airsp_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File No. 001-40222

Airship AI Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		93-4974766
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8210 154th Ave NE, Redmond, WA		98052
(Address of principal executive offices)		(Zip Code)

(877) 462-4250

(Registrant’s telephone number, including area code)

_____________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AISP	The Nasdaq Stock Market LLC
Warrant	AISPW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 6, 2026, there were a total of 34,439,562 shares of the registrant’s common stock issued and outstanding.

Airship AI Holdings, Inc.

Quarterly Report on Form 10-Q

Quarterly Period Ended June 30, 2026

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements (Unaudited).	3
	Condensed Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025	3
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) for the three and six months ended June 30, 2026 and 2025	4
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	SIGNATURES	34

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PART I

ITEM 1. FINANCIAL STATEMENTS.

AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2026 and December 31, 2025

	June 30, 2026			December 31, 2025 (1)
ASSETS	Unaudited

CURRENT ASSETS:
Cash and cash equivalents	$	12,365,685		$	11,750,021
Accounts receivable, net of allowance for credit losses of $0		3,746,980			6,462,675
Inventory		843,590			-
Prepaid expenses and other		23,766			294,191
Total current assets		16,980,021			18,506,887

OTHER ASSETS
Other assets		160,528			160,528
Operating lease right of use asset		600,951			807,915

TOTAL ASSETS	$	17,741,500		$	19,475,330

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable - trade	$	510,613		$	1,149,811
Accrued expenses		53,215			27,966
Current portion of operating lease liability		461,538			438,635
Deferred revenue- current portion		4,314,602			4,668,105
Total current liabilities		5,339,968			6,284,517

NON-CURRENT LIABILITIES:
Operating lease liability, net of current portion		189,210			425,109
Warrant liability		12,661,605			13,328,006
Earnout liability		3,540,252			2,620,933
Deferred revenue- non-current		4,634,237			3,966,407
Total liabilities		26,365,272			26,624,972

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' DEFICIT:
Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2026 and December 31, 2025		-			-
Common stock - $0.0001 par value, 200,000,000 shares authorized, 34,439,562 and 34,368,162 shares issued and outstanding as of June 30, 2026 and December 31, 2025		3,441			3,434
Additional paid in capital		40,151,160			38,478,030
Accumulated deficit		(48,747,391	)		(45,620,227	)
Accumulated other comprehensive loss		(30,982	)		(10,879	)
Total stockholders' deficit		(8,623,772	)		(7,149,642	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	17,741,500		$	19,475,330

(1)	Derived from the audited consolidated balance sheet.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

For the three and six months ended June 30, 2026 and 2025

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2026			June 30, 2025			June 30, 2026			June 30, 2025
	Unaudited			Unaudited			Unaudited			Unaudited
NET REVENUES:
Product	$	2,497,120		$	728,978		$	6,446,455		$	4,770,694
Post contract support		1,612,883			1,375,372			3,994,221			2,828,947
Other services		13,782			42,540			36,407			50,277
		4,123,785			2,146,890			10,477,083			7,649,918
COST OF NET REVENUES:
Cost of sales		576,471			273,721			3,255,844			3,217,328
Post contract support		438,283			332,769			907,262			624,270
Other services		11,283			7,883			50,384			40,799
		1,026,037			614,373			4,213,490			3,882,397
GROSS PROFIT		3,097,748			1,532,517			6,263,593			3,767,521
RESEARCH AND DEVELOPMENT EXPENSES		854,196			740,571			1,697,892			1,459,953
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		3,734,211			2,813,827			7,637,930			6,043,806
TOTAL OPERATING EXPENSES		4,588,407			3,554,398			9,335,822			7,503,759
OPERATING LOSS		(1,490,659	)		(2,021,881	)		(3,072,229	)		(3,736,238	)
OTHER INCOME (EXPENSE) :
(Loss) gain from change in fair value of earnout liability		(193,132	)		(7,301,585	)		(919,319	)		2,522,020
(Loss) gain from change in fair value of warrant liability		(833,001	)		(14,494,184	)		666,401			1,026,999
Interest income, net		110,232			60,599			197,983			138,153
Total other (expense) income, net		(915,901	)		(21,735,170	)		(54,935	)		3,687,172

(LOSS) BEFORE PROVISION FOR INCOME TAXES		(2,406,560	)		(23,757,051	)		(3,127,164	)		(49,066	)

Provision for income taxes		-			-			-			-

NET (LOSS)		(2,406,560	)		(23,757,051	)		(3,127,164	)		(49,066	)

OTHER COMPREHENSIVE (LOSS)
Foreign currency (loss), net		(11,811	)		-			(20,103	)		(7,409	)

TOTAL COMPREHENSIVE (LOSS)	$	(2,418,371	)	$	(23,757,051	)	$	(3,147,267	)	$	(56,475	)

NET (LOSS) PER SHARE:
Basic	$	(0.07	)	$	(0.75	)	$	(0.09	)	$	(0.00	)
Diluted	$	(0.07	)	$	(0.75	)	$	(0.09	)	$	(0.00	)

Weighted average shares of common stock outstanding
Basic		34,435,232			31,873,639			34,408,949			31,789,346
Diluted		34,435,232			31,873,639			34,408,949			31,789,346

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

			Common		Additional					Other Comprehensive			Total
	Common		Stock		Paid in		Accumulated			Income			Stockholders'
	Stock		$		Capital		Deficit			(Loss)			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		-		-		-		23,707,985			-			23,707,985
Balance as of March 31, 2025		31,844,471		3,182		27,731,753		(51,233,605	)		(10,879	)		(23,509,549	)
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		-		-		-		(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	)

Balance as of January 1, 2026		34,368,162		3,434		38,478,030		(45,620,227	)		(10,879	)		(7,149,642	)
Stock-based compensation		-		-		666,064		-			-			666,064
Issuance of common stock for exercise of warrants		2		1		9		-			-			10
Issuance of common stock for stock options exercise		43,900		4		11,347		-			-			11,351
Foreign currency translation loss		-		-		-		-			(8,292	)		(8,292	)
Net loss		-		-		-		(720,604	)		-			(720,604	)
Balance as of March 31, 2026		34,412,064		3,439		39,155,450		(46,340,831	)		(19,171	)		(7,201,113	)
Stock-based compensation		-		-		950,616		-			-			950,616
Issuance of common stock for stock options exercise		27,498		2		45,094		-			-			45,096
Foreign currency translation loss		-		-		-		-			(11,811	)		(11,811	)
Net loss		-		-		-		(2,406,560	)		-			(2,406,560	)
Balance as of June 30, 2026		34,439,562	$	3,441	$	40,151,160	$	(48,747,391	)	$	(30,982	)	$	(8,623,772	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2026 and 2025

(Unaudited)

	Six Months Ended
	June 30, 2026			June 30, 2025
	Unaudited			Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(3,127,164	)	$	(49,066	)
Adjustments to reconcile net (loss) to net cash provided by
(used in) operating activities
Stock-based compensation		1,616,680			800,425
Amortization of operating lease right of use asset		206,964			180,004
Gain from change in fair value of warrant liability		(666,401	)		(1,026,999	)
Loss (gain) from change in fair value of earnout liability		919,319			(2,522,020	)
Changes in operating assets and liabilities:
Accounts receivable		2,715,695			(1,330,670	)
Inventory		(843,590	)		-
Prepaid expenses and other		270,425			(26,775	)
Operating lease liability		(212,996	)		(180,711	)
Accounts payable - trade and accrued expenses		(613,949	)		(369,056	)
Deferred revenue		314,327			606,049
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		579,310			(3,918,819	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrant exercise, net		10			59,850
Repayment of advances from founders		-			(1,300,000	)
Proceeds from stock option exercises		56,447			57,822

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		56,457			(1,182,328	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		635,767			(5,101,147	)

Effect from exchange rate on cash		(20,103	)		(7,409	)

CASH AND CASH EQUIVALENTS, beginning of period		11,750,021			11,414,830

CASH AND CASH EQUIVALENTS, end of period	$	12,365,685		$	6,306,274

Supplemental disclosures of cash flow information:
Interest paid	$	-		$	-
Taxes paid	$	-		$	-

Noncash investing and financing
Issuance of common stock for earnout shares	$	-		$	5,282,125
Recognition of operating right-of-use asset	$	-		$	304,339
Recognition of operating lease liability	$	-		$	304,339

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AIRSHIP AI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Airship AI Holdings, Inc. (the “Company” or “Airship”) is a holding company incorporated in Delaware that executes business through its wholly owned subsidiary, Airship AI, Inc. (“Airship AI”). Prior to the formation of Super Simple AI, Inc. in 2022, the Company operated as Airship AI, Inc. (formerly known as JDL Digital Systems, Inc.). On March 7, 2023, Super Simple AI, Inc. changed its name to Airship AI Holdings, Inc. Super Simple AI, Inc. was formed in January 2022 through a share exchange with JDL Digital Systems, Inc. JDL Digital Systems, Inc. was incorporated under the laws of the State of Washington on June 30, 2003.

On December 21, 2023, the Company completed the merger (the “Merger”) contemplated by the merger agreement (the “Merger Agreement”) dated as of June 27, 2023 and amended on September 22, 2023, by and among BYTE Acquisition Corp. (“BYTS”), BYTE Merger Sub, Inc., a Washington corporation and a direct, wholly-owned subsidiary of BYTS (“Merger Sub”), and Airship AI.

Effective December 21, 2023, Merger Sub merged with and into Airship AI with Airship AI as the surviving corporation. Thus, Airship AI became a wholly-owned subsidiary of the Company. In connection with the Merger, Airship AI changed its name from “Airship AI Holdings, Inc.” to “Airship AI, Inc.”

Fair Value Transactions in Connection with Merger

As a result of the Merger, the Company entered into the following transactions that were measured at fair value and vary quarterly with the share price and other items. Any change is non-cash and is recorded as a gain or loss in other income (expense). See Note 12– Fair Value Measurements for more information.

	Liability as of			Liability as of
	June 30, 2026			December 31, 2025

Earnout liability	$	3,540,252		$	2,620,933
Warrant liability (Public Warrants)		12,270,205			12,916,006
Warrant liability (Private Warrants)		391,400			412,000
Total liabilities measured at fair value	$	16,201,857		$	15,948,939

Other income related to instruments recorded at fair value during the three months ended June 30, 2026 and 2025	$	(1,026,133	)	$	(21,795,769	)

Other income related to instruments recorded at fair value during the six months ended June 30, 2026 and 2025	$	(252,918	)	$	3,549,019

Business

The Company is a robust AI-driven data management platform that solves complex data challenges for large institutions operating in dynamic and mission-critical environments with rapidly increasing volumes of data being ingested from a similarly rapidly growing number of data sources.

The Company solves these challenges by structuring “dark” or unstructured data at the edge, the location at which the data is generated and collected, and leveraging purpose-built AI models. Unstructured, or “dark” data, which is typically categorized as qualitative data, cannot be processed and analyzed via conventional data tools and methods. Conversely, structured data, typically categorized as quantitative data, is highly organized and easily decipherable by machine learning algorithms.

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Structuring and then analyzing data using AI models at the edge, versus transmitting the data from the edge back to a central processing location for structuring and analysis, enables real-time decision making and data-driven operational efficiency.

The Company specializes in ingesting all available metadata from edge-based sensors used by government and law enforcement agencies around the world, including surveillance cameras (video), audio, telemetry, acoustic, seismic, and autonomous devices, along with large commercial corporations with fundamentally similar capabilities and requirements.

Data generated by these edge-based sensors, including video, can then be run through the Company’s trained AI models to detect objects present within the video frame. Once an object is detected, for example an automobile, additional identifying characteristics of the object can be extracted from the image including the license plate characters and the make, model, and color of the automobile. This process of analyzing, logging and categorizing ingested data is referred to as “structuring” the data.

Airship AI’s software allows customers to view structured data both in real-time as well as to conduct searches on the structured data at a later point in time. Real-time structured data use includes, for example, alarms on a specific license plate or a specific make, model or color of automobile. Non-real-time structured data use includes, for example, searching a database of video data that has been previously ingested and stored to find instances of a particular license plate being visible, along with other logged vehicle characteristics such as make, model and color of an automobile.

Additional edge deployed AI models enable similar object detection and recognition of common and custom trained objects, such as an aircraft, boat, person, animal, bag, or weapon. Airship AI’s models provide similar data points for these object types allowing analysts the ability to be notified in real-time of the detection of a specified object and similarly search for historically detected objects. Examples include detecting aircrafts and boats along with their respective tail numbers and hull registration numbers.

The Company’s AI modelling process starts with pre-trained AI models from its technology ecosystem partners which the Company then customizes using proprietary datasets tailored towards its customers’ unique workflow requirements. Where customers have pre-existing AI models or engines, the Company integrates those models or engines into its edge platform allowing customers to leverage proprietary models within the Airship AI software ecosystem.

The Company’s primary offerings include Outpost AI, Acropolis, and Airship Command. Its offerings allow customers to manage their data across the full data lifecycle, when and where they need it, using a highly secure permissioned based architecture.

The Company employed sixty-seven employees as of June 30, 2026. The employees are headquartered in Redmond, WA and are supported by a team at its Customer Center of Excellence located in Charlotte, NC. The Company employed nine research and development personnel in Taiwan as of June 30, 2026.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated.

The Company has prepared the condensed consolidated financial statements included herein pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures herein are adequate to ensure the information presented is not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

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The Company believes that all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying condensed financial statements to present fairly the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the fiscal year ending December 31, 2026.

Functional Currency

The Company’s reporting currency is the U.S. Dollar. The Company’s functional currency for U.S. operations is the U.S. Dollar. The operations of Zeppelin Worldwide, Inc. and its subsidiary, Zeppelin Taiwan, Ltd. (together “Zeppelin”) use the Taiwan Dollar as its functional currency. At each period end, Zeppelin’s balance sheet is translated into U.S. Dollars based upon the period end exchange rate, while their statements of operations and comprehensive income (loss) and statements of cash flows are translated into U.S. Dollars based upon an average exchange rate during the period.

Cash and Cash Equivalents

The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit.

Revenue Recognition and Deferred Revenue

The Company primarily generates revenue from sales of systems and products and the related post contract support to customers. The Company’s primary systems and products include Outpost AI, Acropolis and Airship Command. To date, the majority of the Company’s product revenue that has been recognized consists primarily of a bundled offering of hardware and software which delivers on premise solutions to its customers. Separate limited software subscription services have been delivered to customers including those customers that are able to operate in a cloud-based environment. The transaction price recognized as revenue represents the amount the Company expects to be entitled to and is primarily comprised of product revenue, net of returns and variable consideration, including sales incentives provided to customers. Payment is typically due within 30 to 90 calendar days of the invoice date.

The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below. The Company generally provides a warranty to its customers for its software products and services. In the event that there is a failure of warranties in such agreements, the Company is generally obligated to correct the product or service to conform to the warranty provision as set forth in the applicable agreement, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). Historically, the Company has not incurred any significant warranty expenses and as such, a warranty reserve was not considered necessary as of June 30, 2026 and December 31, 2025.

Product Revenue

Product revenue is derived primarily from sales of the Company’s system offerings, Outpost AI, Acropolis and Airship Command. The Company recognizes product revenue at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied.

Post Contract Support Revenue

Post Contract Support (“PCS”) revenue is derived primarily from the Company’s support and software maintenance agreements (“SMA”). The Company’s PCS includes the right to receive, on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, and email and telephone support. The Company allocates a portion of the transaction price to the PCS performance obligation based on a cost-plus methodology and recognizes the associated revenue on a straight-line basis over the estimated term of the support period. The Company’s support contracts are typically one to five years with an average of four years; payment is due within 30 to 90 calendar days of the invoice date and may include options to renew. For the three months ended June 30, 2026 and 2025, the Company recognized revenue of $514,013 and $475,551, respectively, related to one-year support contracts. For the three months ended June 30, 2026 and 2025, the Company recognized revenue of $1,098,870 and $899,820, respectively, related to multi-year support contracts. For the six months ended June 30, 2026 and 2025, the Company recognized revenue of $1,008,076 and $577,150, respectively, related to one-year support contracts. For the six months ended June 30, 2026 and 2025, the Company recognized revenue of $2,986,145 and $2,251,797, respectively, related to multi-year support contracts.

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Contracts with Multiple Performance Obligations

The Company’s contracts with customers often contain multiple performance obligations that can include three separate obligations: (i) a hardware component (which may be bundled with hardware accessories) and the embedded firmware essential to the functionality of the hardware component delivered at the time of sale; (ii) the right to the Company’s downloadable free application and software solutions, and (iii) the right for the customer to receive post contract support (“PCS”) after the initial sale. The Company’s products and PCS offerings have significant standalone functionalities and capabilities. Accordingly, the products are distinct from the Company’s PCS services as customers can benefit from the products without the PCS services and such PCS services are separately identifiable within the contracts. The Company accounts for multiple agreements with a single customer as a single contract if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single contract. The amount of consideration the Company expects to receive in exchange for delivering on the contract is allocated to each performance obligation based on its relative standalone selling price.

The Company establishes the standalone selling price using the prices charged for a deliverable when sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price based on its pricing model and offering type (products or PCS services).

The Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company’s standard payment terms are less than one year.

The Company sells its products primarily through a direct sales force. The Company considers revenue to be earned when all of the following criteria are met:

	☐	The Company has a contract with a customer that creates enforceable rights and obligations,

	☐	Promised performance obligations are identified,

	☐	The transaction price, or the amount the Company expects to receive, is determinable

	☐	The transaction price is allocated to multiple performance obligations, and

	☐	The Company has satisfied the performance obligations to the customer.

Transfer of control is evidenced upon passage of title and risk of loss to the customer unless the Company is required to provide additional services.

The Company’s short-term and long-term deferred revenue balances totaled $4,314,602 and $4,634,237, respectively, as of June 30, 2026. The Company’s short-term and long-term deferred revenue balances totaled $4,668,105 and $3,966,407, respectively, as of December 31, 2025. Of the deferred revenue balance of $8,634,512 and $6,190,333 as of January 1, 2026 and 2025, the Company recognized $1,163,690 and $460,393 during the three months ended June 30, 2026 and 2025, respectively. The Company recognized $2,470,764 and $1,123,100 during the six months ended June 30, 2026 and 2025, respectively.

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Accounts Receivable and Provision for Credit Losses

The Company generally sells its products to large governmental entities and large corporations in the United States. Accounts receivable are recorded at invoiced amounts and are non-interest bearing.

The Company determines estimates of uncollectible accounts receivable based primarily on actual historical bad debt, customers’ financial condition and general economic conditions. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses, as well as current economic and business conditions, and anticipated future economic events that may impact collectability. In developing its expected credit loss estimate, the Company evaluated the appropriate grouping of financial assets based upon its evaluation of risk characteristics, including consideration of the types of products and services sold. Account balances are written off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders. As of June 30, 2026 and December 31, 2025, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible. Accounts receivable balances as of June 30, 2026, December 31, 2025 and January 1, 2025 were $3,746,980, $6,462,675 and $1,226,757, respectively.

Concentration of Credit and Sales Risk

The Company sells its product to commercial and government customers under agreements that are normally paid within 30 days of contract completion.

For the six months ended June 30, 2026, the Company had revenue from ninety three customers and five customers represented 88% of total revenue. The primary reason for the high level of customer concentration for the six months ended June 30, 2026 was due to reliance on five customers for the six months ended June 30, 2026. As of June 30, 2026, three customers represented approximately 83% of outstanding account receivables. Due to the nature of the customers and timely payment history, customer concentration and credit risk in account receivables is estimated to be minimal.

For the six months ended June 30, 2025, the Company had revenue from thirty customers and two customers represented 65% of total revenue. The primary reason for the high level of customer concentration for the six months ended June 30, 2025 was due to reliance on these two customers for the six months ended June 30, 2025. As of June 30, 2025, one customer represented approximately 83% of outstanding account receivables. Due to the nature of the customers and timely payment history, customer concentration and credit risk in account receivables is estimated to be minimal.

Inventory

The Company’s purchase of inventory, primarily computer servers and AI hardware, is undertaken to match purchase orders received from customers. Upon receipt of inventory, the Company generally configures the servers and loads proprietary software onto the servers before shipping out. Inventory is recorded on a first in first out basis. The Company reviews its inventory on a periodic basis to identify products that are slow moving and/or obsolete, and if such products are identified, the Company records the appropriate inventory impairment charge at such time.

Long-Lived Assets

The Company reviews its long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results. The Company recorded no impairment losses for the three months ended June 30, 2026 and 2025.

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Research and Development Expenses

Research and development expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes as well as materials, supplies and facilities used in producing prototypes.

The Company’s current research and development efforts are primarily focused on improving the Company’s products. The Company is also actively involved in identifying new applications. The Company’s current internal team along with outside consultants have considerable experience working with the application of the Company’s technologies and their applications. The Company engages third party experts as required to supplement the Company’s internal team. The Company believes that continued development of new and enhanced technologies is essential to the Company’s future success. The Company incurred research and development expenses of $854,196 and $740,571 for the three months ended June 30, 2026 and 2025, respectively, on development activities. The Company incurred research and development expenses of $1,697,892 and $1,459,953 for the six months ended June 30, 2026 and 2025, respectively, on development activities.

Software Development Costs

Costs incurred in the development of software programs for the Company’s products are charged to operations as incurred until technological feasibility of the software has been established. Generally, technological feasibility is established when the software module performs its primary functions described in its original specifications, contains features required for it to be usable in a production environment, is completely documented and the related hardware portion of the product is complete. After technological feasibility is established, any additional costs are capitalized. Capitalization of software costs ceases when the software is substantially complete and is ready for its intended use. No software development costs have been capitalized as of June 30, 2026 and December 31, 2025.

Cost of Net Revenues

Cost of net revenues for products includes components and freight. Cost of net revenues for post contract support and other services includes primarily the cost of personnel and personnel-related expenses to conduct implementations and ongoing client support.

Advertising and Marketing

Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising and marketing costs for the three months ended June 30, 2026 and 2025 were $43,962 and $55,694, respectively. Advertising and marketing costs for the six months ended June 30, 2026 and 2025 were $105,673 and $224,915, respectively.

Shipping and Handling of Products

Amounts billed to customers for shipping and handling of products are included in net revenues. Costs incurred related to shipping and handling of products are included in cost of revenues.

Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level 1 — Quoted prices in active markets for identical assets and liabilities;

Level 2 — Inputs other than level one inputs that are either directly or indirectly observable; and

Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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The Company initially recorded its earnout liability (unvested earnout shares) and the warrants that were issued with the notes at fair value, remeasured on a recurring basis and considered them as Level 3 instruments. The public and private warrants were considered Level 1 and 2 instruments, respectively. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of June 30, 2026 and December 31, 2025 are based upon the short-term nature of the assets and liabilities.

The Company classifies as liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

Derivative Liabilities and Earnout Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued share purchase warrants and earnout shares to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company classifies as liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

At the Merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants. As of June 30, 2026, there were 515,000 private placement warrants and 16,145,006 public warrants outstanding.

Upon consummation of the Merger, the Company evaluated the warrants and concluded that they did not meet the criteria to be classified within the stockholders’ deficit. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The initial estimated fair value of the warrants was measured using a Monte Carlo simulation. The subsequent estimated fair value of the public warrants is based on the listed price in an active market for such warrants while the fair value of the private placement warrants continues to be measured using a Monte Carlo simulation with the key inputs being directly or indirectly observable public warrants listed price.

At the closing of the Merger, the Airship AI securityholders that hold shares of common stock of Airship AI, Airship AI options, Airship AI earnout warrants or Airship AI SARs had the contingent right to receive up to 5.0 million additional shares of common stock, subject to certain contingencies. These earnout shares have been categorized into two components: (i) the vested shares that are associated with stockholders with vested equity at the closing of the Merger that will be earned upon achievement of the earnout milestones and (ii) the unvested shares associated with stockholders with unvested equity at the closing of the Merger that will be earned over the remaining service period with the Company on their unvested equity shares and upon achievement of the earnout milestones.

The earnout shares associated with vested shares are recognized as derivative liabilities in accordance with ASC 815-40, as the events that determine the number of earnout shares required to be released or issued, as the case may be, include events that were not solely indexed to the fair value of common stock of the Company. The earnout shares were measured at the Merger closing and subsequently measured at each reporting date until settled or when they met the criteria for equity classification. Accordingly, the Company recognizes the earnout shares as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The earnout shares were valued using a Monte Carlo analysis.

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At the closing of the Merger, the earnout shares associated with unvested underlying shares were considered to be equity instruments and valued at approximately $2,675,000. During the three months ended June 30, 2026 and 2025, the Company’s stock-based compensation expense for the vesting of earnout shares was $133,761. As of June 30, 2026, unrecognized compensation cost related to unvested earnout shares totaled $1,337,614. The weighted average period over which this remaining compensation cost is expected to be recognized is 2.5 years.

Derivative warrant and earnout shares liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of significant current assets or require the creation of current liabilities.

Stock-Based Compensation

The Company has share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, stock appreciation rights, incentive stock options, nonqualified stock options, unvested earnout shares and warrants to purchase shares of common stock at the fair market value at the time of grant. Stock-based compensation cost is measured by the Company at the grant date and the fair value of the award is recognized as an expense, over the requisite service period which is generally the vesting period. The Company adjusts stock-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.

Income Taxes

Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statements carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The Company’s ability to realize deferred tax assets depends upon future taxable income, as well as the limitations discussed below. For financial reporting purposes, a deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized prior to expiration. The Company considers historical and future taxable income, future reversals of existing taxable temporary differences, taxable income in prior carryback years, and ongoing tax planning strategies in assessing the need for valuation.

Comprehensive (Loss)