AIRSHIP(US:AISP)2025-08-05 20:19markdown [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)