What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 239 added, 180 removed, 604 unchanged (41% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

As of March 31, 2024 and December 31, 2023

March 31, 2024

As of June 30, 2024 and December 31, 2023

June 30, 2024

12/31/2023 (1)

1 unchanged sentence

Cash and cash equivalents

$ 1,725,817 $ 3,124,413

Accounts receivable, net of provision for credit losses of $ 0

1,704,429 1,648,904

Prepaid expenses and other

16,358 18,368

Income tax receivable

Total current assets

3,456,244 4,798,915

PROPERTY AND EQUIPMENT, NET

180,432 182,333

Operating lease right of use asset

1,024,513 1,104,804

$ 4,661,189 $ 6,087,913

LIABILITIES AND STOCKHOLDERS' DEFICIT

1 unchanged sentence

Accounts payable - trade

$ 3,356,700 $ 2,908,472

Advances from founders

1,750,000 1,750,000

Accrued expenses

168,902 200,531

Senior Secured Convertible Promissory Notes

4,204,743 2,825,366

Current portion of operating lease liability

180,875 174,876

Deferred revenue- current portion

3,742,145 4,008,654

Total current liabilities

13,403,365 11,867,899

NON-CURRENT LIABILITIES:

Operating lease liability, net of current portion

870,492 943,702

Warrant liability

7,515,076 667,985

Earnout liability

26,618,278 5,133,428

Deferred revenue- non-current

4,304,587 4,962,126

Total liabilities

52,711,798 23,575,140

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' DEFICIT:

Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 23,159,119 and 22,812,048 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 23,736,027 and 22,812,048 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Additional paid in capital

1 unchanged sentence

( 30,979,174 )

Accumulated other comprehensive loss

( 17,476,700 )

Accumulated other comprehensive loss

Total stockholders' deficit

( 27,966,537 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

( 17,487,227 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

Derived from the audited consolidated balance sheet.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

For the three months ended March 31, 2024 and 2023

For the three and six months ended June 30, 2024 and 2023

Three Months Ended

March 31, 2024

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

NET REVENUES:

$ 9,398,776 $ 1,699,782

Post contract support

1,176,239 1,238,815

10,575,015 2,938,597

COST OF NET REVENUES:

Cost of Sales

7,789,409 1,578,166

Post contract support

157,479 556,152

7,946,888 2,134,318

2,628,127 804,279

RESEARCH AND DEVELOPMENT EXPENSES

695,366 674,080

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

3,335,294 1,832,370

TOTAL OPERATING EXPENSES

OPERATING INCOME (LOSS)

( 3,084,512 )

OPERATING LOSS

( 4,786,683 )

OTHER INCOME (EXPENSE):

Loss from change in fair value of earnout liability

( 21,484,850 ) -

Loss from change in fair value of warrant liability

Gain (loss) from change in fair value of earnout liability

( 6,607,923 )

Loss from change in fair value of convertible debt

Gain (loss) from change in fair value of warrant liability

( 5,304,744 )

Gain (loss) from change in fair value of convertible debt

Loss on note conversion

Interest expense, net

Other (expense) income

Total other income (expense), net

( 13,076,257 )

Interest expense

INCOME (LOSS) BEFORE PROVISON FOR INCOME TAXES

( 3,103,279 )

Other expense

Total other expense, net

( 13,502,474 )

LOSS BEFORE PROVISON FOR INCOME TAXES

( 4,815,455 )

Provision for income taxes

NET INCOME (LOSS)

( 3,103,279 )

OTHER COMPREHENSIVE LOSS

Foreign currency translation gain, net

TOTAL COMPREHENSIVE LOSS

( 13,502,474 )

Basic and diluted loss per share

( 4,815,455 )

Weighted average shares of common stock outstanding- basic and diluted

OTHER COMPREHENSIVE INCOME

Foreign currency translation income, net

TOTAL COMPREHENSIVE INCOME (LOSS)

$ ( 3,103,279 )

$ ( 13,493,490 )

$ ( 4,772,904 )

NET INCOME (LOSS) PER SHARE:

Weighted average shares of common stock outstanding

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the three months ended March 31, 2024 and 2023

For the six months ended June 30, 2024 and 2023

Comprehensive

10 unchanged sentences

( 9,933,878 )

Stock-based compensation- stock option grants

Stock based compensation- warrants

Foreign currency translation gain

( 3,103,279 )

Balance as of June 30, 2023

( 15,129,768 )

( 10,721,782 )

Balance as of January 1, 2024

11 unchanged sentences

( 48,050,609 )

Stock-based compensation

Issuance of common stock for services

Issuance of common stock for exercise of warrants

Issuance of common stock for stock options exercise

Issuance of common stock for debt interest payment

Foreign currency translation gain

Balance as of June 30, 2024

$ ( 30,979,174 )

$ ( 27,966,537 )

The shares of the Company’s common stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio of approximately 1.7581 established in the Merger described in Note 1.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2024 and 2023

Three Months Ended

March 31, 2024

March 31, 2023

For the six months ended June 30, 2024 and 2023

Six Months Ended

June 30, 2024

June 30, 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Stock-based compensation- stock option grants

Stock-based compensation- warrants

Amortization of operating lease right of use asset

Issuance of common stock for services

Noncash interest expense

Loss from change in fair value of warrant liability

9 unchanged sentences

Accounts payable - trade and accrued expenses

( 1,426,970 )

Accrued income tax expense

Deferred revenue

( 1,299,813 )

NET CASH USED IN OPERATING ACTIVITIES

3 unchanged sentences

Proceeds from warrant exercise

Advances from founders, net

Proceeds from stock option exercises

Repayment of small business loan and line of credit

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET DECREASE IN CASH AND CASH EQUIVALENTS

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

( 2,906,647 )

7 unchanged sentences

Elimination of payables to founders in connection with contribution of Zeppelin by shareholders

Issuance of common stock for debt interest payment

Issuance of common stock for debt conversion

Recognition of warrant liability

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

23 unchanged sentences

Liability as of

March 31, 2024

Liability as of

Earnout liability

Senior Secured Convertible Promissory Notes

Warrant liability (Public Warrants)- exerciseable at $11.50 per share

Warrant liability (Private Warrants)- exerciseable at $11.50 per share

Warrant liability (Public Warrants)

Warrant liability (Private Warrants)

Total liabilities measured at fair value

Other expense related to instruments recorded at fair value during the three months ended March 31, 2024

Other loss related to instruments recorded at fair value during the six months ended June 30, 2024

$ ( 12,424,851 )

Other loss related to instruments recorded at fair value during the six months ended June 30, 2023

Private Placement and Public Warrants

At the merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding.

The warrants are exerciseable at $ 11.50 per share.

On June 3, 2024, the Company permanently reduced the exercise price of such warrants from $ 11.50 per share to an exercise price of $ 7.80 per share.

The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes.

As of June 30, 2024, there were 515,000 private placement warrants and 16,159,012 public warrants outstanding.

See Note 12– Private Placement and Public Warrants for more information.

18 unchanged sentences

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 fifty-one employees as of March 31, 2024.

The Company employed 51 employees as of June 30, 2024.

The employees are headquartered in Redmond, WA and are supported by a growing team at its Customer Center of Excellence located in Charlotte, NC.

The Company employed eight research and development personnel in Taiwan as of March 31, 2024.

The Company has incurred losses from operations the past few years and had an accumulated deficit of $ 49,441,169 as of March 31, 2024.

The accumulated deficit includes noncash charges of $ 30,881,253 and $ 19,626,884 for the three months ended March 31, 2024 and the year ended December 31, 2023, respectively.

The Company also had at March 31, 2024 an adjusted working capital deficit of approximately $ 2,000,233 .

The adjusted net working capital deficit excludes current deferred revenue totaling $ 3,742,145 and convertible debt totaling $ 4,204,723 (which the Company expects to be converted to equity).

The Company has primarily funded its operations from operating cash, proceeds from debt borrowings, advances from founders, and proceeds from the merger.

The Company has received purchase orders from various federal government agency customers totaling over $13 million from which it shipped and started receiving cash in the first quarter of 2024.

The Company employed 8 research and development personnel in Taiwan as of June 30, 2024.

The Company has incurred losses from operations the past few years and had an accumulated deficit of $ 30,979,174 as of June 30, 2024.

The Company also had at June 30, 2024 a working capital deficit of approximately $ 6,712,000 .

The net working capital deficit included a couple of items that are expected to require limited cash outlays in the future, including the current deferred revenue totaling $ 3,791,970 and convertible debt totaling $ 2,675,919 , which the Company expects to be converted to equity.

The Company has received purchase orders from various federal government agency customers totaling over $16 million from which it started shipping in the first and second quarters of 2024.

Huang, the Company’s CEO, has committed to providing additional temporary funding if it is necessary.

40 unchanged sentences

The Company’s support contracts are typically one to five years with an average of four years, payment is due within 30 to 90 calendars days of the invoice date and may include options to renew.

For the three months ended March 31, 2024 and 2023, the Company recognized revenue of $59,361 and $47,104, respectively, related to one-year support contracts.

For the three months ended March 31, 2024 and 2023, the Company recognized revenue of $ 1,116,893 and $ 1,191,711 , respectively, related to multi-year support contracts.

For the three months ended June 30, 2024 and 2023, the Company recognized revenue of $ 80,236 and $ 40,608 , respectively, related to one-year support contracts.

For the three months ended June 30, 2024 and 2023, the Company recognized revenue of $ 961,987 and $ 924,247 , respectively, related to multi-year support contracts.

For the six months ended June 30, 2024 and 2023, the Company recognized revenue of $ 139,597 and $ 81,215 , respectively, related to one-year support contracts.

For the six months ended June 30, 2024 and 2023, the Company recognized revenue of $ 2,078,865 and $ 1,988,071 , respectively, related to multi-year support contracts.

Other Services

18 unchanged sentences

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 $ 3,742,145 and $ 4,304,587 as of March 31, 2024.The Company’s short-term and long-term deferred revenue balances totaled $ 4,008,654 and $ 4,962,126 as of December 31, 2023.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized approximately $ 1,176,239 during the three months ended March 31, 2024.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,791,970 and $ 3,878,997 as of June 30, 2024.

The Company’s short-term and long-term deferred revenue balances totaled $ 4,008,654 and $ 4,962,126 as of December 31, 2023.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized approximately $ 1,000,090 and $ 2,166,588 during the three and six months ended June 30, 2024, respectively.

Accounts Receivable and Provision for Credit Losses

12 unchanged sentences

Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.

As of March 31, 2024 and December 31, 2023, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible.

Accounts receivable balances as of March 31, 2024 and December 31, 2023 were $ 1,704,429 and $ 1,648,904 , respectively.

As of June 30, 2024 and December 31, 2023, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible.

Accounts receivable balances as of June 30, 2024 and December 31, 2023 were $ 3,440,121 and $ 1,648,904 , 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 three months ended March 31, 2024, the Company had revenue from 17 customers and one customer represented 78% of total revenue, although such a high level of customer concentration is not typical.

The primary reason for the increase in reliance on a single customer for the three months ended March 31, 2024 was due to one large order received in late 2023 which was fulfilled in the three months ended March 31, 2024.

As of March 31, 2024, two customers represent approximately 52% and 27% of outstanding account receivables.

For the six months ended June 30, 2024, the Company had revenue from 36 customers and two customer represented 72 % and 11 % of total revenue, although such a high level of customer concentration is not typical.

The primary reason for the high level of customer concentration for the six months ended June 30, 2024 was due to one large order received in late 2023 which was fulfilled in the six months ended June 30, 2024.

As of June 30, 2024, four customers represent approximately 49 %, 20 %, 11 % and 10 % 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 three months ended March 31, 2023, two customers represented 56% and 23% of total revenue from 23 customers, although such a high level of customer concentration is not typical.

The primary reason for the increase in reliance on a single customer for the quarter ended March 31, 2023 was due to the lag-time in delivering on a large order received in late 2022 from one division of a customer which was not fulfilled until 2023.

For the six months ended June 30, 2023, two customers represented 60 % and 18 % of total revenue.

The primary reason for the high level of customer concentration for the six months ended June 30, 2023 was due to the lag-time in delivering on a large order received in late 2022 from one division of a customer which was not fulfilled until 2023.

As of December 31, 2023, three customers represent approximately 51 %, 26 % and 17 % of outstanding account receivables.

2 unchanged sentences

Upon receipt of inventory, the Company generally configures the servers and loads proprietary software onto the servers before shipping out.

The Company holds inventory for a short period of time and as of March 31, 2024 and December 31, 2023, it had no inventory in stock.

The Company holds inventory for a short period of time and as of June 30, 2024 and December 31, 2023, it had no inventory in stock.

Inventory value is primarily material costs and is valued at the lower of cost (first in, first out method) or net realizable value.

4 unchanged sentences

To the extent carrying values exceed fair values, an impairment loss is recognized in operating results.

The Company recorded impairment losses of $ 0 for the three months ended March 31, 2024 and 2023.

The Company recorded impairment losses of $ 0 for the six months ended June 30, 2024 and 2023.

Research and Development Expenses

5 unchanged sentences

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 $ 695,366 and $ 674,080 for the three months ended March 31, 2024 and 2023, respectively, on development activities.

The Company incurred research and development expenses of $ 702,771 and $ 665,203 for the three months ended June 30, 2024 and 2023, respectively, on development activities.

The Company incurred research and development expenses of $ 1,398,137 and $ 1,339,283 for the six months ended June 30, 2024 and 2023, respectively, on development activities.

Software Development Costs

3 unchanged sentences

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 March 31, 2024 and December 31, 2023.

No software development costs have been capitalized as of June 30, 2024 and December 31, 2023.

Cost of Net Revenues

2 unchanged sentences

Advertising costs are charged to selling, general and administrative expenses as incurred.

Advertising and marketing costs for the three months ended March 31, 2024 and 2023 were $ 22,458 and $ 49,828 , respectively.

Advertising and marketing costs for the three months ended June 30, 2024 and 2023 were $ 66,863 and $ 3,500 , respectively.

Advertising and marketing costs for the six months ended June 30, 2024 and 2023 were $ 89,321 and $ 53,328 , respectively.

Shipping and Handling of Products

9 unchanged sentences

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

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 March 31, 2024 and December 31, 2023 are based upon the short-term nature of the assets and liabilities.

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, 2024 and December 31, 2023 are based upon the short-term nature of the assets and liabilities.

The Company recorded its Senior Secured Convertible Promissory Note, earnout liability, and the warrants that were issued with the Convertible Promissory Note at fair value, remeasured on a recurring basis and considered them as Level 3 instruments.

9 unchanged sentences

The use of different market assumptions or valuation methods may have a material effect on the estimated fair values.

As of March 31, 2024, the Company has used a Monte Carlo simulation pricing model that factors in potential outcomes being consummated, such as the convertible notes being repaid in cash and the convertible notes being converted to common stock.

As of June 30, 2024, the Company has used a Monte Carlo simulation pricing model that factors in potential outcomes being consummated, such as the convertible notes being repaid in cash and the convertible notes being converted to common stock.

All of these scenarios take into consideration the terms and conditions of the underlying convertible notes plus potential changes in the underlying value of the common stock.

For the three months ended March 31, 2024, the Company recognized an unrealized loss of $ 2,039,377 for the change in fair value of the notes and is included in the Consolidated Statements of Operations and Comprehensive Loss.

For the six months ended June 30, 2024, the Company recognized an unrealized loss of $ 512,184 for the change in fair value of the notes and is included in the Consolidated Statements of Operations and Comprehensive Loss.

The Company believes accounting for the convertible notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility.

4 unchanged sentences

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 closing of the merger, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding.

At the merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

On June 3, 2024, the Company permanently reduced the exercise price of such warrants from $ 11.50 per share to an exercise price of $ 7.80 per share.

The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes.

As of June 30, 2024, there were 515,000 private placement warrants and 16,159,012 public warrants outstanding.

See Note 12– Private Placement and Public Warrants for more information.

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.

24 unchanged sentences

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 Gain (Loss)

Comprehensive gain (loss) is defined as the change in equity of a business during a period from non-owner sources.

There was other comprehensive gain of $ 3,239 and $ 0 related foreign exchange translation for the three months ended March 31, 2024 and 2023, respectively.

Comprehensive Gain

Comprehensive gain is defined as the change in equity of a business during a period from non-owner sources.

There was other comprehensive gain of $ 3,239 and $ 0 related foreign exchange translation for the three months ended June 30, 2024 and 2023, respectively.

There was other comprehensive gain of $ 8,984 and $ 42,551 related foreign exchange translation for the six months ended June 30, 2024 and 2023, respectively.

Going Concern Assessment

6 unchanged sentences

Significant estimates and assumptions included in the Company’s consolidated financial statements relate to the calculation of revenue recognition, stock-based compensation, valuation of common stock, valuation of senior secured convertible notes, warrant liability, earnout share liabilities, accruals for potential liabilities including income taxes, valuation of deferred tax assets and valuation assumptions related to share-based compensation.

Net Loss per Share – Under the provisions of ASC 260, “Earnings Per Share,” basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the periods presented.

Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Deemed dividends to preferred shareholders increase the net loss available to common shareholders and impact the net loss per share calculation.

As of March 31, 2024, the Company had 23,159,119 shares of common stock issued and outstanding.

As of March 31, 2024, there were (i) options outstanding for the purchase of 5,114,589 shares of the Company’s common stock;

(ii) SARs for the purchase of 1,758,105 shares of Company’s common stock;

(iii) warrants for the purchase of 19,364,014 shares of the Company’s common stock;

and (iv) 931,794 shares of the Company’s common stock reserved and are issuable upon conversion of convertible debentures .

All of the foregoing shares could potentially dilute future earnings per share but are excluded from the March 31, 2024, calculation of net loss per share because the impact is antidilutive.

As of March 31, 2023, the Company had 22,812,048 shares of common stock issued and outstanding.

As of March 31, 2023, there were (i) options outstanding for the purchase of 4,257,151 shares of the Company’s common stock;

and (ii) SARs for the purchase of 1,758,105 shares of Company’s common stock .

All of the foregoing shares could potentially dilute future earnings per share but are excluded from the March 31, 2023, calculation of net loss per share because the impact is antidilutive.

Income (Loss) Per Share

Basic income (loss) per share is based upon the net income (loss) for the three and six months ended June 30, 2024 and 2023 divided by the weighted average shares of common stock outstanding.

Diluted net income per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, warrants, convertible notes payable and stock appreciation rights) outstanding during the period using the treasury stock method for the three months ended June 30, 2024.

Common stock equivalents for the six months ended June 30, 2024 and 2023 are not included in the calculation of diluted earnings (loss) per share given the Company incurred a loss and they are anti-dilutive.

Reportable Segments

5 unchanged sentences

Advances due to and from Founders

Prior to 2023, the founders had advanced a net $ 600,000 to the Company.

Advances due to Founders

Prior to 2023, the founders had advanced the Company a net $ 600,000 .

In the year ended December 31, 2023, Mr.

2 unchanged sentences

During 2024, Mr.

Huang advanced Airship AI $ 1,000,000 and was repaid $ 1,000,000 , with $ 1,750,000 recorded as advances from founders as of March 31, 2024.

Huang and Mr.

Xu advanced Airship AI $ 2,100,000 and was repaid $ 1,300,000 , with $ 2,550,000 recorded as advances from founders as of June 30, 2024.

The advances are non-interest bearing and the Company expects to pay the balance off within a one year period.

Disaggregation of Revenue

The Company’s net revenues for the three months ended March 31, 2024 and 2023 consisted of approximately $ 9.4 million and $ 1.7 million, respectively, of hardware and software bundled systems for which revenue is transferred at a point in time.

The Company’s remaining net revenue of approximately $ 1.2 million and $ 1.2 million relates to PCS revenue and other services which are transferred over time.

The Company’s net revenues for the three months ended June 30, 2024 and 2023 consisted of approximately $ 5.4 million and $ 1.8 million, respectively, of hardware and software bundled systems for which revenue is transferred at a point in time.

The Company’s net revenues for the six months ended June 30, 2024 and 2023 consisted of approximately $ 14.8 million and $ 3.6 million, respectively, of hardware and software bundled systems for which revenue is transferred at a point in time.

The Company’s remaining net revenue for the three months ended June 30, 2024 and 2023 of approximately $ 1 million and $ 0.96 million, respectively, related to PCS revenue and other services which are transferred over time.

The Company’s remaining net revenue for the six months ended June 30, 2024 and 2023 of approximately $ 2.2 million and $ 2.1 million, respectively, related to PCS revenue and other services which are transferred over time.

Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing, and uncertainty around revenue recognition and cash flow are substantially similar.

3 unchanged sentences

Receivables are generally paid within thirty days and there is no financing element to the customer contracts.

As of March 31, 2024 and December 31, 2023, there are no unbilled receivable balances.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,742,145 and $ 4,304,587 as of March 31, 2024.

As of June 30, 2024 and December 31, 2023, there were no unbilled receivable balances.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,791,970 and $ 3,878,997 as of June 30, 2024.

The Company’s short-term and long-term deferred revenue balances totaled $ 4,008,654 and $ 4,962,126 as of December 31, 2023.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized approximately $ 1,176,239 during the three months ended March 31, 2024.

Remaining Performance Obligations

As of March 31, 2024, the Company had approximately $ 8.0 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered.

As of June 30, 2024, the Company had approximately $ 7.7 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered.

The Company expects to recognize approximately 27 % of its remaining performance obligations as revenue in fiscal 2024 and the remaining 73 % in fiscal 2025 and years thereafter.

4 unchanged sentences

Notes Payable, Line of Credit and Convertible Notes Payable

On June 22, 2023, the Company issued a $ 2,000,000 senior secured convertible promissory note to Platinum Capital Partner, Inc.

On June 22, 2023, the Company issued a $ 2,000,000 senior secured convertible promissory note to Platinum Capital Partners, Inc.

As a condition of funding, the Company paid off three small notes and accounts payable totaling $ 374,000 .

1 unchanged sentence

The conversion into the Company’s common stock was $ 6.50 per share as of December 31, 2023.

The repayment amount of the note is 110 % ($ 2,200,000 ) and matures on June 22, 2 024.

The repayment amount of the note is 110 % ($ 2,200,000 ) and had an original maturity date of June 22, 2024 .

Interest on the note is 6 % per annum calculated on 360 days.

3 unchanged sentences

The Platinum convertible note amends and restates in its entirety the senior secured convertible promissory note issued to Platinum in the principal amount of $2,000,000 on June 22, 2023.

The repayment amount of the Platinum convertible note is 110 % of the principal amount ($ 2,200,000 ) and matures in full on June 22, 2024 .

The repayment amount of the Platinum convertible note is 110 % of the principal amount ($ 2,200,000 ) and had an original maturity date of June 22, 2024 .

Interest accrues on the Platinum convertible note at the rate of 6 % per annum calculated on the basis of 360 days.

6 unchanged sentences

Platinum forfeited 51,967 shares.

On June 22, 2024, the Company entered into an Extension Agreement related to the Platinum convertible note.

The Extension Agreement extended the due date of the Platinum convertible note from June 22, 2024 to June 22, 2025.

The Company issued 232,360 shares of the Company’s restricted common stock in payment of all interest and extension fees through June 22, 2025 with a value of $ 1,008,400 .

Approximately $ 487,000 of the total payment related to the future interest period and was recorded in prepaid expenses and others on the consolidated balance sheet.

Subject to the terms and conditions of such Extension Agreement, for a period commencing on December 22, 2024 and ending at the close of business on December 22, 2025, Platinum has a one-time put right to have the Company purchase all or a portion of Platinum’s 232,360 restricted shares at $ 2.27 518 per share.

The Company granted piggyback registration rights to Platinum.

At the option of Platinum, the $ 2,000,000 principal amount of the note is convertible into shares of the Company’s common stock at a conversion price per share equal to the lower of (i) $ 3.6 9717, subject to appropriate adjustment as provided in the note, and (ii) 65% of the VWAP of the common stock for the five trading days immediately prior to any conversion, but in no event below $ 2.27 518, subject to appropriate adjustment as provided in the note.

The note contains “weighted average” anti-dilution protection for issuances of shares of common stock or common stock equivalents at a price less than the conversion price then in effect.

The obligations under the note are secured by a blanket lien on all assets of the Company pursuant to an Amended and Restated Security Agreement dated February 2, 2024 and are guaranteed pursuant to an Amended and Restated Guaranty dated February 2, 2024.

The Company also concurrently entered into an Amended and Restated Subordination Agreement.

On October 3, 2023, the Company issued senior secured convertible promissory notes for $ 600,000 to two private investors.

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The repayment amount of the notes is 110 % ($ 660,000 ) and mature on September 30, 2024.

Interest on the notes is 6 % per annum calculated on 360 days.

Interest on the notes is 6 % per annum calculated on the basis of 360 days.

On March 5, 2024, the two private investors converted senior secured convertible promissory notes with a face value of $ 600,000 and interest into 169,204 shares of the Company’s common stock valued at $ 835,610 .

The Company recognized a loss on debt conversion of $ 158,794 during the three months ended March 31, 2024.

The Company accounts for the notes under the fair value method of accounting and as of March 31, 2024 and December 31, 2023, the notes were recorded at $ 4,204,743 and $ 2,825,366 .

During the three months ended March 31, 2024, the Company recorded an increase in the fair value of the convertible notes payable totaling $ 2,039,377 which was recorded as loss from change in fair value of convertible debt on the statement of operations and comprehensive loss.

The Company recognized a loss on debt conversion of $ 158,794 during the three and six months ended June 30, 2024.

The Company accounts for the notes under the fair value method of accounting and as of June 30, 2024 and December 31, 2023, the notes were recorded at $ 2,675,919 and $ 2,825,366 .

During the six months ended June 30, 2024, the Company

recorded an increase in the fair value of the convertible notes payable totaling $ 512,184 which was recorded as loss from change in fair value of convertible debt on the statement of operations and comprehensive loss.

See Note 14 – Fair Value Measurements for more information.

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Details on the common stock, preferred stock and equity incentive plans were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and filed with the SEC on April 1, 2024.

As of March 31, 2024, there were 23,159,119 shares of common stock outstanding.

Three Months Ended March 31, 2024

During the three months ended March 31, 2024, the Company had the following sales of unregistered sales of equity securities:

As of June 30, 2024, there were 23,736,027 shares of common stock outstanding.

Six Months Ended June 30, 2024

During the six months ended June 30, 2024, the Company had the following sales of unregistered equity securities:

On March 5, 2024, a private investor converted a senior secured convertible promissory note for $ 250,000 and interest into 70,502 shares of the Company’s common stock.

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On March 21, 2024, the Company issued 15,000 shares of common stock for services performed as of December 31, 2023 to MZHCI, LLC related to an investor relations consulting agreement.

On May 16, 2024, the Company issued 50,000 shares of common stock to Pamria LLC for consulting and investor relations services.

On June 22, 2024, the Company entered into an extension agreement with Platinum Capital Partners Inc.

to extend the maturity date of the Platinum convertible note to June 22, 2025.

In consideration for entering into the extension agreement, the Company agreed to issue to Platinum 232,360 shares of common stock.

In June 2024, the Company issued an aggregate of 294,448 shares of common stock upon the exercise of stock options at exercise prices ranging from $ 0.12 to $ 1.64 per share.

2023 Equity Incentive Plan

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Details on the equity incentive plan were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and filed with the SEC on April 1, 2024.

The aggregate number of shares of common stock initially reserved and available for grant and issuance under the equity incentive plan is 4,080,000 as of March 31, 2024.

The aggregate number of shares of common stock initially reserved and available for grant and issuance under the equity incentive plan is 4,080,000 as of June 30, 2024.

Such aggregate number of shares of stock will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2024 and ending on January 1, 2033, in an amount equal to 2.0% of the total number of shares of common stock outstanding on December 31 of the preceding year.

The Company had the following stock option activity during the three months ended March 31, 2024:

On March 5, 2024, the Company granted stock options to purchase an aggregate of 200,000 shares of common stock with an exercise price of $ 1.65 , and which vest over four years and expire on March 31, 2029 .

During the three months ended March 31, 2024, the Company granted stock options to four employees to purchase an aggregate of 250,000 shares of common stock with an exercise price of $ 6.08 and which vest primarily quarterly over four years and expire on March 31, 2034 .

Stock option activity for the three months ended March 31, 2024 was as follows:

The Company had the following stock option activity during the six months ended June 30, 2024:

During the six months ended June 30, 2024, the Company granted stock options to six employees to purchase an aggregate of 525,000 shares of common stock with an exercise price of $ 4.61 and which vest primarily quarterly over four years and expire on March 31, 2034 .

Stock option activity for the six months ended June 30, 2024 was as follows:

Weighted Average

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Outstanding as of December 31, 2023

Outstanding as of March 31, 2024

The following table summarizes information about stock options outstanding and exercisable as of March 31, 2024:

Remaining Life

Outstanding as of June 30, 2024

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2024:

Remaining Life

Exercise Price

In Years - Vested

Exercise Prices

Exercise Price

and Exercisable

There are 5,114,589 options to purchase common stock at an average exercise price of $ 0.86 per share outstanding as of March 31, 2024 under the 2023 Equity Incentive Plan.

The Company recorded $ 135,227 and $ 136,709 of compensation expense, net of related tax effects, relative to stock options for the three months ended March 31, 2024 and 2023, respectively, in accordance with ASC 718.

As of March 31, 2024, there is $ 1,390,715 of total unrecognized costs related to employee granted stock options that are not vested.

There were 4,895,141 options to purchase common stock at an average exercise price of $ 0.98 per share outstanding as of June 30, 2024 under the 2023 Equity Incentive Plan.

The Company recorded $ 261,636 and $ 136,709 of compensation expense, net of related tax effects, relative to stock options for the three months ended June 30, 2024 and 2023, respectively.

The Company recorded $ 530,625 and $ 273,418 of compensation expense, net of related tax effects, relative to stock options for the six months ended June 30, 2024 and 2023, respectively, in accordance with ASC 718.

As of June 30, 2024, there was $ 1,553,651 of total unrecognized costs related to employee granted stock options that were not vested.

These costs are expected to be recognized over a period of approximately 4.75 - 5.17 years.

The significant weighted-average assumptions relating to the valuation of the Company’s stock option grants for the three months ended March 31, 2024 were as follows:

The significant weighted-average assumptions relating to the valuation of the Company’s stock option grants were as follows for the three months ended:

Estimated stock price

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Risk free interest rate

There were stock incentive plan awards outstanding at March 31, 2024 totaling 5,114,589 shares with an aggregate intrinsic value of $ 29,301,777 .

As of March 31, 2024 and December 31, 2023 there were 1,758,000 SARs outstanding.

There were no SAR grants in the three months ended March 31, 2024 or the year ended December 31, 2023.

There were stock incentive plan awards outstanding at June 30, 2024 totaling 4,895,141 shares with an aggregate intrinsic value of $ 13,728,765 .

As of June 30, 2024 and December 31, 2023 there were 1,758,000 SARs outstanding.

There were no SAR grants in the six months ended June 30, 2024 or the year ended December 31, 2023.

Warrants to Purchase Common Stock

See Note 12 for public and private placement warrants assumed after the merger.

The Company had the following warrant activity during the three months ended March 31, 2024:

The Company had the following warrant activity during the six months ended June 30, 2024:

In connection with the issuance of the Platinum convertible note, the Company also issued to Platinum an amended and restated common stock purchase warrant dated February 2, 2024 to purchase 189,334 shares of common stock at an exercise price per share of $ 3.6 9717.

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Platinum forfeited 51,967 shares.

A summary of the warrants outstanding as of March 31, 2024 were as follows:

March 31, 2024

During the six months ended June 30, 2024, investors exercised warrants for 25,600 shares of the Company’s common stock at $ 11.49 per share and the Company received proceeds of $ 293,249 .

A summary of the warrants outstanding as of June 30, 2024 were as follows:

June 30, 2024

Outstanding January 1, 2024

Outstanding at March 31, 2024

Exercisable at March 31, 2024

The following table summarizes information about warrants outstanding and exercisable as of March 31, 2024:

March 31, 2024

Outstanding at June 30, 2024

June 30, 2024

Life ( In Years)

The significant weighted average assumptions relating to the valuation of the Company’s warrants issued for the three months ended March 31, 2024 were as follows:

The significant weighted average assumptions relating to the valuation of the Company’s warrants issued for the six months ended June 30, 2024 were as follows:

Dividend yield

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Risk free interest rate

There were vested warrants of 19,364,014 with an aggregate intrinsic value of $ 12,965,328 .

Warrants for 19,363,914 shares had an aggregate intrinsic value of $ 4,895,622 as of June 30, 2024.

Earnout Liability

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As a result, these unvested earn-out shares are equity-classified awards and have an aggregated grant date fair value of $ 2,675,223 (or $ 5.96 per share).

During the three months ended March 31, 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 133,762 .

As of March 31, 2024, unrecognized compensation cost related to unvested earnout shares totaled $ 2,541,461 .

During the three and six months ended June 30, 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 133,761 and $ 267,522 , respectively.

As of June 30, 2024, unrecognized compensation cost related to unvested earnout shares totaled $ 2,407,702 .

The weighted average period over which this remaining compensation cost is expected to be recognized is 4.5 years.

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The plan provides for a 3.5% match on up to 6% of deferred salary .

The Company expensed $ 50,102 and $ 45,996 of contributions during the three months ended March 31, 2024 and 2023, respectively.

The Company expensed $ 50,696 and $ 47,563 of contributions during the three months ended June 30, 2024 and 2023, respectively.

The Company expensed $ 100,798 and $ 93,559 of contributions during the six months ended June 30, 2024 and 2023, respectively.

Related Party Transactions

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During 2024, Mr.

Huang advanced Airship AI $ 1,000,000 and was repaid $ 1,000,000 , with $ 1,750,000 recorded as advances from founders as of March 31, 2024.

Huang and Mr.

Xu advanced Airship AI $ 2,100,000 and was repaid $ 1,300,000 , with $ 2,550,000 recorded as advances from founders as of June 30, 2024.

The advances are non-interest bearing and the Company expects to pay the balance off within a one year period.

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Lease expense is recorded as general and administrative expenses on the Company’s consolidated statements of operations.

The Company adopted ASC 842 effective January 1, 2022 and the adoption did not have any impact on previously reported stockholders’ deficit.

On May 1, 2019, the Company leased 31,765 square feet for its executive offices in Redmond, Washington.

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On February 29, 2024, the Company extended the lease and the net monthly payment is $ 6,488 .

The lease expires on July 29, 2024 .

The lease expires on August 29, 2024 .

The Company has entered into operating leases for office and development facilities for four years and include options to renew.

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Operating lease liabilities and their corresponding right-of-use assets are recorded based upon the present value of the lease payments over the expected lease term.

As of March 31, 2024 and December 31, 2023, total operating lease liabilities was approximately $ 1,051,367 and $ 1,118,578 , respectively.

Right of use assets totaled approximately $ 1,024,513 and $ 1,104,804 at March 31, 2024 and December 31, 2023, respectively.

Current lease liabilities were $ 180,875 and $ 174,876 at March 31, 2024 and December 31, 2023, respectively.

In the three months ended March 31, 2024 and 2023, the Company recognized $ 98,943 and $ 162,414 in total lease costs for the leases, respectively.

As of June 30, 2024 and December 31, 2023, total operating lease liabilities was approximately $ 993,995 and $ 1,118,578 , respectively.

Right of use assets totaled approximately $ 953,713 and $ 1,104,804 at June 30, 2024 and December 31, 2023, respectively.

Current lease liabilities were $ 198,002 and $ 174,876 at June 30, 2024 and December 31, 2023, respectively.

In the three months ended June 30, 2024 and 2023, the Company recognized $ 128,124 and $ 162,414 in total lease costs for the leases, respectively.

In the six months ended June 30, 2024 and 2023, the Company recognized $ 227,067 and $ 324,828 in total lease costs for the leases, respectively.

Because the rate implicit in each lease is not readily determinable, the Company uses its estimated incremental borrowing rate to determine the present value of the lease payments.

The weighted average remaining lease term for the operating leases was forty three months at March 31, 2024 and the weighted average discount rate was 7 %.

The minimum future lease payments as of March 31, 2024 are as follows:

Years Ended March 31,

The weighted average remaining lease term for the operating leases was forty three months at June 30, 2024 and the weighted average discount rate was 7 %.

The minimum future lease payments as of June 30, 2024 are as follows:

Years Ended June 30,

Total remaining payments

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Scott was also granted options to purchase up to twenty five thousand ( 25,000 ) shares of common stock with an exercise price equal to $ 1.49 , which options vested in full on the date of issuance.

The Company recorded a provision for income taxes of $ 0 for the three months ended March 31, 2024 and 2023.

The Company’s effective tax rate was 0 % for the three months ended March 31, 2024 and 2023.

The difference between the effective tax rate and the federal statutory tax rate for the three months ended March 31, 2024 and 2023 primarily relates to the valuation allowance on the Company’s deferred tax assets.

The Company recorded a provision for income taxes of $ 0 for the six months ended June 30, 2024 and 2023.

The Company’s effective tax rate was 0 % for the six months ended June 30, 2024 and 2023.

The difference between the effective tax rate and the federal statutory tax rate for the six months ended June 30, 2024 and 2023 primarily related to the valuation allowance on the Company’s deferred tax assets.

For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes.

1 unchanged sentence

The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

As of March 31, 2024 and December 31, 2023, the Company retains a full valuation allowance on its deferred tax assets.

As of June 30, 2024 and December 31, 2023, the Company retains a full valuation allowance on its deferred tax assets.

The realization of the Company’s deferred tax assets depends primarily on its ability to generate taxable income in future periods.

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At the merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding.

On June 3, 2024, the Company permanently reduced the exercise price of such warrants from $ 11.50 per share to an exercise price of $ 7.80 per share.

The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes.

As of June 30, 2024, there were 515,000 private placement warrants and 16,159,012 public warrants outstanding.

Details on the warrants were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and filed with the SEC on April 1, 2024.

The public warrants will expire on December 21, 2028.

The following table is a summary of the number of shares of the Company’s common stock issuable upon exercise of the public and private warrants outstanding as of March 31, 2024:

The following table is a summary of the number of shares of the Company’s common stock issuable upon exercise of the public and private warrants outstanding as of June 30, 2024:

Number of Shares

Exercise Price

Expiration Date

21 unchanged sentences

As of December 31, 2023, the earnout liability had decreased to $ 5,133,428 as a result of the decline in the Company’s share price since the closing of the merger.

As of March 31, 2024, the estimated fair value of the earnout liability increased to $ 26,618,278 primarily due to the increase in the Company’s share price, which resulted in a loss due to the change in fair value of the earnout liability of $ 21,484,850 and is recorded on the consolidated statements of operations and comprehensive loss.

As of June 30, 2024, the estimated fair value of the earnout liability increased to $ 11,741,351 primarily due to the increase in the Company’s share price, which resulted in a loss due to the change in fair value of the earnout liability during the six months ended June 30, 2024 of $ 6,607,923 and is recorded on the consolidated statements of operations and comprehensive loss.

See Note 14– Fair Value Measurements for more information.

As of March 31, 2024, the earnout shares were not earned as none of the earnout milestones have been met.

As of June 30, 2024, the Company is currently evaluating the earnout shares to determine the first operating performance milestone has been met.

Fair Value Measurements

The following table sets forth by level within the ASC 820, Fair Value Measurement, fair value hierarchy of the Company’s liabilities that are measured at fair value on a recurring basis as of March 31, 2024:

March 31, 2024

June 30, 2024

Earnout liability

13 unchanged sentences

The following assumptions were used in the simulation at each valuation date:

March 31, 2024

June 30, 2024

December 31, 2023

9 unchanged sentences

The following assumptions were used in the simulation:

March 31, 2024

June 30, 2024

December 31, 2023

3 unchanged sentences

Dividend yield

There were no transfers of financial instruments between valuation levels during the three months ended March 31, 2024 and the year ended December 31, 2023.

There were no transfers of financial instruments between valuation levels during the three and six months ended June 30, 2024 and the year ended December 31, 2023.

Earnings per Share

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to common stockholders:

June 30, 2024

June 30, 2023

Three months ended

Six months ended

Three months ended

Six months ended

Net income (loss) - Basic

$ ( 13,502,474 )

$ ( 3,103,279 )

$ ( 4,815,455 )

interest expense and remeasurement of

convertible debt

( 1,005,611 )

Net income (loss) - Diluted

$ ( 13,502,474 )

$ ( 3,103,279 )

$ ( 4,815,455 )

Weighted average shares outstanding:

dilutive effect of convertible debt, stock options, SARs and Airship warrants

Income (loss) per share

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding for the periods presented as the effect would have been anti-dilutive:

June 30, 2024

December 31, 2023

Public Warrants

Private Warrants

Convertible debt

Outstanding stock options

The 5,000,000 earnout shares are excluded from basic and diluted net loss per share as such shares are contingently issuable until the Company exceeds certain milestone thresholds that have not been achieved.

As of June 30, 2024, the Company is currently evaluating the earnout shares to determine if the first operating performance milestone has been met.

As a result of the merger, the weighted-average number of shares of Common Stock used in the calculation of net income (loss) per share have been retroactively converted by applying the conversion ratio.

Subsequent Events

The Company evaluated subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements were issued.

Subsequent to March 31, 2024, there were no material transactions that require disclosure.

Subsequent to June 30, 2024, there were no material transactions that require disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements