What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 275 added, 221 removed, 622 unchanged (44% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

As of June 30, 2024 and December 31, 2023

June 30, 2024

As of September 30, 2024 and December 31, 2023

September 30,

12/31/2023 (1)

1 unchanged sentence

Cash and cash equivalents

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

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

Prepaid expenses and other

20 unchanged sentences

STOCKHOLDERS' DEFICIT:

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

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

Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 26,954,871 and 22,812,048 shares issued and outstanding as of September 30, 2024 and December 31, 2023

Additional paid in capital

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

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

For the three and nine months ended September 30, 2024 and 2023

Three Months Ended

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Nine Months Ended

September 30,

NET REVENUES:

6 unchanged sentences

TOTAL OPERATING EXPENSES

OPERATING INCOME (LOSS)

OPERATING LOSS

( 1,587,484 )

( 1,229,203 )

( 2,013,702 )

( 6,015,886 )

OTHER INCOME (EXPENSE):

6 unchanged sentences

Interest expense, net

Other (expense) income

Other income (expense)

Total other income (expense), net

9 unchanged sentences

( 6,482,062 )

OTHER COMPREHENSIVE INCOME

Foreign currency translation income, net

OTHER COMPREHENSIVE INCOME (LOSS)

Foreign currency translation income (loss), net

TOTAL COMPREHENSIVE INCOME (LOSS)

7 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

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

Stock based compensation- warrants

5 unchanged sentences

( 10,721,782 )

Stock-based compensation- stock option grants

Foreign currency translation gain

( 1,666,607 )

Balance as of September 30, 2023

( 16,796,375 )

( 12,226,689 )

Balance as of January 1, 2024

20 unchanged sentences

( 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.

Stock-based compensation

Stock based compensation- warrants

Issuance of common stock for stock options exercise

Issuance of common stock for conversion of debt

Issuance of common stock and warrants for offering, net

Foreign currency translation gain

Balance as of September 30, 2024

$ ( 24,765,218 )

$ ( 12,920,583 )

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.

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2024 and 2023

Six Months Ended

June 30, 2024

June 30, 2023

For the nine months ended September 30, 2024 and 2023

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Depreciation and amortization

Stock-based compensation- stock option grants

Stock-based compensation

Stock-based compensation- warrants

Amortization of operating lease right of use asset

Accelerated amortization of ROU asset - lease termination

Gain from lease termination

Issuance of common stock for services

6 unchanged sentences

Accounts receivable

( 1,791,217 )

Prepaid expenses and other

8 unchanged sentences

( 4,398,285 )

( 2,524,039 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of common stock and warrants for offering, net

Proceeds from convertible promissory note

4 unchanged sentences

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

( 2,906,647 )

NET INCREASE IN CASH AND CASH EQUIVALENTS

Effect from exchange rate on cash

12 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 7, 2023, Airship AI Holdings, Inc.

changed its name from Super Simple AI, Inc.

Airship AI Holdings, Inc.

(the “Company” or “Airship”) is a holding company that executes business through its wholly owned subsidiary, Airship AI, 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”).

2 unchanged sentences

(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.

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Thus, Airship AI became a wholly-owned subsidiary of the Company.

In connection with the merger, Airship AI changed its name to “Airship AI, Inc.” See Note 13 —Reverse Recapitalization for additional information.

In connection with the merger, Airship AI changed its name from “Airship AI Holdings, Inc.” to “Airship AI, Inc.” See Note 11 —Reverse Recapitalization for additional information.

Fair Value Transactions

4 unchanged sentences

Liability as of

September 30, 2024

December 31, 2023

Earnout liability

3 unchanged sentences

Total liabilities measured at fair value

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

Other loss related to instruments recorded at fair value during the nine months ended September 30, 2024 and 2023

$ ( 4,071,156 )

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

$ ( 400,921 )

Common Stock and Warrant Offering

On September 3, 2024, the Company closed an $ 8 million public offering with net proceeds of approximately $ 7.3 million, after deducting the estimated offering expenses payable by the Company, including the placement agent fees.

The offering consisted of 2,882,883 shares of its common stock and warrants to purchase up to an aggregate of 2,882,883 shares of its common stock at a combined public offering price of $ 2.775 per share and associated common stock warrant.

The warrants have an exercise price of $ 2.65 per share, are exercisable immediately upon issuance, and will expire five years following the date of issuance.

The warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed numbers of shares of common stock upon exercise.

The Company intends to use the net proceeds from the offering for working capital and general corporate purposes, including cost of goods sold purchases, personnel and product development.

Private Placement and Public Warrants

2 unchanged sentences

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.

As of September 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 51 employees as of June 30, 2024.

The Company employed fifty one employees as of September 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 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.

Based on the Company’s actions undertaken during 2023 and 2024 to close customer deals, build sales pipeline, manage operating expenses and opportunities to raise additional capital after the merger, management believes that the Company’s current cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months from the issuance of these consolidated financial statements.

The Company’s assessment of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties.

The Company’s actual results could vary as a result of its near and long-term future capital requirements that will depend on many factors.

The Company employed eight research and development personnel in Taiwan as of September 30, 2024.

Summary of Significant Accounting Policies

7 unchanged sentences

Functional Currency

The Company’s consolidated functional currency is the U.S.

The Company’s reporting currency is the U.S.

The Company’s functional currency for U.S.

operations is the U.S.

The operations of Zeppelin Worldwide, Inc.

26 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 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.

For the three months ended September 30, 2024 and 2023, the Company recognized revenue of $ 95,120 and $ 60,367 , respectively, related to one-year support contracts.

For the three months ended September 30, 2024 and 2023, the Company recognized revenue of $ 1,042,008 and $ 1,413,548 , respectively, related to multi-year support contracts.

For the nine months ended September 30, 2024 and 2023, the Company recognized revenue of $ 234,717 and $ 141,582 , respectively, related to one-year support contracts.

For the nine months ended September 30, 2024 and 2023, the Company recognized revenue of $ 3,083,464 and $ 3,536,003 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 $ 3,791,970 and $ 3,878,997 as of June 30, 2024.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,326,543 and 3,585,344 as of September 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.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized approximately $933,675 and $3,061,613 during the three and nine months ended September 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 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.

As of September 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 September 30, 2024 and December 31, 2023 were $ 1,121,862 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 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.

For the nine months ended September 30, 2024, the Company had revenue from sixty eight customers and one customer represented 63 % 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 nine months ended September 30, 2024 was due to one large order received in late 2023 which was fulfilled in the nine months ended September 30, 2024.

As of September 30, 2024, five customers represent approximately 21 %, 20 %, 16 %, 12 % and 11 % 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, 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.

For the nine months ended September 30, 2023, two customers represent approximately 49 % and 16 % of total revenue.

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 June 30, 2024 and December 31, 2023, it had no inventory in stock.

The Company holds inventory for a short period of time and as of September 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 six months ended June 30, 2024 and 2023.

The Company recorded impairment losses of $ 0 for the nine months ended September 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 $ 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.

The Company incurred research and development expenses of $ 1,073,735 and $ 688,798 for the three months ended September 30, 2024 and 2023, respectively, on development activities.

The Company incurred research and development expenses of $ 2,471,872 and $ 2,028,081 for the nine months ended September 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 June 30, 2024 and December 31, 2023.

No software development costs have been capitalized as of September 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 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.

Advertising and marketing costs for the three months ended September 30, 2024 and 2023 were $ 41,107 and $ 2,587 , respectively.

Advertising and marketing costs for the nine months ended September 30, 2024 and 2023 were $ 130,428 and $ 55,916 , 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 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.

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 September 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 (unvested earnout shares), 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.

The public and private warrants were considered Level 1 and 2 instruments, respectively.

The fair value of the vested earnout shares was considered a Level 1 instrument.

The method of determining the fair value of the Senior Secured Convertible Promissory Note and attached warrants is described below.

1 unchanged sentence

Accounting for Senior Secured Convertible Promissory Notes at Fair Value

The Company has elected the fair value option to account for the senior secured convertible note that was issued on June 22, 2023 and the convertible notes that were issued in October and November 2023 and record them at fair value with changes in fair value recorded in the Consolidated Statements of Operations and Comprehensive Loss.

The Company has elected the fair value option to account for the senior secured convertible note that was issued on June 22, 2023 and the convertible notes that were issued in October and November 2023 with changes in fair value recorded in the Consolidated Statements of Operations and Comprehensive Loss.

As a result of applying the fair value option, direct costs and fees related to the convertible notes are recognized in earnings as incurred and not deferred.

3 unchanged sentences

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

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.

As of September 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 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.

For the nine months ended September 30, 2024 and 2023, the Company recognized an unrealized loss of $ 141,636 and $ 400,921 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.

7 unchanged sentences

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.

As of September 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.

27 unchanged sentences

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.

There was other comprehensive gain of $ 354 and loss of $ 2,410 related foreign exchange translation for the three months ended September 30, 2024 and 2023, respectively.

There was other comprehensive gain of $ 9,338 and gain of $ 40,141 related foreign exchange translation for the nine months ended September 30, 2024 and 2023, respectively.

Going Concern Assessment

2 unchanged sentences

Further, a company must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern” and management plans to alleviate the going concern.

In November 2024, the Company analyzed its cash requirements and operations at least through November 2025 and has determined that, based upon the Company’s current available cash and operations, the Company has no substantial doubt about its ability to continue as a going concern.

Use of Estimates

3 unchanged sentences

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.

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

Common stock equivalents for the three months ended September 30, 2023 and the nine months ended September 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.

See Note 15—Earnings per share.

Reportable Segments

12 unchanged sentences

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.

Xu advanced Airship AI $ 2,100,000 and were repaid $ 2,100,000 , with $ 1,750,000 recorded as advances from founders as of September 30, 2024.

The outstanding advances as of September 30, 2024 are non-interest bearing and the Company expects to pay the balance off within a one year period.

Master Loan Agreement

On September 27, 2024, the Company entered into a Master Loan Agreement with Mr.

Huang, whereby he may provide additional funding of up to $ 1,500,000 under certain terms and conditions.

The Agreement provides for interest of 6 %.

The Company agreed to pay interest for the 2024 advances (described under Advances to Founders above) of $ 11,913 and issued warrants to purchase up to 220,000 shares of common stock.

The warrants have an exercise price of $ 2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance.

The $ 284,478 fair value of the warrant is recorded in permanent equity in the consolidated balance sheets and was fully expensed on the date of grant.

There are no outstanding advances under this Master Loan Agreement as of September 30, 2024.

Disaggregation of Revenue

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.

The Company’s net revenues for the nine months ended September 30, 2024 and 2023 consisted of approximately $ 16.5 million and $ 4.4 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 nine months ended September 30, 2024 and 2023 of approximately $ 3.3 million and $ 3.7 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 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.

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

The Company’s short-term and long-term deferred revenue balances totaled $ 3,326,543 and $ 3,585,344 as of September 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 $ 933,675 and $ 3,061,613 during the three and nine months ended September 30, 2024, respectively.

Remaining Performance Obligations

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.

As of September 30, 2024, the Company had approximately $ 6.9 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered.

The Company expects to recognize approximately 15 % of its remaining performance obligations as revenue in fiscal 2024 and the remaining 85 % in fiscal 2025 and years thereafter.

3 unchanged sentences

Other costs of contract fulfillment such as software maintenance are expensed in the period incurred and align with when the revenue is amortized.

Notes Payable, Line of Credit and Convertible Notes Payable

Notes Payable and Convertible Notes Payable

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 .

At the option of the holder, the note is convertible into cash, common stock or a combination of cash and stock.

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 had an original maturity date of June 22, 2024 .

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

In connection with the convertible notes transaction, the Company issued warrants to purchase 53,800 shares of common stock with an exercise price of $ 6.50 upon the conclusion of the BYTS merger.

The value of the warrants totaled $ 15,418 and reduced the fair value of the convertible promissory notes.

On February 2, 2024, the Company issued in a private placement an amended and restated senior secured convertible promissory note to Platinum in the principal amount of $ 2,000,000 .

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 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.

At the option of Platinum, the principal amount of the Platinum convertible note plus any accrued but unpaid interest is convertible into shares of 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 Platinum convertible note, and (ii) 65% of the VWAP for the common stock for the preceding five trading days immediately prior to any conversion, but in no event below $ 2.27 518, subject to appropriate adjustment as provided in the Platinum convertible note.

The Platinum convertible 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.

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.

The term of the Platinum warrant expires on June 22, 2028 .

The Platinum convertible note may not be converted, and the Platinum warrant may not be exercised, to the extent that after giving effect to such conversion and/or exercise, Platinum (together with its affiliates) would beneficially own in excess of 4.99 % of the common stock outstanding immediately after giving effect to such conversion and/or exercise.

On February 2, 2024, the Company issued an amended and restated senior secured convertible promissory note to Platinum in the principal amount of $ 2,000,000 .

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

At the option of Platinum, the $ 2,000,000 principal amount of the note plus any accrued but unpaid interest is convertible into shares of the Company’s common stock at a conversion price per share equal to the lower of (i) $ 3 .69717, 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 .27518, 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.

In connection with the issuance of the Platinum convertible note, the Company issued to Platinum an amended and restated common stock purchase warrant dated February 2, 2024, to purchase 189,334 shares of the Company’s common stock at an exercise price per share of $ 3 .69717.

On March 18, 2024, Platinum exercised the Platinum warrant and received 137,367 shares of common stock.

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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.

The extension agreement extended the due date of the note to June 22, 2025.

In consideration for entering into the extension agreement, the Company issued to Platinum 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 periods and were 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 .27518 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 obligations under the Platinum convertible 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.

During the nine months ended September 30, 2024, the Company issued 219,763 shares of common stock related to the conversion of $ 500,000 of the Platinum convertible note and recorded a loss on note conversion of $ 200,338 .

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

At the option of the holders, the notes are convertible into cash, common stock or a combination of cash and stock.

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 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 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.

At the option of the holders, the notes were convertible into cash, common stock or a combination of cash and stock.

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

On September 13, 2024, the Company issued an additional 86,198 shares of common stock related to the conversion of notes at $ 2.65 per share.

The Company recognized a loss on debt conversion of $ 234,459 and $ 393,253 , respectively during the three and nine months ended September 30, 2024.

The Company accounts for the notes under the fair value method of accounting and as of September 30, 2024 and December 31, 2023, the notes were recorded at $ 1,793,360 and $ 2,825,366 , respectively.

During the nine months ended September 30, 2024 and 2023, the Company recorded an increase in the fair value of the convertible notes payable totaling $ 141,636 and $ 400,921 , respectively, which were 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.

Details on notes payable and convertible notes payable 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.

Stockholders’ Deficit

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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 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:

As of September 30, 2024, there were 26,954,871 shares of common stock outstanding.

Nine Months Ended September 30, 2024

During the nine months ended September 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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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.

In consideration for entering into the extension agreement, the Company issued to Platinum 232,360 shares of common stock in payment of all interest and extension fees through June 22, 2025.

On September 3, 2024, the Company issued 2,882,883 shares of common stock at a combined price of $ 2.775 related to the closing of a public offering.

On September 13, 2024, the Company issued an additional 86,198 shares of common stock related to the conversion of notes at $ 2.65 per share.

During the nine months ended September 30, 2024, the Company issued 219,763 shares of common stock related to the conversion of $ 500,000 of the Platinum convertible note.

During the nine months ended September 30, 2024, the Company issued an aggregate of 324,448 shares of common stock upon the exercise of stock options at $ 0.60 weighted average price.

During the nine months ended September 30, 2024, the Company issued an aggregate of 162,967 shares of common stock upon the exercise of warrants at $ 4.92 weighted average price.

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 June 30, 2024.

The aggregate number of shares of common stock initially reserved and available for grant and issuance under the equity incentive plan is 4,456,241 as of September 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 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:

The Company had the following stock option activity during the nine months ended September 30, 2024:

During the nine months ended September 30, 2024, the Company granted stock options to seven employees to purchase an aggregate of 1,050,000 shares of common stock with an exercise price of $ 3.74 and which vest primarily quarterly over four years and expire March to August 2034.

During the nine months ended September 30, 2024, five employees voluntarily cancelled stock options to purchase an aggregate of 300,000 shares of common stock with an exercise price of $ 6.85 .

During the nine months ended September 30, 2024, the Company issued an aggregate of 324,448 shares of common stock and received $ 196,173 upon the exercise of stock options at exercise prices ranging from $ 0.60 per share.

Stock option activity for the nine months ended September 30, 2024 was as follows:

Weighted Average

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Outstanding as of December 31, 2023

Outstanding as of June 30, 2024

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

Outstanding as of September 30.

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

Remaining Life

Exercise Price

In Years - Vested

Exercise Prices

Exercise Price

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.

and Exercisable

There were 5,090,141 options to purchase common stock at an average exercise price of $ 0.83 per share outstanding as of September 30, 2024 under the 2023 Equity Incentive Plan.

The Company recorded $ 139,409 and $ 206,495 of compensation expense, net of related tax effects, relative to stock options for the three months ended September 30, 2024 and 2023, respectively.

The Company recorded $ 420,824 and $ 479,913 of compensation expense, net of related tax effects, relative to stock options for the nine months ended September 30, 2024 and 2023, respectively, in accordance with ASC 718.

As of September 30, 2024, there was $ 1,962,124 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 3.5 years.

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

In August 2024, the Company cancelled out-of-the money options to exercise 300,000 shares held by current employees and replaced them with 525,000 options at lower exercise prices.

The new options were subject to the same service-based vesting schedule as the original options.

The Company accounted for the replacement options as a modification of the terms of the cancelled option awards and in accordance with ASC 718-20-35-2A, the Company will recognize additional $ 205,879 stock compensation expense over the remaining vesting period as the incremental cost measured as the excess of the fair value of the replaced options on the grant date using the Black-Scholes-Merton option pricing model over the fair value of the cancelled option award at the cancellation date.

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

Estimated stock price

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Risk free interest rate

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.

There were stock incentive plan awards outstanding at September 30, 2024 totaling 5,090,141 shares with an aggregate intrinsic value of $ 7,781,223 .

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

There were no SAR grants in the nine months ended September 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 six months ended June 30, 2024:

The term of the Platinum warrant expires on June 22, 2028 .

The Company had the following warrant activity during the nine months ended September 30, 2024:

In connection with the issuance of the Platinum convertible note, the Company 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 .69717.

On March 18, 2024, Platinum exercised the Platinum warrant and received 137,367 shares of common stock.

Platinum forfeited 51,967 shares.

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

On September 3, 2024 the Company issued warrants to purchase up to 2,882,883 shares of its common stock.

The warrants have an exercise price of $ 2.65 per share, are exercisable immediately upon issuance and will expire five years following the date of issuance.

On September 3, 2024 the Company issued warrants to purchase up to 216,216 shares of its common stock.

The warrants have an exercise price of $ 3.47 per share, are exercisable immediately upon issuance and will expire five years following the date of issuance.

On September 27, 2024, the Company issued warrants to purchase up to 220,000 shares of common stock.

The warrants have an exercise price of $ 2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance.

During the nine months ended September 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 $ 294,030 .

Warrant activity for the nine months ended September 30, 2024 was as follows:

September 30, 2024

Outstanding January 1, 2024

Outstanding at June 30, 2024

June 30, 2024

Outstanding at September 30, 2024

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

September 30, 2024

Life ( In Years)

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:

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

Dividend yield

Exercise price

Expected life

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Risk free interest rate

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

Earnout Liability

See Note 13 for common stock shares related to earnout liability.

In addition, a portion of the earnout shares may be issued to individuals with unvested equity awards.

While the payout of these shares requires the achievement of the earnout milestones, the individuals must complete the remaining service period associated with these unvested equity awards to be eligible to receive the earnout shares.

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 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.

Employee 401(k) Plan

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

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.

The Company expensed $ 52,456 and $ 44,973 of contributions during the three months ended September 30, 2024 and 2023, respectively.

The Company expensed $ 153,254 and $ 138,532 of contributions during the nine months ended September 30, 2024 and 2023, respectively.

Related Party Transactions

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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.

Xu advanced Airship AI $ 2,100,000 and was repaid $ 2,100,000 , with $ 1,750,000 recorded as advances from founders as of September 30, 2024.

The outstanding advances as of September 30, 2024 are non-interest bearing and the Company expects to pay the balance off within a one year period.

Master Loan Agreement

On September 27, 2024, the Company entered into a Master Loan Agreement with Mr.

Huang, whereby he may provide additional funding of up to $ 1,500,000 under certain terms and conditions.

The agreement provides for interest of 6 %.

The Company agreed to pay interest for the 2024 advances (described under Advances to Founders above) of $ 11,913 and the Company issued warrants to purchase up to 220,000 shares of the Company’s common stock.

The warrants have an exercise price of $ 2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance.

The $ 284,478 fair value of the warrant is recorded in permanent equity in the consolidated balance sheets and was fully expensed on the date of grant.

There are no outstanding advances under this Master Loan Agreement as of September 30, 2024.

Warrants to Purchase Common Stock

On May 8, 2023, Airship AI issued warrants to purchase 1,344,951 shares of common stock to each of Victor Huang and Derek Xu.

The warrants were valued at $ 2,136,115 based on the exercise price of $ 1.77 , the fair market stock price of $ 1.89 , a five year term, a volatility of 39.4 % and interest of 3.41 %.

The warrants were recorded as stock-based compensation expense and as additional paid in capital.

All warrants are fully vested as they were issued for services performed.

Commitments, Contingencies and Legal Proceedings

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

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

The Company’s net monthly payment was $ 44,440 .

The monthly payment increased approximately 3 % each year and the lease was set to expire on April 30, 2024 .

The Company had two five-year renewal options.

In April 2023, the Company and its landlord entered into an agreement whereby the Company’s office lease was terminated on September 30, 2023.

On July 13, 2023, the Company entered into a new lease in Redmond, WA for 15,567 square feet of office and warehouse space which starts October 1, 2023.

On July 13, 2023, the Company entered into a lease in Redmond, WA for 15,567 square feet of office and warehouse space which started October 1, 2023.

The monthly payment is $ 25,000 per month.

The lease expires October 31, 2027 and the monthly payment increases 3 % on July 31, 2024 and each year thereafter.

There is a one three year option to extend based on the fair market rate on October 31, 2027.

On January 1, 2021, the Company leased offices located in Moorestown, North Carolina.

The Company leases 3,621 square feet and the net monthly payment was $ 4,828 .

The monthly payment increases approximately 3 %- 6 % annually thereafter.

The lease expired on February 28, 2024 .

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

The lease expires on August 29, 2024 .

There is a one three year option to extend the lease based on the fair market rate on October 31, 2027 , which the Company expects to exercise.

On February 29, 2024, the Company extended an office lease in Moorestown, North Carolina.

The Company leases 3,621 square feet and the net monthly payment is $ 6,488 .

On August 27, 2024, the Company extended the lease to February 28, 2025 .

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 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.

As of September 30, 2024 and December 31, 2023, total operating lease liabilities was $ 986,053 and $ 1,118,578 , respectively.

Right of use assets was $ 929,890 and $ 1,104,804 at September 30, 2024 and December 31, 2023, respectively.

Current lease liabilities were $ 267,660 and $ 174,876 at September 30, 2024 and December 31, 2023, respectively.

In the three months ended September 30, 2024 and 2023, the Company recognized $ 88,428 and $ 162,414 in total lease costs for the leases, respectively.

In the nine months ended September 30, 2024 and 2023, the Company recognized $ 265,283 and $ 487,242 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 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,

The weighted average remaining lease term for the operating leases was thirty seven months at September 30, 2024 and the weighted average discount rate was 7 %.

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

Years Ended September 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 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.

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

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

The difference between the effective tax rate and the federal statutory tax rate for the nine months ended September 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.

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

As of September 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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Prepaid expenses and other

$ ( 894,662 )

Total current assets

Accumulated deficit

( 16,582,038 )

( 17,476,700 )

Total stockholders' deficit

( 16,592,565 )

( 17,487,227 )

The revision had no impact to cash provided by operating activities in such period.

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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.

As of September 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 June 30, 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 September 30, 2024:

Number of Shares

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Earnout Liability

Certain of the Company’s stockholders are entitled to receive up to 5,000,000 earnout shares of the Company’s common stock if the following earnout milestones are met.

25% of the earnout shares if, for the period starting on the closing date and ending on the last day of the full calendar quarter immediately following the first anniversary of the closing date, (1) Company Revenue (as defined below) is at least $39 million, or (2) the aggregate value of new contract awards (including awards obtained through purchase orders) with federal law enforcement agencies (whether such awards are obtained directly or through intermediaries) has grown by at least 100% as compared to the year-over-year amount for the twelve-month period ending on the date of the Merger Agreement (the “First Operating Performance Milestone”) ;

75% of the earnout shares if, for the period starting on the closing date and ending on the last day of the full calendar quarter immediately following the third anniversary of the closing date, Company Revenue is at least $100 million (the “Second Operating Performance Milestone”) ;

50% of the earnout shares if, at any time during the period starting on the closing date and ending on the fifth anniversary of the closing date, over any twenty (20) trading days within any thirty (30) trading day period the volume weighted average price (“VWAP”) of the common stock is greater than or equal to $12.50 per share (the “First Share Price Performance Milestone”);

50% of the earnout shares if, at any time during the period starting on the closing date and ending on the fifth anniversary of the closing date, over any twenty (20) trading days within any thirty (30) trading day period the VWAP of the common stock is greater than or equal to $15.00 per share (the “Second Share Price Performance Milestone”) .

Further, the earnout milestones are also considered to be met if the Company undergoes a change of control.

A change of control is defined as (i) any transaction or series of related transactions that results in any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) acquiring equity interests that represent more than 50% of the total voting power of the Company or (ii) a sale or disposition of all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis.

Notwithstanding anything in the Merger Agreement to the contrary, any earnout shares issuable under the Merger Agreement to a Airship AI securityholder in respect of each Airship AI option or Airship AI SAR held by such holder as of immediately prior to the effective time of the merger shall be earned by such holder on the later of (i) the occurrence of the applicable earnout milestone, and (ii) the date on which the option in respect of such Airship AI option or SAR in respect of such Airship AI SAR, as applicable, becomes vested pursuant to its applicable vesting schedule, but only if such holder continues to provide services (whether as an employee, director or individual independent contractor) to the Company or one of its subsidiaries through such date.

Notwithstanding the foregoing, any earnout shares that are not earned by a Airship AI securityholder in respect of its options or SARs on or before the fifth anniversary of the closing date of the merger shall be forfeited without any consideration.

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 have the contingent right to receive up to 5,000,000 earnout shares of the Company’s common stock if the following earnout milestones are met.

25% of the earnout shares if, for the period starting on the closing date and ending on the last day of the full calendar quarter immediately following the first anniversary of the closing date, (1) company revenue (as defined in the merger agreement) is at least $39 million, or (2) the aggregate value of new contract awards with federal law enforcement agencies has grown by at least 100% as compared to the year-over-year amount for the twelve-month period ending on the date of the merger agreement (the “First Operating Performance Milestone”) ;

50% of the earnout shares if, at any time during the period starting on the closing date and ending on the fifth anniversary of the closing date, over any twenty (20) trading days within any thirty (30) trading day period the VWAP of the common stock is greater than or equal to $15.00 per share .

Any earnout shares issuable under the merger agreement to a Airship AI securityholder in respect of each Airship AI option or Airship AI SAR held by such holder as of immediately prior to the effective time of the merger shall be earned by such holder on the later of (i) the occurrence of the applicable earnout milestone, and (ii) the date on which the option in respect of such Airship AI option or SAR in respect of such Airship AI SAR, as applicable, becomes vested pursuant to its applicable vesting schedule, but only if such holder continues to provide services (whether as an employee, director or individual independent contractor) to the Company or one of its subsidiaries through such date.

Notwithstanding the foregoing, any earnout shares that are not earned by Airship AI securityholder in respect of its options or SARs on or before the fifth anniversary of the closing date of the merger shall be forfeited without any consideration.

Any earnout shares that are forfeited pursuant to the merger agreement shall be reallocated to the other Airship AI securityholders who remain entitled to receive earnout shares in accordance with their respective earnout pro rata shares.

6 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 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.

As of September 30, 2024, the estimated fair value of the earnout liability increased to $ 6,229,390 primarily due to the increase in the Company’s share price, which resulted in a gain (loss) due to the change in fair value of the earnout liability during the three and nine months ended September 30, 2024 of $ 5,511,961 and $( 1,095,962 ), respectively, and is recorded on the consolidated statements of operations and comprehensive loss.

See Note 14– Fair Value Measurements for more information.

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

In addition, a portion of the earnout shares may be issued to individuals with unvested equity awards.

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 and nine months ended September 30, 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 133,761 and $ 401,283 , respectively.

As of September 30, 2024, unrecognized compensation cost related to unvested earnout shares totaled $ 2,273,941 .

The weighted average period over which this remaining compensation cost is expected to be recognized is 4.25 years.

As of September 30, 2024, the Company determined the First Operating Performance Milestone (A,2) is achieved and 1,250,000 shares are to be issued to applicable personnel in early January 2025.

The fair value of the 1,250,000 vested shares as of September 30, 2024 of $ 2,875,000 was determined using the Company’s closing trading price on September 30, 2024 and is included in the earnout liability on the consolidated balance sheet.

The vested earnout shares are considered a level 1 fair value instrument.

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 June 30, 2024:

June 30, 2024

September 30, 2024

Earnout liability

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

June 30, 2024

December 31, 2023

September 30,

Risk-free interest rate

3 unchanged sentences

The assumptions also included the probability of meeting the federal law enforcement agency growth milestone at 100%.

The fair value of the 1,250,000 vested shares as of September 30, 2024 of $ 2,875,000 was determined using the Company’s closing trading price on September 30, 2024.

The initial estimated fair value of the private warrants was measured using a Monte Carlo simulation.

3 unchanged sentences

The following assumptions were used in the simulation:

June 30, 2024

December 31, 2023

September 30,

Effective discount rate

2 unchanged sentences

Dividend yield

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.

On September 13, 2024, the vested earnout shares were transferred from Level 3 to Level 1 upon the Board approval of the achievement of the First Operating Performance Milestone (A,2).

The fair value on the day of transfer was $3,400,000.

There were no transfers of financial instruments between valuation levels during the year ended December 31, 2023.

The changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2024 were as follows:

Beginning Balance

Unrealized and

Conversions /

Transfers out

Ending Balance as of

January 1, 2024

Realized Loss

Settlements (a)

September 30, 2024

Earnout liability

$ ( 3,400,000 )

Senior Secured Convertible Promissory Notes

( 1,767,233 )

$ ( 1,767,233 )

$ ( 3,400,000 )

(a) The conversions and settlements represent the fair value of the Senior Secured Convertible Promissory Notes at the dates of conversion.

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

September 30, 2024,

September 30, 2023,

Three Months Ended

Six months ended

Nine Months Ended

Three Months Ended

Six months ended

Net income (loss) - Basic

Nine Months Ended

Net Income (loss)

$ ( 7,288,520 )

1 unchanged sentence

$ ( 6,482,062 )

interest expense and remeasurement of

interest expense and gain on remeasurement of

convertible debt

( 1,005,611 )

Net income (loss) - Diluted

3 unchanged sentences

Weighted average shares outstanding:

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

dilutive effect of convertible debt, stock options, SARs, vested earnout shares and 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

September 30,

Public Warrants

2 unchanged sentences

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.

The 3,750,000 remaining unvested earnout shares as of September 30, 2024 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.

The 1,250,000 vested earnout shares are included in the diluted earnings per share calculation for the three-month period ended September 30, 2024 and will be issued to applicable personnel in early January 2025.

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.

1 unchanged sentence

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

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

Subsequent to September 30, 2024, there were the following material transaction that occurred that would require recognition or disclosure in the financial statements:

On November 11, 2024, the Company issued 109,881 shares of common stock related to the conversion of the Platinum convertible note.

This issuance was made pursuant to the exemption from registration under the Securities Act in reliance on Section 4(a)(2).

On November 13, 2024, the Company issued 219,763 shares of common stock related to the conversion of the Platinum convertible note.

This issuance was made pursuant to the exemption from registration under the Securities Act in reliance on Section 4(a)(2).

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