80 | $(0.00) | $(0.59) | | Diluted EPS | $(0.75) | $0.61 | $(0.00) | $(0.59) | - Net revenues decreased significantly by **66.5%** for the three months ended June 30, 2025, to **$2.1 million** from **$6.4 million** in the prior year, and by **54.9%** for the six months, to **$7.6 million** from **$17.0 million**[17](index=17&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - The company reported a net loss of **$23.8 million** for the three months ended June 30, 2025, compared to a net income of **$18.5 million** in the prior year, primarily due to non-cash losses from changes in fair value of earnout and warrant liabilities[17](index=17&type=chunk)[18](index=18&type=chunk)[24](index=24&type=chunk) - For the six months ended June 30, 2025, the net loss significantly reduced to **$49 thousand** from **$13.5 million** in the prior year, driven by gains from changes in fair value of earnout and warrant liabilities[17](index=17&type=chunk)[18](index=18&type=chunk)[25](index=25&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Deficit](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Deficit) This statement outlines changes in the company's stockholders' deficit, including common stock, additional paid-in capital, and accumulated deficit, for the six months ended June 30, 2025 Condensed Consolidated Statements of Changes in Stockholders' Deficit (Unaudited) | (in USD) | Common Stock Shares | Common Stock $ | Additional Paid in Capital | Accumulated Deficit | Other Comprehensive Income (Loss) | Total Stockholders' Deficit | | :------------------------------------ | :-------------------- | :------------- | :------------------------- | :------------------ | :-------------------------------- | :-------------------------- | | Balance as of January 1, 2025 | 30,588,413 | $3,056 | $21,918,867 | $(74,941,590) | $(3,470) | $(53,023,137) | | Stock-based compensation | - | - | $428,286 | - | - | $428,286 | | Issuance of common stock for exercise of warrants | 13,200 | $1 | $59,399 | - | - | $59,400 | | Issuance of common stock for stock options exercise | 81,952 | $8 | $43,193 | - | - | $43,201 | | Issuance of common stock for earnout shares | 1,160,906 | $117 | $5,282,008 | - | - | $5,282,125 | | Foreign currency translation loss | - | - | - | - | $(7,409) | $(7,409) | | Net income (March 31, 2025) | - | - | - | $23,707,985 | - | $23,707,985 | | Stock-based compensation | - | - | $372,139 | - | - | $372,139 | | Issuance of common stock for exercise of warrants | 100 | - | $450 | - | - | $450 | | Issuance of common stock for stock options exercise | 64,525 | $6 | $14,615 | - | - | $14,621 | | Net loss (June 30, 2025) | - | - | - | $(23,757,051) | - | $(23,757,051) | | Balance as of June 30, 2025 | 31,909,096 | $3,188 | $28,118,957 | $(74,990,656) | $(10,879) | $(46,879,390) | - Total stockholders' deficit improved from **$(53.0) million** at December 31, 2024, to **$(46.9) million** at June 30, 2025[14](index=14&type=chunk)[20](index=20&type=chunk) - Common stock outstanding increased from **30,588,413 shares** to **31,909,096 shares** during the six months ended June 30, 2025, primarily due to the issuance of earnout shares and exercises of warrants and stock options[14](index=14&type=chunk)[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024 Condensed Consolidated Statements of Cash Flows (Unaudited) | (in USD) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(3,918,819) | $(4,146,868) | | Net cash (used in) provided by financing activities | $(1,182,328) | $1,240,221 | | Net decrease in cash and cash equivalents | $(5,101,147) | $(2,906,647) | | Cash and cash equivalents, beginning of period | $11,414,830 | $3,124,413 | | Cash and cash equivalents, end of period | $6,306,274 | $226,750 | - Net cash used in operating activities decreased slightly to **$3.9 million** for the six months ended June 30, 2025, from **$4.1 million** in the prior year[22](index=22&type=chunk)[26](index=26&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - Net cash used in financing activities was **$1.2 million** for the six months ended June 30, 2025, a significant change from **$1.2 million** provided in the prior year, primarily due to repayment of advances from founders[22](index=22&type=chunk)[26](index=26&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - Cash and cash equivalents decreased by **$5.1 million**, ending at **$6.3 million** as of June 30, 2025[22](index=22&type=chunk)[23](index=23&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations of the accounting policies, financial instruments, and other relevant information supporting the condensed consolidated financial statements [Note 1. Organization](index=6&type=section&id=Note%201.%20Organization) This note details Airship AI Holdings, Inc.'s corporate structure, the December 2023 merger, and its core business as an AI-driven data management platform for 'dark' data at the edge - Airship AI Holdings, Inc. completed a merger with BYTE Acquisition Corp. on December 21, 2023, making Airship AI, Inc. a wholly-owned subsidiary[26](index=26&type=chunk)[27](index=27&type=chunk) - The company operates an AI-driven data management platform that structures 'dark' or unstructured data at the edge, leveraging purpose-built AI models for real-time decision making[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Key offerings include Outpost AI, Acropolis, and Airship Command, serving government, law enforcement, and large commercial corporations[32](index=32&type=chunk)[37](index=37&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=7&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines key accounting policies, including basis of presentation, revenue recognition, fair value measurements, and going concern assessment, emphasizing GAAP and estimates - Revenue is primarily generated from sales of bundled hardware and software systems (recognized at a point in time) and post-contract support (PCS) and other services (recognized over time)[44](index=44&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - Fair value measurements for financial instruments (e.g., earnout and warrant liabilities) are classified into Level 1, 2, or 3 based on observability of inputs, with Level 3 inputs being unobservable and significant[68](index=68&type=chunk)[74](index=74&type=chunk) - Management assessed the company's ability to continue as a going concern through August 2026 and determined there is no substantial doubt, based on current available cash and operations[82](index=82&type=chunk) [Note 3. Advances due to and from Founders](index=13&type=section&id=Note%203.%20Advances%20due%20to%20and%20from%20Founders) This note details the full repayment of **$1.3 million** in advances from founders by June 30, 2025, with no outstanding balance remaining - Advances from founders, totaling **$1.3 million** as of December 31, 2024, were fully repaid by June 30, 2025[87](index=87&type=chunk) [Note 4. Revenues](index=13&type=section&id=Note%204.%20Revenues) This note disaggregates revenue into product sales and services, detailing deferred revenue and remaining performance obligations Revenue Disaggregation (Unaudited) | Revenue Type (in USD) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Hardware and software bundled systems | ~$0.7 million | ~$5.4 million | ~$4.8 million | ~$14.8 million | | PCS and other services | ~$1.4 million | ~$1.0 million | ~$2.8 million | ~$2.2 million | Deferred Revenue Balances (Unaudited) | Deferred Revenue (in USD) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Short-term | $4,629,075 | $3,238,483 | | Long-term | $2,167,307 | $2,951,850 | | Total | $6,796,382 | $6,190,333 | - The company had approximately **$6.8 million** in remaining performance obligations as of June 30, 2025, with **43%** expected to be recognized in fiscal 2025 and **57%** thereafter[92](index=92&type=chunk) [Note 5. Notes Payable and Convertible Notes Payable](index=14&type=section&id=Note%205.%20Notes%20Payable%20and%20Convertible%20Notes%20Payable) This note details the conversion of senior secured convertible promissory notes into common stock during 2024 and the recognition of an unrealized loss from fair value changes - During 2024, **$2.0 million** of a senior secured convertible promissory note was converted into **879,051 shares** of common stock[94](index=94&type=chunk) - An additional **$600 thousand** in convertible notes and interest were converted into **169,204 shares** of common stock in March 2024, valued at **$835,610**[95](index=95&type=chunk) - An unrealized loss of **$512,184** was recorded for the six months ended June 30, 2024, due to the increase in the fair value of convertible notes payable[96](index=96&type=chunk) [Note 6. Stockholders' Deficit](index=14&type=section&id=Note%206.%20Stockholders'%20Deficit) This note details authorized and outstanding common stock, equity incentive plans, stock option activity, SARs, and warrants, including issuances and exercises for the six months ended June 30, 2025 - As of June 30, 2025, there were **31,909,096 shares** of common stock outstanding, up from **30,588,413 shares** at December 31, 2024[99](index=99&type=chunk) - During the six months ended June 30, 2025, **1,160,906 earnout shares** were issued, **13,300 shares** were issued from warrant exercises, and **146,477 shares** were issued from stock option exercises[100](index=100&type=chunk)[101](index=101&type=chunk) Stock Option Activity (Six Months Ended June 30, 2025) | | Options Shares | Weighted Average Exercise Price | | :-------------------------- | :------------- | :------------------------------ | | Outstanding as of January 1, 2025 | 5,527,559 | $1.04 | | Granted | 455,000 | $3.34 | | Exercised | (146,477) | $(0.39) | | Forfeited | (20,000) | $(2.95) | | Outstanding as of June 30, 2025 | 5,816,082 | $1.23 | Warrant Activity (Six Months Ended June 30, 2025) | | Warrants | Weighted Average Exercise Price | | :-------------------------- | :--------- | :------------------------------ | | Outstanding January 1, 2025 | 21,961,690 | $4.13 | | Exercised | (13,300) | $(4.50) | | Outstanding at June 30, 2025 | 21,948,390 | $4.13 | [Note 7. Employee 401(k) Plan](index=17&type=section&id=Note%207.%20Employee%20401(k)%20Plan) This note details the company's 401(k) plan, including a **3.5%** match on deferred salary and contributions expensed for the three and six months ended June 30, 2025 and 2024 - The company expensed **$55,668** and **$106,646** in 401(k) contributions for the three and six months ended June 30, 2025, respectively[118](index=118&type=chunk) [Note 8. Related Party Transactions](index=17&type=section&id=Note%208.%20Related%20Party%20Transactions) This note confirms the full repayment of advances from founders, with no outstanding balances as of June 30, 2025 - Advances due to founders were fully repaid by June 30, 2025, with no outstanding balance[119](index=119&type=chunk) [Note 9. Commitments, Contingencies and Legal Proceedings](index=17&type=section&id=Note%209.%20Commitments%2C%20Contingencies%20and%20Legal%20Proceedings) This note confirms no material legal proceedings and details operating lease commitments for office and warehouse spaces, including future minimum lease payments - The company is not a party to any pending legal proceedings that would have a major adverse effect on its business[120](index=120&type=chunk) Minimum Future Lease Payments as of June 30, 2025 | Years Ended June 30, | Amount (in USD) | | :------------------- | :-------------- | | 2026 | $475,382 | | 2027 | $489,670 | | 2028 | $200,489 | | Total remaining payments | $1,165,541 | | Less imputed interest | $(98,210) | | Total lease liability | $1,067,331 | - The weighted average remaining lease term for operating leases was **29 months** at June 30, 2025, with a weighted average discount rate of **7%**[125](index=125&type=chunk) [Note 10. Income Taxes](index=18&type=section&id=Note%2010.%20Income%20Taxes) This note reports a **0%** effective tax rate for the six months ended June 30, 2025 and 2024, due to a full valuation allowance on deferred tax assets - The company recorded a provision for income taxes of **$0** for the six months ended June 30, 2025 and 2024, resulting in a **0%** effective tax rate[127](index=127&type=chunk) - A full valuation allowance is retained on deferred tax assets as of June 30, 2025, and December 31, 2024, due to uncertainty regarding their realization[129](index=129&type=chunk) [Note 11. Warrant Liability](index=18&type=section&id=Note%2011.%20Warrant%20Liability) This note details public and private warrants, including the **$4.50 per share** exercise price reduction and their fair value as of June 30, 2025, and December 31, 2024 - The exercise price of outstanding public and private warrants was reduced to **$4.50 per share** on November 20, 2024, to potentially raise proceeds for working capital[130](index=130&type=chunk) Warrant Liabilities and Shares Issuable | (in USD) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Public Warrants (shares) | 16,145,110 | 16,158,410 | | Public Warrants (fair value) | $32,128,769 | $33,124,868 | | Private Warrants (shares) | 515,000 | 515,000 | | Private Warrants (fair value) | $1,024,850 | $1,055,750 | [Note 12. Earnout Liability](index=19&type=section&id=Note%2012.%20Earnout%20Liability) This note explains the contingent right to **5 million** earnout shares, the decrease in earnout liability fair value due to share issuance and stock price changes, and the achievement of the first operating milestone - Airship AI securityholders have a contingent right to receive up to **5,000,000 earnout shares** upon meeting certain milestones[133](index=133&type=chunk) - The estimated fair value of the earnout liability decreased to **$15.5 million** as of June 30, 2025, primarily due to the issuance of common stock to settle approximately **$5.3 million** of vested earnout liability and a decrease in the company's share price[134](index=134&type=chunk) - The first operating performance milestone was achieved as of September 30, 2024, resulting in the vesting of **1,250,000 earnout shares**, of which **1,160,906 shares** were issued on January 7, 2025[136](index=136&type=chunk) [Note 13. Fair Value Measurements](index=19&type=section&id=Note%2013.%20Fair%20Value%20Measurements) This note presents the fair value hierarchy (Level 1, 2, 3) for recurring liabilities, specifically earnout and warrant liabilities, and outlines Monte Carlo Model valuation assumptions Fair Value Hierarchy of Liabilities (June 30, 2025) | Liabilities (in USD) | Level 1 | Level 2 | Level 3 | Total | | :----------------------- | :------ | :------ | :-------- | :-------- | | Earnout liability | $524,761 | $- | $14,975,903 | $15,500,664 | | Warrant liability (Public) | $32,128,769 | $- | $- | $32,128,769 | | Warrant liability (Private) | $- | $1,024,850 | $- | $1,024,850 | | Total | $32,653,530 | $1,024,850 | $14,975,903 | $48,654,283 | Valuation Assumptions for Earnout Liability (Monte Carlo Model) | Assumption | June 30, 2025 | June 30, 2024 | | :------------------ | :------------ | :------------ | | Stock price | $5.89 | $3.59 | | Risk-free interest rate | 3.71% | 4.33% | | Expected term (in years) | 3.5 | 4.5 | | Expected volatility | 60.7% | 62.9% | | Dividend yield | 0% | 0% | [Note 14. Earnings per Share](index=20&type=section&id=Note%2014.%20Earnings%20per%20Share) This note computes basic and diluted net loss per share, explaining the exclusion of anti-dilutive shares (warrants, stock options, SARs, unvested earnout shares) from diluted EPS Net (Loss) Income Per Share (Unaudited) | (in USD) | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Net income (loss) | $(23,757,051) | $(49,066) | $18,461,995 | $(13,502,474) | | Basic EPS | $(0.75) | $(0.00) | $0.80 | $(0.59) | | Diluted EPS | $(0.75) | $(0.00) | $0.58 | $(0.59) | | Basic Weighted average shares outstanding | 31,873,639 | 31,789,346 | 23,220,709 | 23,059,598 | | Diluted Weighted average shares outstanding | 31,873,639 | 31,789,346 | 30,272,228 | 23,059,598 | - Potentially dilutive shares, including public warrants (**16,145,210**), private warrants (**515,000**), other warrants (**2,162,162**), and outstanding stock options, were excluded from diluted EPS calculation for periods with a net loss as they were anti-dilutive[142](index=142&type=chunk) [Note 15. Subsequent Events](index=20&type=section&id=Note%2015.%20Subsequent%20Events) This note confirms no material subsequent events requiring adjustment or disclosure up to the financial statement issuance date - No material transactions occurred subsequent to June 30, 2025, that would require recognition or disclosure in the financial statements[143](index=143&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=21&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial condition, results of operations, liquidity, and capital resources, including an overview of the AI platform, KPIs, and performance analysis for periods ended June 30, 2025 and 2024 [Overview](index=21&type=section&id=Overview) This section reaffirms the company's core business as an AI-driven data management platform structuring 'dark' data at the edge for government and commercial clients - Airship AI is an AI-driven data management platform that solves complex data challenges by structuring 'dark' or unstructured data at the edge[145](index=145&type=chunk)[146](index=146&type=chunk) - The platform leverages purpose-built AI models to enable real-time decision making and data-driven operational efficiency for government, law enforcement, and large commercial corporations[147](index=147&type=chunk)[148](index=148&type=chunk) - Primary offerings include Outpost AI, Acropolis, and Airship Command, which manage data across the full data lifecycle with a secure, permissioned architecture[153](index=153&type=chunk) [Recent Developments](index=22&type=section&id=Recent%20Developments) This section highlights the December 2023 merger's impact on fair value measurements of earnout and warrant liabilities, and subsequent warrant exercise price reductions Liabilities Measured at Fair Value (in USD) | Liability | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Earnout liability | $15,500,664 | $23,304,808 | | Warrant liability (Public) | $32,128,769 | $33,124,868 | | Warrant liability (Private) | $1,024,850 | $1,055,750 | | Total | $48,654,283 | $57,485,426 | - The exercise price of public and private warrants was reduced to **$4.50 per share** on November 20, 2024, to potentially raise proceeds for working capital[157](index=157&type=chunk) [Key Performance Indicators](index=22&type=section&id=Key%20Performance%20Indicators) This section discusses historical reliance on bundled hardware/software revenue and future plans to develop advanced KPIs during the transition to cloud-based software and subscription models - Historically, product revenue has primarily consisted of bundled hardware and software, with minimal standalone software sales[158](index=158&type=chunk) - The company expects to transition to more cloud-based software solutions, aiming to create additional subscription revenue[158](index=158&type=chunk) - Future key performance indicators will be developed to track growth in product offerings and customer base beyond just revenue[159](index=159&type=chunk) [Principal Factors Affecting Our Financial Performance](index=22&type=section&id=Principal%20Factors%20Affecting%20Our%20Financial%20Performance) Factors influencing financial performance include sales mix, government and commercial customer growth, edge AI expansion, and risks from supply-chain constraints, M&A, and tariffs - An increase in sales of lower-margin solutions (hardware-based turn-key solutions) may positively affect revenue but adversely impact operating profits compared to software applications[161](index=161&type=chunk) - Projected growth relies on expanding within existing U.S. government agencies and increasing penetration into the commercial marketplace, measured by new business awards and new commercial customers, respectively[160](index=160&type=chunk) - Expansion of edge AI based solutions is a key strategy, with progress measured by sales of edge AI hardware devices and growth of edge AI analytic capabilities[160](index=160&type=chunk) - Geo-political driven supply-chain constraints, particularly for Taiwan-based products, pose a concern for timely production and delivery of edge AI platform components[165](index=165&type=chunk) - Near-term merger and acquisition activity could lead to increased operating expenses and negatively impact operating profits[165](index=165&type=chunk) - Potential tariffs on goods imported from countries like Taiwan and Canada could increase product costs, reduce demand, or compress margins[165](index=165&type=chunk) [Segment Reporting](index=23&type=section&id=Segment%20Reporting) The company operates as a single reportable segment, with the CODM evaluating performance on a corporation-wide basis using consolidated net income (loss) - The company operates as one operating segment and one reportable segment[162](index=162&type=chunk) - The Chief Executive Officer, Chief Financial Officer, and President serve as the Chief Operating Decision Maker (CODM) and evaluate financial performance on a corporation-wide basis using consolidated net income (loss)[162](index=162&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of financial performance, including revenues, costs, operating results, and non-cash fair value adjustments, for periods ended June 30, 2025 and 2024 [Three Months Ended June 30, 2025 and 2024](index=23&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) This sub-section analyzes financial results for the three months ended June 30, 2025 and 2024, showing decreased net revenues and a net loss driven by non-cash fair value adjustments Results of Operations (Three Months Ended June 30, in thousands USD) | | 2025 | 2024 | $ Variance | % Variance | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Net revenues | $2,147 | $6,401 | $(4,254) | -66.5% | | Cost of net revenues | $614 | $1,895 | $1,281 | 67.6% | | Gross profit | $1,533 | $4,506 | $(2,973) | -66.0% | | Research and development expenses | $741 | $703 | $(38) | -5.4% | | Selling, general and administrative expenses | $2,814 | $2,827 | $13 | 0.5% | | Operating loss | $(2,022) | $976 | $(2,998) | -307.2% | | (Loss) gain from change in fair value of earnout liability | $(7,302) | $14,877 | $(22,179) | -149.1% | | (Loss) gain change in fair value of warrant liability | $(14,494) | $1,542 | $(16,036) | -1039.9% | | Total other (expense) income, net | $(21,735) | $17,486 | $(39,221) | -224.3% | | Net (loss) income | $(23,757) | $18,462 | $(42,219) | -228.7% | - Net revenues decreased by **$4.25 million (66.5%)** due to large purchase orders from federal government agencies primarily shipped in Q2 2024[166](index=166&type=chunk) - The company incurred a net loss of **$23.8 million**, a significant decline from **$18.5 million** net income in the prior year, primarily driven by non-cash losses of **$7.3 million** from earnout liability and **$14.5 million** from warrant liability fair value changes[170](index=170&type=chunk)[172](index=172&type=chunk) [Six Months Ended June 30, 2025 and 2024](index=24&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) This sub-section analyzes financial results for the six months ended June 30, 2025 and 2024, showing decreased net revenues and a reduced net loss due to fair value gains on liabilities Results of Operations (Six Months Ended June 30, in thousands USD) | | 2025 | 2024 | $ Variance | % Variance | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Net revenues | $7,650 | $16,976 | $(9,326) | -54.9% | | Cost of net revenues | $3,882 | $9,842 | $5,960 | 60.6% | | Gross profit | $3,768 | $7,134 | $(3,366) | -47.2% | | Research and development expenses | $1,460 | $1,398 | $(62) | -4.4% | | Selling, general and administrative expenses | $6,044 | $6,162 | $118 | 1.9% | | Operating loss | $(3,736) | $(426) | $(3,310) | -777.0% | | Gain (loss) from change in fair value of earnout liability | $2,522 | $(6,608) | $9,130 | 138.2% | | Gain (loss) change in fair value of warrant liability | $1,027 | $(5,305) | $6,332 | 119.4% | | Total income (other expense), net | $3,687 | $(13,076) | $16,763 | 128.2% | | Net (loss) | $(49) | $(13,502) | $13,453 | 99.6% | - Net revenues decreased by **$9.3 million (54.9%)** due to large federal government agency orders primarily shipped in the prior year[176](index=176&type=chunk) - Net loss significantly reduced to **$49 thousand** from **$13.5 million** in the prior year, primarily driven by non-cash gains of **$2.5 million** from earnout liability and **$1.0 million** from warrant liability fair value changes[181](index=181&type=chunk)[183](index=183&type=chunk) [Liquidity and Capital Resources as of June 30, 2025 and 2024](index=25&type=section&id=Liquidity%20and%20Capital%20Resources%20as%20of%20June%2030%2C%202025%20and%202024) This section assesses liquidity and capital resources, noting an accumulated deficit but concluding no substantial doubt about going concern through August 2026, supported by recent financing [Operating Activities](index=26&type=section&id=Operating%20Activities) This sub-section details net cash used in operating activities, highlighting the impact of net loss, working capital changes, and non-cash adjustments for periods ended June 30, 2025 and 2024 - Net cash used in operating activities was **$3.9 million** for the six months ended June 30, 2025, primarily due to a net loss of **$49 thousand** and net working capital reductions of **$1.3 million**, partially offset by non-cash gains from warrant and earnout liability changes[187](index=187&type=chunk) - For the six months ended June 30, 2024, net cash used in operating activities was **$4.1 million**, driven by a net loss of **$13.5 million** and working capital reductions, partially offset by non-cash items including losses from fair value changes[188](index=188&type=chunk) [Financing Activities](index=26&type=section&id=Financing%20Activities) This sub-section describes net cash used in financing activities, primarily due to founder advance repayments, contrasting with cash provided in the prior year from warrant exercises and founder advances - Net cash used in financing activities was **$1.2 million** for the six months ended June 30, 2025, mainly due to the repayment of **$1.3 million** in advances from founders[189](index=189&type=chunk) - Net cash provided by financing activities was **$1.2 million** for the six months ended June 30, 2024, including **$293 thousand** from warrant exercises and **$800 thousand** from advances from founders[190](index=190&type=chunk) [Contractual Obligations and Commitments](index=26&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines the company's minimum future operating lease payments for office and warehouse spaces as of June 30, 2025 Contractual Cash Obligations (Operating Lease Payments) | Years Ended June 30, | Total (in USD) | | :------------------- | :------------- | | Less Than 1 Year | $475,382 | | 1-3 Years | $489,670 | | 4-5 Years | $200,489 | | Total remaining payments | $1,165,541 | - The company has operating leases for office and warehouse space in Redmond, WA (expires Oct 2027) and Mooresville, NC (expires Jan 2028)[191](index=191&type=chunk)[192](index=192&type=chunk) [Off-Balance Sheet Arrangements](index=26&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms no off-balance sheet arrangements are likely to materially affect the company's financial condition or results of operations - The company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources[193](index=193&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes to critical accounting policies and estimates from those discussed in the Annual Report on Form 10-K for December 31, 2024 - Critical accounting policies and estimates have not materially changed from those discussed in the Annual Report on Form 10-K for the year ended December 31, 2024[196](index=196&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=27&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, market risk disclosures are not required under this item, aligning with risks in the Annual Report on Form 10-K - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[204](index=204&type=chunk) - Market risks are similar to those disclosed under the caption 'Risk Factors' in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2024[204](index=204&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=27&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management assessed disclosure controls and procedures as effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2025[198](index=198&type=chunk) - No material changes in internal controls over financial reporting were identified during the three months ended June 30, 2025[200](index=200&type=chunk) - Internal control over financial reporting has inherent limitations and can only provide reasonable, not absolute, assurance[199](index=199&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, other disclosures, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=27&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not involved in any legal proceedings that would materially adversely affect its business, financial condition, or results of operations - The company is not currently involved in any actions, claims, suits, or other legal procedures whose conclusion would have a major adverse effect on its business, financial condition, or results of operations[202](index=202&type=chunk) [ITEM 1A. RISK FACTORS](index=28&type=section&id=ITEM%201A.%20RISK%20FACTORS) As a smaller reporting company, specific risk factor disclosures are not required under this item, referring instead to the Annual Report on Form 10-K - The company is a smaller reporting company and is not required to provide risk factor information under this item[204](index=204&type=chunk) - Market risks are similar to those disclosed under the caption 'Risk Factors' in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2024[204](index=204&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=28&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Airship AI Holdings, Inc. did not issue any unregistered equity securities during the three months ended June 30, 2025 - No unregistered equity securities were issued during the three months ended June 30, 2025[205](index=205&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=28&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) Airship AI Holdings, Inc. reported no defaults upon senior securities during the period - There were no defaults upon senior securities[206](index=206&type=chunk) [ITEM 5. OTHER INFORMATION](index=28&type=section&id=ITEM%205.%20OTHER%20INFORMATION) Airship AI Holdings, Inc. reported no other information requiring disclosure under this item - No other information was reported under this item[207](index=207&type=chunk) [ITEM 6. EXHIBITS](index=28&type=section&id=ITEM%206.%20EXHIBITS) This section lists exhibits filed as part of the Form 10-Q, including officer certifications and various Inline XBRL documents List of Exhibits | Exhibit No. | Description | | :--- | :--- | | 31.1 | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) | | 31.2 | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) | | 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 | | 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | The Cover Page Interactive Data File, formatted in Inline XBRL | [SIGNATURES](index=28&type=section&id=SIGNATURES) The report is signed by Victor Huang, CEO, and Mark E. Scott, CFO, on behalf of Airship AI Holdings, Inc. on August 5, 2025 - The report was signed by Victor Huang, Chief Executive Officer, and Mark E. Scott, Chief Financial Officer, on August 5, 2025[211](index=211&type=chunk) ```

Core Insights - Airship AI Holdings, Inc. reported net revenues of $2.1 million and gross profit of $1.5 million for Q2 2025, with a gross margin of 71% [1][4] - The company anticipates strong growth driven by significant government funding and increased procurement activities in the second half of 2025 [7][9] Financial Highlights - Net revenues for Q2 2025 were $2.1 million, with a gross profit of $1.5 million, resulting in a gross margin of 71% [4] - Operating loss for the quarter was $2.0 million, influenced by increased sales, marketing, and R&D expenses [4] - Other expenses totaled $21.7 million, primarily due to changes in the fair value of earnout and warrant liabilities [4] - Cash and cash equivalents stood at $6.3 million as of June 30, 2025 [4] Operational Highlights - The company has a validated pipeline of approximately $128 million, with opportunities across various customer verticals expected to materialize over the next 18-24 months [4][11] - Airship AI expanded its sales and engineering teams, enhancing its capacity to engage with customers and partners [4][10] - Participation in multiple industry tradeshows increased visibility and engagement compared to previous years [4][10] Government and Market Outlook - The passage of the Full-Year Continuing Appropriations and Extensions Act and the Big Beautiful Bill (BBB) is expected to provide substantial funding for federal agencies, particularly in border security technology [7][8] - The BBB includes over $70 billion in supplemental funding for U.S. Customs and Border Protection, with specific allocations for AI and innovative technologies [8] - The company anticipates a busy close to the fiscal year as procurement activities ramp up [9] Strategic Initiatives - Airship AI is focusing on expanding into new market verticals through partnerships, particularly in retail, logistics, healthcare, and oil and gas [10][11] - The company plans to release new AI product offerings and enhance its core software platform to support cloud-based deployments [11] - Efforts to improve brand awareness and engagement through targeted marketing and technology events are underway [11]

Group 1 - The AI, security, and defense industries are experiencing significant growth and are expected to continue expanding in the near future [1] - A company has positioned itself as a rising player across the AI, security, and defense sectors, indicating its strategic focus on these high-demand areas [1] - The author emphasizes the importance of combining financial data with qualitative analysis to evaluate companies and sectors, particularly in technology, infrastructure, and internet services [1] Group 2 - The author holds certifications in financial modeling and data analysis, showcasing a strong foundation in evaluating investment opportunities [1] - The focus remains on identifying companies with strong fundamentals and growth potential, particularly in tech, healthcare, and finance sectors [1] - The article aims to build a community of readers and investors interested in long-term investing strategies [1]

Airship AI Holdings, Inc. (AISP) came out with a quarterly loss of $0.04 per share versus the Zacks Consensus Estimate of a loss of $0.03. This compares to loss of $0.07 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -33.33%. A quarter ago, it was expected that this company would post a loss of $0.08 per share when it actually produced a loss of $0.10, delivering a surprise of -25%.Over the last four quarters, the company has ...

[Q1 2025 Earnings Overview](index=1&type=section&id=Q1%202025%20Earnings%20Overview) [Q1 2025 Financial Highlights](index=1&type=section&id=Q1%202025%20Financial%20Highlights) Airship AI reported Q1 2025 net revenue of $5.5 million, gross profit of $2.2 million (40% margin), and net income of $23.7 million, driven by non-cash fair value gains, with operating cash outflow of $2.1 million and $8.8 million in cash at quarter-end Q1 2025 Financial Highlights | Indicator | Amount (Million USD) | | :-------------------------------- | :------------------- | | Net Revenue | 5.5 | | Gross Profit | 2.2 | | Gross Margin | 40% | | Operating Loss | (1.7) | | Other Income (primarily from fair value changes) | 25.4 | | Net Income | 23.7 | | Basic Earnings Per Share | 0.75 | | Net Cash Outflow from Operating Activities | (2.1) | | Cash and Cash Equivalents (as of March 31) | 8.8 | [Q1 2025 Operational Highlights](index=1&type=section&id=Q1%202025%20Operational%20Highlights) Airship AI focused on strengthening sales and sales engineering teams, actively participating in industry trade shows, and transitioning to a partner-driven sales model in Q1 2025, reporting $2 million in backlog and approximately $135 million in validated sales pipeline - The company expanded its internal sales and sales engineering staff, adding experienced sales professionals[7](index=7&type=chunk) - Participation in multiple customer and partner trade shows significantly increased engagement and visibility[7](index=7&type=chunk) - A government-exclusive event was held, highlighting solutions for southern border challenges[7](index=7&type=chunk) Operational Data | Indicator | Amount | | :-------------------- | :-------------- | | Backlog (as of March 31, 2025) | $2.0 Million | | Validated Sales Pipeline (quarter-end) | ~$135 Million | [Management Insights & Future Outlook](index=2&type=section&id=Management%20Insights%20%26%20Future%20Outlook) [Management Commentary](index=2&type=section&id=Management%20Commentary) Management noted robust Q1 2025 revenue and increased investments despite new government budget approvals, anticipating significant business activity from mid-Q2 into Q3 driven by pipeline progression, federal supplemental appropriations, and strong commercial interest, confident in achieving 30% annual revenue growth and positive cash flow - Despite new government budget approval challenges, Q1 2025 achieved **$5.5 million in robust revenue** and a **40% gross margin**[6](index=6&type=chunk) - Significant business activity is anticipated to increase from mid-Q2 and continue into Q3[8](index=8&type=chunk) - Federal customers are expected to receive additional funding through supplemental appropriations, creating new market opportunities[9](index=9&type=chunk) - Strong market interest and early success have been observed in the commercial sector through collaboration with integrators and partners[10](index=10&type=chunk) - The digital transformation strategy focuses on leveraging edge AI to address existing and emerging threats in public safety and security[11](index=11&type=chunk) - Multiple new AI products, including advanced computer vision analytics and generative AI applications, are expected to launch in 2025[11](index=11&type=chunk) - The company is confident in achieving **30% annual revenue growth** and positive cash flow operations[13](index=13&type=chunk) [2025 Outlook and Strategic Initiatives](index=2&type=section&id=2025%20Outlook%20and%20Strategic%20Initiatives) Airship AI projects 30% revenue growth and positive cash flow for 2025, driven by strategic investments in sales, new Outpost AI products, Acropolis platform innovation, and commercial market expansion, supported by up to $25 million in common stock offerings and a $50 million S-3 shelf registration - Anticipates **30% revenue growth** and positive cash flow for calendar year 2025[7](index=7&type=chunk) - Tactical and strategic investments will be made in sales and business development organizations[7](index=7&type=chunk) - New Outpost AI products will be released, and custom AI models supporting emerging edge analytics workflows will be expanded[7](index=7&type=chunk) - Continued innovation of the core Acropolis software platform will support cloud deployments in highly secure operating environments[7](index=7&type=chunk) - Expansion opportunities will be developed and executed in commercial and retail markets, especially with companies combating organized retail crime[7](index=7&type=chunk) - An at-the-market offering agreement has been entered into with Roth Capital Partners, LLC, allowing for the issuance of up to **$25 million in common stock**[7](index=7&type=chunk) - The company's S-3 shelf registration statement became effective on March 21, 2025, permitting the sale of up to **$50 million in securities**[7](index=7&type=chunk) [Company Information](index=3&type=section&id=Company%20Information) [About Airship AI Holdings, Inc.](index=3&type=section&id=About%20Airship%20AI%20Holdings%2C%20Inc.) Founded in 2006 and headquartered in Redmond, Washington, Airship AI is a wholly-owned U.S. technology company specializing in AI-driven video, sensor, and data management surveillance platforms to enhance public safety and operational efficiency for public sector and commercial clients - Airship AI, founded in 2006 and headquartered in Redmond, Washington, is a wholly-owned U.S. technology company[14](index=14&type=chunk) - Its core business is an AI-driven video, sensor, and data management surveillance platform aimed at enhancing public safety and operational efficiency[14](index=14&type=chunk) - Key products include Outpost AI edge hardware and software, the Acropolis enterprise management software stack, and Command visualization tools[14](index=14&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, covering financial, performance, and operational metrics, market opportunities, technological developments, and business relationships, based on management's current expectations and assumptions, with no obligation to update - Statements are forward-looking under the U.S. Private Securities Litigation Reform Act of 1995 safe harbor provisions[16](index=16&type=chunk) - Cover estimates and projections regarding financial, performance, operational metrics, market changes, technological developments, and customer relationships[16](index=16&type=chunk) - Based on management's current assumptions and expectations, subject to risks and uncertainties detailed in the company's Form 10-K and other SEC filings[16](index=16&type=chunk) - The company undertakes no obligation to update these forward-looking statements[17](index=17&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, Airship AI's total assets were $12.9 million, with total liabilities significantly decreasing to $36.4 million due to substantial gains from fair value changes in warrant and contingent liabilities, improving the shareholder deficit to negative $23.5 million Condensed Consolidated Balance Sheet Highlights (as of March 31) | Indicator | March 31, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------- | :---------------- | :----------- | | Cash and Cash Equivalents | $8,812,178 | $11,414,830 | -$2,602,652 | | Total Current Assets | $11,662,139 | $12,659,470 | -$997,331 | | Total Assets | $12,931,066 | $13,707,454 | -$776,388 | | Total Current Liabilities | $6,295,009 | $5,654,790 | +$640,219 | | Warrant Liabilities | $18,659,435 | $34,180,618 | -$15,521,183 | | Contingent Liabilities | $8,199,079 | $23,304,808 | -$15,105,729 | | Total Liabilities | $36,440,615 | $66,730,591 | -$30,289,976 | | Total Stockholders' Deficit | $(23,509,549) | $(53,023,137) | +$29,513,588 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) In Q1 2025, Airship AI's net revenue was $5.5 million, a significant decrease from Q1 2024, with a gross profit of $2.2 million (40% gross margin), and despite an operating loss, the company achieved a net income of $23.7 million and basic EPS of $0.75, driven by non-cash gains from fair value changes Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Highlights (as of March 31) | Indicator | March 31, 2025 | March 31, 2024 | Year-over-Year Change | | :-------------------------------------- | :------------- | :------------- | :-------------------- | | Net Revenue | $5,503,028 | $10,575,015 | -$5,071,987 | | Cost of Sales | $3,268,024 | $7,946,888 | -$4,678,864 | | Gross Profit | $2,235,004 | $2,628,127 | -$393,123 | | Gross Margin | 40.6% | 24.8% | +15.8 pp | | Operating Loss | $(1,714,357) | $(1,402,533) | -$311,824 | | Other Income (Expense), Net | $25,422,342 | $(30,561,936) | +$55,984,278 | | Net Income (Loss) | $23,707,985 | $(31,964,469) | +$55,672,454 | | Basic Earnings Per Share | $0.75 | $(1.40) | +$2.15 | | Diluted Earnings Per Share | $0.61 | $(1.40) | +$2.01 | - Gain from fair value change in contingent liability: **$9,823,605** in Q1 2025, compared to a loss of **$21,484,850** in Q1 2024[22](index=22&type=chunk) - Gain from fair value change in warrant liability: **$15,521,183** in Q1 2025, compared to a loss of **$6,847,091** in Q1 2024[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2025, Airship AI's operating activities resulted in a cash outflow of $2.1 million, with financing activities leading to a net cash outflow of $0.5 million, primarily due to founder advance repayments, resulting in a $2.6 million net decrease in cash and cash equivalents, ending the quarter at $8.8 million Condensed Consolidated Statements of Cash Flows Highlights (as of March 31) | Indicator | March 31, 2025 | March 31, 2024 | Year-over-Year Change | | :-------------------------------------- | :------------- | :------------- | :-------------------- | | Net Cash Outflow from Operating Activities | $(2,097,844) | $(1,695,084) | -$402,760 | | Net Cash (Outflow) Inflow from Financing Activities | $(497,399) | $293,249 | -$790,648 | | Net Decrease in Cash and Cash Equivalents | $(2,595,243) | $(1,401,835) | -$1,193,408 | | Cash and Cash Equivalents, End of Period | $8,812,178 | $1,725,817 | +$7,086,361 | - Repayment of founder advances totaling **$0.6 million**[24](index=24&type=chunk) - Non-cash item: Issuance of common stock for contingent shares totaling **$5,282,125**[24](index=24&type=chunk)

PART I [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2025 ($) | December 31, 2024 ($) | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $8,812,178 | $11,414,830 | | Accounts receivable, net | $2,782,650 | $1,226,757 | | Total current assets | $11,662,139 | $12,659,470 | | Total assets | $12,931,066 | $13,707,454 | | Total current liabilities | $6,295,009 | $5,654,790 | | Warrant liability | $18,659,435 | $34,180,618 | | Earnout liability | $8,199,079 | $23,304,808 | | Total liabilities | $36,440,615 | $66,730,591 | | Total stockholders' deficit | $(23,509,549) | $(53,023,137) | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------------------------ | :----------- | :------------- | | Product revenue | $4,497,240 | $9,398,776 | | Post contract support revenue | $998,051 | $1,176,239 | | Other services revenue | $7,737 | $- | | Total net revenues | $5,503,028 | $10,575,015 | | Cost of net revenues | $3,268,024 | $7,946,888 | | Gross profit | $2,235,004 | $2,628,127 | | Operating loss | $(1,714,357) | $(1,402,533) | | Gain (loss) from change in fair value of earnout liability | $9,823,605 | $(21,484,850) | | Gain (loss) from change in fair value of warrant liability | $15,521,183 | $(6,847,091) | | Total other income (expense), net | $25,422,342 | $(30,561,936) | | Net income (loss) | $23,707,985 | $(31,964,469) | | Basic EPS | $0.75 | $(1.40) | | Diluted EPS | $0.61 | $(1.40) | [Condensed Consolidated Statements of Changes in Stockholders' Deficit](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Deficit) Changes in Stockholders' Deficit (Three Months Ended March 31, 2025) | Metric | Balance as of Jan 1, 2025 ($) | Stock-based Compensation ($) | Warrant Exercise ($) | Stock Options Exercise ($) | Earnout Shares Issuance ($) | Net Income ($) | Balance as of Mar 31, 2025 ($) | | :-------------------------- | :------------------------ | :----------------------- | :--------------- | :--------------------- | :---------------------- | :--------- | :------------------------- | | Common Stock ($) | $3,056 | $- | $1 | $8 | $117 | $- | $3,182 | | Additional Paid in Capital | $21,918,867 | $428,286 | $59,399 | $43,193 | $5,282,008 | $- | $27,731,753 | | Accumulated Deficit | $(74,941,590) | $- | $- | $- | $- | $23,707,985| $(51,233,605) | | Total Stockholders' Deficit | $(53,023,137) | $428,286 | $59,400 | $43,201 | $5,282,125 | $23,707,985| $(23,509,549) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :--------------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(2,097,844) | $(1,695,084) | | Net cash (used in) provided by financing activities | $(497,399) | $293,249 | | Net decrease in cash and cash equivalents | $(2,595,243) | $(1,401,835) | | Cash and cash equivalents, end of period | $8,812,178 | $1,725,817 | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization](index=7&type=section&id=1.%20Organization) Airship AI Holdings, Inc. operates an AI-driven data management platform for real-time decision-making, serving government and law enforcement - Airship AI Holdings, Inc. completed a merger with BYTE Acquisition Corp. on December 21, 2023, making Airship AI a wholly-owned subsidiary[25](index=25&type=chunk)[26](index=26&type=chunk) - The Company operates an AI-driven data management platform that structures 'dark' or unstructured data at the edge, leveraging purpose-built AI models for real-time decision making and operational efficiency[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - Primary offerings include **Outpost AI**, **Acropolis**, and **Airship Command**, managing data across the full data lifecycle for government, law enforcement, and large commercial corporations[31](index=31&type=chunk)[37](index=37&type=chunk) [2. Summary of Significant Accounting Policies](index=7&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines key accounting principles and policies, covering basis of presentation, revenue recognition, fair value measurements, and going concern - The Company recognizes product revenue at a point in time upon transfer of control, typically upon delivery, while Post Contract Support (PCS) revenue is recognized on a straight-line basis over the support period (average **4 years**)[46](index=46&type=chunk)[47](index=47&type=chunk) Deferred Revenue Balances | Deferred Revenue Type | March 31, 2025 ($) | December 31, 2024 ($) | | :-------------------- | :------------- | :---------------- | | Short-term | $2,948,695 | $3,238,483 | | Long-term | $2,528,716 | $2,951,850 | - The Company had high customer concentration, with **three customers representing 83% of total revenue** for the three months ended March 31, 2025, and **one customer representing 78%** for the same period in 2024[57](index=57&type=chunk)[58](index=58&type=chunk) Research and Development Expenses | Period | Amount ($) | | :-------------------------- | :--------- | | Three months ended Mar 31, 2025 | $719,382 | | Three months ended Mar 31, 2024 | $695,366 | Advertising and Marketing Costs | Period | Amount ($) | | :-------------------------- | :--------- | | Three months ended Mar 31, 2025 | $169,221 | | Three months ended Mar 31, 2024 | $22,458 | Fair Value of Liabilities | Liability | March 31, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :------------- | :---------------- | | Earnout liability | $8,199,079 | $23,304,808 | | Warrant liability (Public) | $18,082,635 | $33,124,868 | | Warrant liability (Private) | $576,800 | $1,055,750 | | Total | $26,858,514 | $57,485,426 | - Management has assessed that there is no substantial doubt about the Company's ability to continue as a going concern through **May 2026**, based on current available cash and operations[83](index=83&type=chunk) [3. Advances due to and from Founders](index=13&type=section&id=3.%20Advances%20due%20to%20and%20from%20Founders) Details non-interest bearing advances from founders, decreasing to **$0.70 million** by March 31, 2025, and a Master Loan Agreement for additional funding Advances from Founders | Date | Amount ($) | | :---------------- | :------- | | March 31, 2025 | $700,000 | | December 31, 2024 | $1,300,000 | - The Company entered into a Master Loan Agreement with Mr. Huang on September 27, 2024, for up to **$1.50 million** at **6% interest**, with no outstanding advances as of March 31, 2025[89](index=89&type=chunk) [4. Revenues](index=13&type=section&id=4.%20Revenues) Disaggregates revenue into product sales and services, detailing deferred revenue balances and remaining performance obligations Net Revenues Disaggregation (Three Months Ended March 31) | Revenue Type | 2025 ($) | 2024 ($) | | :-------------------------------- | :----------- | :----------- | | Hardware and software bundled systems | $4.5 million | $9.4 million | | PCS revenue and other services | $1.0 million | $1.2 million | Deferred Revenue Balances | Deferred Revenue Type | March 31, 2025 ($) | December 31, 2024 ($) | | :-------------------- | :------------- | :---------------- | | Short-term | $2,948,695 | $3,238,483 | | Long-term | $2,528,716 | $2,951,850 | - As of March 31, 2025, the Company had approximately **$5.5 million** in remaining performance obligations, with **43% expected in fiscal 2025** and **57% in fiscal 2026 and thereafter**[94](index=94&type=chunk) [5. Notes Payable and Convertible Notes Payable](index=14&type=section&id=5.%20Notes%20Payable%20and%20Convertible%20Notes%20Payable) Outlines the conversion of senior secured convertible promissory notes into common stock during 2024, including **$2.0 million** and **$0.6 million** notes from private investors - During 2024, the Company issued **879,051 shares of common stock** for the conversion of a **$2.00 million** senior secured convertible promissory note[96](index=96&type=chunk) - In March 2024, **$0.60 million** in convertible notes from private investors were converted into **169,204 shares of common stock** valued at **$0.84 million**[97](index=97&type=chunk) [6. Stockholders' Deficit](index=14&type=section&id=6.%20Stockholders'%20Deficit) Details changes in common stock, equity incentive plans, stock options, SARs, and warrants, including issuances for earnout shares and exercises Common Stock Outstanding | Date | Shares Outstanding (shares) | | :---------------- | :----------------- | | March 31, 2025 | 31,844,471 | | December 31, 2024 | 30,588,413 | - During Q1 2025, **1,160,906 common shares** were issued for the first earnout performance milestone, **13,200 shares** from warrant exercises for **$0.06 million**, and **81,952 shares** from stock option exercises for **$0.04 million**[103](index=103&type=chunk)[104](index=104&type=chunk) Stock Option Activity (Three Months Ended March 31, 2025) | Activity | Shares (shares) | Average Exercise Price ($) | | :------------------------ | :------- | :--------------------- | | Outstanding as of Jan 1, 2025 | 5,527,559| $1.04 | | Granted | 455,000 | $3.34 | | Exercised | (81,952) | $(0.53) | | Outstanding as of Mar 31, 2025| 5,900,607| $1.22 | - As of March 31, 2025, there were **1,758,000 SARs outstanding** with a base value of **$0.12** and a January 2028 expiration[113](index=113&type=chunk) Warrant Activity (Three Months Ended March 31, 2025) | Activity | Warrants (warrants) | Average Exercise Price ($) | | :------------------------ | :--------- | :--------------------- | | Outstanding Jan 1, 2025 | 21,961,690 | $4.13 | | Exercised | (13,200) | $(4.50) | | Outstanding at Mar 31, 2025 | 21,948,490 | $4.13 | [7. Employee 401(k) Plan](index=17&type=section&id=7.%20Employee%20401(k)%20Plan) Provides details on the Company's 401(k) plan for employees, including matching contributions 401(k) Contributions Expensed | Period | Amount ($) | | :-------------------------- | :--------- | | Three months ended Mar 31, 2025 | $50,978 | | Three months ended Mar 31, 2024 | $50,102 | [8. Related Party Transactions](index=17&type=section&id=8.%20Related%20Party%20Transactions) Reiterates information on advances from founders and the Master Loan Agreement with Mr. Huang, detailing non-interest bearing advances and loan terms Advances from Founders (Related Party) | Date | Amount ($) | | :---------------- | :------- | | March 31, 2025 | $700,000 | | December 31, 2024 | $1,300,000 | - The Master Loan Agreement with Mr. Huang allows for up to **$1.50 million** in funding at **6% interest**, with no outstanding advances as of March 31, 2025[122](index=122&type=chunk) [9. Commitments, Contingencies and Legal Proceedings](index=17&type=section&id=9.%20Commitments,%20Contingencies%20and%20Legal%20Proceedings) Covers legal proceedings, operating lease obligations for facilities, and a new employment agreement with Paul Allen - The Company is not currently a party to any material legal proceedings[123](index=123&type=chunk) Operating Lease Liabilities and Right-of-Use Assets | Metric | March 31, 2025 ($) | December 31, 2024 ($) | | :-------------------------- | :------------- | :---------------- | | Total operating lease liabilities | $1,164,292 | $943,703 | | Right of use assets | $1,102,967 | $882,024 | | Current lease liabilities | $405,917 | $305,178 | Minimum Future Lease Payments as of March 31, 2025 | Years Ended March 31, | Amount ($) | | :-------------------- | :--------- | | 2026 | $471,901 | | 2027 | $486,075 | | 2028 | $323,661 | | Total remaining payments | $1,281,637 | - **Paul Allen** was appointed President on March 4, 2025, with a base salary of **$0.35 million** and granted options to purchase **400,000 shares of common stock**[131](index=131&type=chunk)[132](index=132&type=chunk) [10. Income Taxes](index=18&type=section&id=10.%20Income%20Taxes) Explains the Company's income tax provision, effective tax rate, and valuation allowance on deferred tax assets - The Company recorded a provision for income taxes of **$0** for the three months ended March 31, 2025 and 2024, resulting in a **0% effective tax rate**[133](index=133&type=chunk) - A full valuation allowance is retained on deferred tax assets as of March 31, 2025, due to uncertainty regarding future taxable income[135](index=135&type=chunk) [11. Warrant Liability](index=19&type=section&id=11.%20Warrant%20Liability) Details public and private warrant liabilities, including exercise price reductions and their fair values - The exercise price of public and private warrants was reduced to **$4.50 per share** on November 20, 2024, from an initial **$11.50**, to potentially raise proceeds for working capital[136](index=136&type=chunk) Public and Private Warrants Outstanding and Fair Value | Warrant Type | March 31, 2025 Shares (shares) | March 31, 2025 Fair Value ($) | December 31, 2024 Shares (shares) | December 31, 2024 Fair Value ($) | | :-------------------------- | :-------------------- | :------------------------ | :-------------------- | :------------------------- | | Public Warrants | 16,145,210 | $18,082,635 | 16,158,410 | $33,124,868 | | Private Warrants | 515,000 | $576,800 | 515,000 | $1,055,750 | [12. Earnout Liability](index=19&type=section&id=12.%20Earnout%20Liability) Describes contingent earnout shares, achievement of the first milestone, and the resulting decrease in earnout liability - The estimated fair value of the earnout liability decreased to **$8.20 million** as of March 31, 2025, primarily due to the issuance of common stock to settle approximately **$5.3 million** of previously achieved earnout liability and a decrease in the Company's share price[139](index=139&type=chunk) - The first operating performance milestone was achieved as of September 30, 2024, resulting in the vesting of **1,250,000 earnout shares**, of which **1,160,906 shares** were issued on January 7, 2025, with a fair value of **$5.28 million**[141](index=141&type=chunk) [13. Fair Value Measurements](index=19&type=section&id=13.%20Fair%20Value%20Measurements) Provides the fair value hierarchy for liabilities measured at fair value, including earnout and warrant liabilities, and valuation assumptions Fair Value Hierarchy of Liabilities (March 31, 2025) | Liabilities | Level 1 ($) | Level 2 ($) | Level 3 ($) | Total ($) | | :-------------------------- | :-------- | :-------- | :-------- | :---------- | | Earnout liability | $343,901 | $- | $7,855,178| $8,199,079 | | Warrant liability (Public) | $18,082,635| $- | $- | $18,082,635 | | Warrant liability (Private) | $- | $576,800 | $- | $576,800 | | Total | $18,426,536| $576,800 | $7,855,178| $26,858,514 | Monte Carlo Model Assumptions for Earnout Liability Valuation | Assumption | March 31, 2025 ($) | March 31, 2024 ($) | | :-------------------- | :------------- | :------------- | | Stock price | $3.86 | $6.59 | | Risk-free interest rate | 3.88% | 4.23% | | Expected term (in years) | 3.8 | 4.8 | | Expected volatility | 60.2% | 69.3% | | Dividend yield | 0% | 0% | [14. Earnings per Share](index=20&type=section&id=14.%20Earnings%20per%20Share) Presents the computation of basic and diluted net income (loss) per share, including weighted average shares and potentially dilutive shares Net Income (Loss) Per Share (Three Months Ended March 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------------------------ | :----------- | :------------- | | Net income (loss) | $23,707,985 | $(31,964,469) | | Weighted average shares outstanding - Basic | 31,704,117 | 22,898,487 | | Weighted average shares outstanding - Diluted | 38,820,839 | 22,898,487 | | Basic EPS | $0.75 | $(1.40) | | Diluted EPS | $0.61 | $(1.40) | Potentially Anti-Dilutive Shares Excluded from Diluted EPS | Type | March 31, 2025 (shares) | March 31, 2024 (shares) | | :-------------------- | :------------- | :------------- | | Public Warrants | 16,145,210 | 16,159,112 | | Private Warrants | 515,000 | 515,000 | | Warrants | 2,162,162 | - | | Outstanding stock options | 25,000 | - | | Total | 18,847,372 | 16,674,112 | [15. Subsequent Events](index=21&type=section&id=15.%20Subsequent%20Events) Confirms no material transactions requiring recognition or disclosure occurred subsequent to March 31, 2025 - No material subsequent events occurred after March 31, 2025, requiring recognition or disclosure[149](index=149&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial condition, results of operations, liquidity, and capital resources, including business model and KPIs [Overview](index=21&type=section&id=Overview) Airship AI is an AI-driven data management platform structuring unstructured data at the edge for real-time decision-making, with core offerings - Airship AI is an AI-driven data management platform that structures unstructured data at the edge for real-time decision-making, serving government, law enforcement, and commercial entities[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - The Company's primary offerings are **Outpost AI**, **Acropolis**, and **Airship Command**, designed for secure data management across the full data lifecycle[159](index=159&type=chunk) [Recent Developments](index=22&type=section&id=Recent%20Developments) Recent developments include achieving the first earnout milestone, leading to common stock issuance, and non-cash gains from fair value changes - The first operating performance milestone for earnout shares was achieved as of September 30, 2024, resulting in the vesting of **1,250,000 shares**, with **1,160,906 shares** issued on January 7, 2025[160](index=160&type=chunk) Other Income (Expense) from Fair Value Changes | Metric | Three Months Ended March 31, 2025 ($) | Three Months Ended March 31, 2024 ($) | | :------------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Other income (expense) related to instruments recorded at fair value | $25,344,788 | $(30,371,318) | [Private Placement and Public Warrants in Connection with Merger](index=22&type=section&id=Private%20Placement%20and%20Public%20Warrants%20in%20Connection%20with%20Merger) Company assumed private placement and public warrants during merger, reducing exercise price to **$4.50 per share** to encourage exercises and raise working capital - The exercise price of public and private warrants was reduced to **$4.50 per share** on November 20, 2024, from an initial **$11.50**, to potentially raise proceeds for working capital and general corporate purposes[163](index=163&type=chunk) Warrants Outstanding | Warrant Type | As of March 31, 2025 (warrants) | | :-------------------- | :------------------- | | Private placement warrants | 515,000 | | Public warrants | 16,145,210 | [Key Performance Indicators](index=22&type=section&id=Key%20Performance%20Indicators) Future KPIs will evolve beyond revenue to include growth within government customers, commercial market penetration, and expansion of edge AI solutions - Future KPIs will focus on: 1) Growth within existing government customers, measured by new business awards. 2) Greater penetration into the commercial marketplace, measured by the number of new commercial customers. 3) Expansion of edge AI-based solutions, measured by sales of edge AI hardware devices and growth of analytic capabilities[165](index=165&type=chunk)[166](index=166&type=chunk) [Principal Factors Affecting Our Financial Performance](index=23&type=section&id=Principal%20Factors%20Affecting%20Our%20Financial%20Performance) Factors influencing financial performance include increased lower-margin hardware sales, geo-political supply-chain constraints, M&A impacts, and tariffs - Future operating profits may be adversely affected by an increase in sales of lower-margin hardware-based solutions compared to higher-margin software applications[168](index=168&type=chunk) - Geo-political factors pose a concern for timely production and delivery of Taiwan-based products for the edge AI platform, potentially impacting delivery schedules[168](index=168&type=chunk) - Merger and acquisition activity could lead to increased operating expenses and costs, negatively impacting operating profits in the periods immediately following such events[168](index=168&type=chunk) - Changes in international trade policies, including new tariffs on goods from countries like Taiwan and Canada, could increase product costs, reduce demand, or compress margins[168](index=168&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Compares financial results for Q1 2025 versus 2024, highlighting changes in revenues, costs, operating expenses, and other income/expense Key Components of Results of Operations (Three Months Ended March 31) | Metric | 2025 ($ millions) | 2024 ($ millions) | $ Variance (millions) | % Variance | | :------------------------------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Net revenues | $5.50 | $10.58 | $(5.07) | -48.0% | | Cost of net revenues | $3.27 | $7.95 | $4.68 | 58.9% | | Gross profit | $2.24 | $2.63 | $(0.39) | -15.0% | | Research and development expenses | $0.72 | $0.70 | $(0.02) | -3.5% | | Selling, general and administrative expenses | $3.23 | $3.34 | $0.11 | 3.1% | | Operating loss | $(1.71) | $(1.40) | $(0.31) | -22.3% | | Gain (loss) from change in fair value of earnout liability | $9.82 | $(21.48) | $31.31 | 145.7% | | Gain (loss) change in fair value of warrant liability | $15.52 | $(6.85) | $22.37 | 326.7% | | Total income (other expense), net | $25.42 | $(30.56) | $55.98 | 183.2% | | Net income (loss) | $23.71 | $(31.96) | $55.67 | 174.2% | - Net revenues decreased by **$5.07 million (48.0%)** to **$5.50 million** in Q1 2025, primarily due to large federal government agency purchase orders shipped in Q1 2024, and disruptions from federal government budget policies[170](index=170&type=chunk)[171](index=171&type=chunk) - Cost of net revenues decreased by **$4.68 million** to **$3.27 million** in Q1 2025, driven by lower sales and a product mix with decreased equipment purchases[172](index=172&type=chunk) - Other income for Q1 2025 was **$25.42 million**, a significant increase from an other expense of **$30.56 million** in Q1 2024, primarily due to non-cash gains from changes in the fair value of earnout liability (**$9.82 million**) and warrant liability (**$15.52 million**), resulting from a decrease in the Company's stock price[175](index=175&type=chunk)[176](index=176&type=chunk) - The Company reported a net income of **$23.71 million** in Q1 2025, a substantial improvement from a net loss of **$31.96 million** in Q1 2024, mainly attributable to non-cash gains from fair value changes in warrant and earnout liabilities[177](index=177&type=chunk)[178](index=178&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the Company's ability to generate funds, accumulated deficit, and going concern status, noting recent capital injections - The Company had an accumulated deficit of **$8.8 million** as of March 31, 2025, but received approximately **$7.3 million** in net proceeds from a public offering in September 2024 and **$7.4 million** from warrant exercises in December 2024[179](index=179&type=chunk) - Management has determined there is no substantial doubt about the Company's ability to continue as a going concern through **May 2026**[179](index=179&type=chunk) [Operating Activities](index=25&type=section&id=Operating%20Activities) Details net cash used in operating activities, highlighting the impact of net income/loss, working capital changes, and non-cash adjustments - Net cash used in operating activities was **$2.10 million** for Q1 2025, primarily influenced by net income of **$23.71 million** offset by non-cash gains from warrant and earnout liabilities totaling **$25.34 million**[180](index=180&type=chunk) - Net cash used in operating activities was **$1.70 million** for Q1 2024, primarily due to a net loss of **$31.96 million**, partially offset by non-cash charges of **$30.88 million**[181](index=181&type=chunk) [Financing Activities](index=25&type=section&id=Financing%20Activities) Outlines cash flows from financing activities, including repayments of advances from founders and proceeds from warrant and stock option exercises - Net cash used in financing activities for Q1 2025 was **$0.50 million**, consisting of **$0.60 million** repayment of advances from founders, partially offset by **$0.06 million** from warrant exercises and **$0.04 million** from stock option exercises[182](index=182&type=chunk) - Net cash provided by financing activities for Q1 2024 was **$0.29 million**, solely from warrant exercises[182](index=182&type=chunk) [Contractual Obligations and Commitments](index=25&type=section&id=Contractual%20Obligations%20and%20Commitments) Details the Company's contractual cash obligations, primarily focusing on operating lease payments for office and warehouse spaces Contractual Cash Obligations (Operating Lease Payments) as of March 31, 2025 | Period | Total ($) | | :-------------------- | :---------- | | Less Than 1 Year | $471,901 | | 1-3 Years | $486,075 | | 4-5 Years | $323,661 | | Total | $1,281,638 | - The Company has operating leases for office and warehouse space in Redmond, WA (expiring Oct 2027) and Mooresville, NC (expiring Jan 2028), with monthly payments increasing annually[183](index=183&type=chunk)[185](index=185&type=chunk) [Off-Balance Sheet Arrangements](index=26&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company has no off-balance sheet arrangements reasonably likely to materially affect its financial condition or results of operations - The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources[186](index=186&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Affirms critical accounting policies and estimates for Q1 2025 have not materially changed from the Annual Report on Form 10-K for 2024 - Critical accounting policies and estimates for Q1 2025 have not materially changed from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[188](index=188&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Airship AI is not required to provide detailed market risk disclosures and refers to its Annual Report on Form 10-K - As a smaller reporting company, the Company is not required to provide quantitative and qualitative disclosures about market risk and refers to its Annual Report on Form 10-K for relevant risk factors[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Addresses effectiveness of disclosure controls, acknowledges inherent limitations, and confirms no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=26&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2025[190](index=190&type=chunk) [Inherent Limitations on Internal controls](index=26&type=section&id=Inherent%20Limitations%20on%20Internal%20controls) - Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements, and projections of effectiveness are subject to risks of controls becoming inadequate or compliance deteriorating[191](index=191&type=chunk) [Changes in Internal Control over Financial Reporting](index=26&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No material changes in internal control over financial reporting were identified during the three months ended March 31, 2025[192](index=192&type=chunk) PART II [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) Confirms the Company is not involved in any legal proceedings that would materially adversely affect its business or financial condition - The Company is not currently a party to any legal proceedings whose conclusion would have a major adverse effect on its business, financial condition, or results of operations[194](index=194&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Airship AI is not required to provide risk factor information and refers to its Annual Report on Form 10-K - As a smaller reporting company, Airship AI Holdings, Inc. is not required to provide risk factor information under this item and refers to its Annual Report on Form 10-K for a comprehensive discussion of market risks[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) States that the Company issued no unregistered equity securities during the three months ended March 31, 2025 - No unregistered equity securities were issued during the three months ended March 31, 2025[196](index=196&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Indicates that there were no defaults upon senior securities - There were no defaults upon senior securities[196](index=196&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) States that no other information is reported under this item - No other information is reported under this item[197](index=197&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) Lists exhibits filed as part of the Form 10-Q, including agreements, certifications, and XBRL documents - Exhibits include the Master Loan Agreement, Employment Agreement, certifications from principal executive and financial officers, and Inline XBRL documents[198](index=198&type=chunk) [SIGNATURES](index=28&type=section&id=SIGNATURES) Contains required signatures for the Form 10-Q, confirming submission by authorized officers - The report is signed by **Victor Huang**, Chief Executive Officer, and **Mark E. Scott**, Chief Financial Officer, on May 15, 2025[201](index=201&type=chunk)