AIRSHIP(AISP) - 2025 Q1 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes Condensed Consolidated Balance Sheets 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) | $(53,023,137) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2025 ($) | 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 | $(1.40) | Condensed Consolidated Statements of Changes in Stockholders' Deficit Changes in Stockholders' Deficit (Three Months Ended March 31, 2025) | Metric | Balance as of Jan 1, 2025 ($) | 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| $(23,509,549) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Cash Flow Activity | 2025 ($) | 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 | $1,725,817 | Notes to the Condensed Consolidated Financial Statements 1. Organization Airship AI Holdings, Inc. operates an AI-driven data management platform for real-time decision-making, serving government and law enforcement - Airship AI Holdings, Inc. completed a merger with BYTE Acquisition Corp. on December 21, 2023, making Airship AI a wholly-owned subsidiary[25][26] - The Company operates an AI-driven data management platform that structures 'dark' or unstructured data at the edge, leveraging purpose-built AI models for real-time decision making and operational efficiency[28][29][30] - Primary offerings include Outpost AI, Acropolis, and Airship Command, managing data across the full data lifecycle for government, law enforcement, and large commercial corporations[31][37] 2. Summary of Significant Accounting Policies Outlines key accounting principles and policies, covering basis of presentation, revenue recognition, fair value measurements, and going concern - The Company recognizes product revenue at a point in time upon transfer of control, typically upon delivery, while Post Contract Support (PCS) revenue is recognized on a straight-line basis over the support period (average 4 years)[46][47] Deferred Revenue Balances | Deferred Revenue Type | March 31, 2025 ($) | December 31, 2024 ($) | | :-------------------- | :------------- | :---------------- | | Short-term | $2,948,695 | $3,238,483 | | Long-term | $2,528,716 | $2,951,850 | - The Company had high customer concentration, with three customers representing 83% of total revenue for the three months ended March 31, 2025, and one customer representing 78% for the same period in 2024[57][58] Research and Development Expenses | Period | Amount ($) | | :-------------------------- | :--------- | | 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] 3. Advances due to and from Founders 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 $1.50 million at 6% interest, with no outstanding advances as of March 31, 2025[89] 4. Revenues Disaggregates revenue into product sales and services, detailing deferred revenue balances and remaining performance obligations Net Revenues Disaggregation (Three Months Ended March 31) | Revenue Type | 2025 ($) | 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] 5. Notes Payable and Convertible Notes Payable 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] - 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] 6. Stockholders' Deficit 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 $0.04 million[103][104] Stock Option Activity (Three Months Ended March 31, 2025) | Activity | Shares (shares) | Average Exercise Price ($) | | :------------------------ | :------- | :--------------------- | | 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 $0.12 and a January 2028 expiration[113] Warrant Activity (Three Months Ended March 31, 2025) | Activity | Warrants (warrants) | Average Exercise Price ($) | | :------------------------ | :--------- | :--------------------- | | Outstanding Jan 1, 2025 | 21,961,690 | $4.13 | | Exercised | (13,200) | $(4.50) | | Outstanding at Mar 31, 2025 | 21,948,490 | $4.13 | 7. Employee 401(k) Plan Provides details on the Company's 401(k) plan for employees, including matching contributions 401(k) Contributions Expensed | Period | Amount ($) | | :-------------------------- | :--------- | | Three months ended Mar 31, 2025 | $50,978 | | Three months ended Mar 31, 2024 | $50,102 | 8. Related Party Transactions Reiterates information on advances from founders and the Master Loan Agreement with Mr. Huang, detailing non-interest bearing advances and loan terms Advances from Founders (Related Party) | Date | Amount ($) | | :---------------- | :------- | | March 31, 2025 | $700,000 | | December 31, 2024 | $1,300,000 | - The Master Loan Agreement with Mr. Huang allows for up to $1.50 million in funding at 6% interest, with no outstanding advances as of March 31, 2025[122] 9. Commitments, Contingencies and Legal Proceedings Covers legal proceedings, operating lease obligations for facilities, and a new employment agreement with Paul Allen - The Company is not currently a party to any material legal proceedings[123] Operating Lease Liabilities and Right-of-Use Assets | Metric | March 31, 2025 ($) | 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][132] 10. Income Taxes 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] - A full valuation allowance is retained on deferred tax assets as of March 31, 2025, due to uncertainty regarding future taxable income[135] 11. Warrant Liability 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 $11.50, to potentially raise proceeds for working capital[136] Public and Private Warrants Outstanding and Fair Value | Warrant Type | March 31, 2025 Shares (shares) | March 31, 2025 Fair Value ($) | 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 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] - 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 $5.28 million[141] 13. Fair Value Measurements Provides the fair value hierarchy for liabilities measured at fair value, including earnout and warrant liabilities, and valuation assumptions Fair Value Hierarchy of Liabilities (March 31, 2025) | Liabilities | Level 1 ($) | 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 | $6.59 | | Risk-free interest rate | 3.88% | 4.23% | | Expected term (in years) | 3.8 | 4.8 | | Expected volatility | 60.2% | 69.3% | | Dividend yield | 0% | 0% | 14. Earnings per Share Presents the computation of basic and diluted net income (loss) per share, including weighted average shares and potentially dilutive shares Net Income (Loss) Per Share (Three Months Ended March 31) | Metric | 2025 ($) | 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 | $(1.40) | Potentially Anti-Dilutive Shares Excluded from Diluted EPS | Type | March 31, 2025 (shares) | March 31, 2024 (shares) | | :-------------------- | :------------- | :------------- | | Public Warrants | 16,145,210 | 16,159,112 | | Private Warrants | 515,000 | 515,000 | | Warrants | 2,162,162 | - | | Outstanding stock options | 25,000 | - | | Total | 18,847,372 | 16,674,112 | 15. Subsequent Events Confirms no material transactions requiring recognition or disclosure occurred subsequent to March 31, 2025 - No material subsequent events occurred after March 31, 2025, requiring recognition or disclosure[149] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition, results of operations, liquidity, and capital resources, including business model and KPIs Overview Airship AI is an AI-driven data management platform structuring unstructured data at the edge for real-time decision-making, with core offerings - Airship AI is an AI-driven data management platform that structures unstructured data at the edge for real-time decision-making, serving government, law enforcement, and commercial entities[151][152][153][154] - The Company's primary offerings are Outpost AI, Acropolis, and Airship Command, designed for secure data management across the full data lifecycle[159] Recent Developments Recent developments include achieving the first earnout milestone, leading to common stock issuance, and non-cash gains from fair value changes - The first operating performance milestone for earnout shares was achieved as of September 30, 2024, resulting in the vesting of 1,250,000 shares, with 1,160,906 shares issued on January 7, 2025[160] Other Income (Expense) from Fair Value Changes | Metric | Three Months Ended March 31, 2025 ($) | 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 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 $11.50, to potentially raise proceeds for working capital and general corporate purposes[163] Warrants Outstanding | Warrant Type | As of March 31, 2025 (warrants) | | :-------------------- | :------------------- | | Private placement warrants | 515,000 | | Public warrants | 16,145,210 | Key Performance Indicators Future KPIs will evolve beyond revenue to include growth within government customers, commercial market penetration, and expansion of edge AI solutions - Future KPIs will focus on: 1) Growth within existing government customers, measured by new business awards. 2) Greater penetration into the commercial marketplace, measured by the number of new commercial customers. 3) Expansion of edge AI-based solutions, measured by sales of edge AI hardware devices and growth of analytic capabilities[165][166] Principal Factors Affecting Our Financial Performance Factors influencing financial performance include increased lower-margin hardware sales, geo-political supply-chain constraints, M&A impacts, and tariffs - Future operating profits may be adversely affected by an increase in sales of lower-margin hardware-based solutions compared to higher-margin software applications[168] - Geo-political factors pose a concern for timely production and delivery of Taiwan-based products for the edge AI platform, potentially impacting delivery schedules[168] - Merger and acquisition activity could lead to increased operating expenses and costs, negatively impacting operating profits in the periods immediately following such events[168] - Changes in international trade policies, including new tariffs on goods from countries like Taiwan and Canada, could increase product costs, reduce demand, or compress margins[168] Results of Operations Compares financial results for Q1 2025 versus 2024, highlighting changes in revenues, costs, operating expenses, and other income/expense Key Components of Results of Operations (Three Months Ended March 31) | Metric | 2025 ($ 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][171] - 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] - 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][176] - 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][178] Liquidity and Capital Resources 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] - Management has determined there is no substantial doubt about the Company's ability to continue as a going concern through May 2026[179] Operating Activities 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] - 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] Financing Activities 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] - Net cash provided by financing activities for Q1 2024 was $0.29 million, solely from warrant exercises[182] Contractual Obligations and Commitments Details the Company's contractual cash obligations, primarily focusing on operating lease payments for office and warehouse spaces Contractual Cash Obligations (Operating Lease Payments) as of March 31, 2025 | Period | Total ($) | | :-------------------- | :---------- | | 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][185] Off-Balance Sheet Arrangements 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] Critical Accounting Policies and Estimates 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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 - 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] Inherent Limitations on Internal controls - 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] Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting were identified during the three months ended March 31, 2025[192] PART II Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities Indicates that there were no defaults upon senior securities - There were no defaults upon senior securities[196] Item 5. Other Information States that no other information is reported under this item - No other information is reported under this item[197] Item 6. Exhibits 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] 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]