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Item 1. Financial Statements

2025-11-14 compared with 2025-08-05 · 175 added, 142 removed, 554 unchanged (36% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2025 and December 31, 2024

June 30, 2025

As of September 30, 2025 and December 31, 2024

September 30, 2025

December 31, 2024 (1)

21 unchanged sentences

STOCKHOLDERS' DEFICIT:

Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2025 and December 31, 2024

Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 31,909,096 and 30,588,413 shares issued and outstanding as of June 30, 2025 and December 31, 2024

Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024

Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 32,013,300 and 30,588,413 shares issued and outstanding as of September 30, 2025 and December 31, 2024

Additional paid in capital

11 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the three and six months ended June 30, 2025 and 2024

For the three and nine months ended September 30, 2025 and 2024

Three Months Ended

Six Months Ended

June 30, 2025

June 30, 2024

June 30, 2025

June 30, 2024

Nine Months Ended

September 30, 2025

September 30, 2024

September 30, 2025

September 30, 2024

NET REVENUES:

8 unchanged sentences

TOTAL OPERATING EXPENSES

OPERATING (LOSS) INCOME

OPERATING LOSS

( 2,866,781 )

( 1,587,484 )

OTHER INCOME (EXPENSE) :

(Loss) gain from change in fair value of earnout liability

( 6,603,019 )

( 2,013,702 )

(Loss) gain from change in fair value of warrant liability

OTHER INCOME (EXPENSE) :

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

( 1,095,962 )

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

( 2,833,558 )

3 unchanged sentences

Other expense

Total other (expense) income, net

( 21,735,170 )

( 13,076,257 )

(LOSS) INCOME BEFORE PROVISON FOR INCOME TAXES

Total other income (expense), net

( 5,274,818 )

INCOME (LOSS) BEFORE PROVISON FOR INCOME TAXES

( 7,288,520 )

Provision for income taxes

NET (LOSS) INCOME

( 23,757,051 )

( 13,502,474 )

OTHER COMPREHENSIVE (LOSS) INCOME

Foreign currency translation (loss) income, net

TOTAL COMPREHENSIVE (LOSS) INCOME

NET INCOME (LOSS)

( 7,288,520 )

OTHER COMPREHENSIVE INCOME (LOSS)

Foreign currency income (loss), net

TOTAL COMPREHENSIVE INCOME (LOSS)

$ ( 7,279,182 )

NET (LOSS) INCOME PER SHARE:

NET INCOME (LOSS) PER SHARE:

Weighted average shares of common stock outstanding

27 unchanged sentences

( 27,966,537 )

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

$ ( 24,765,218 )

$ ( 12,920,583 )

Balance as of January 1, 2025

17 unchanged sentences

$ ( 46,879,390 )

Stock-based compensation

Issuance of common stock for exercise of warrants

Issuance of common stock for stock options exercise

Balance as of September 30, 2025

$ ( 68,580,783 )

$ ( 40,081,108 )

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2025 and 2024

Six Months Ended

June 30, 2025

June 30, 2024

For the nine months ended September 30, 2025 and 2024

Nine Months Ended

September 30, 2025

September 30, 2024

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$ ( 7,288,520 )

Adjustments to reconcile net loss to net cash used in operating activities

Adjustments to reconcile net income (loss) to net cash used in operating activities

Depreciation and amortization

11 unchanged sentences

Accounts receivable

( 1,330,670 )

( 1,791,217 )

Prepaid expenses and other

9 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of common stock and warrants for offering, net

Proceeds from warrant exercise, net

(Repayment of) proceeds from advances from founders

Repayment of advances from founders

( 1,300,000 )

2 unchanged sentences

( 1,149,339 )

NET DECREASE IN CASH AND CASH EQUIVALENTS

( 5,101,147 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

( 5,651,760 )

36 unchanged sentences

Liability as of

June 30, 2025

September 30, 2025

December 31, 2024

22 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 five employees as of June 30, 2025.

The Company employed fifty six employees as of September 30, 2025.

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 ten research and development personnel in Taiwan as of June 30, 2025.

The Company employed nine research and development personnel in Taiwan as of September 30, 2025.

Summary of Significant Accounting Policies

36 unchanged sentences

In the event that there is a failure of warranties in such agreements, the Company is generally obligated to correct the product or service to conform to the warranty provision as set forth in the applicable agreement, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term).

For the three and six months ended June 30, 2025 and 2024, the Company did not incur any significant warranty expenses and as such a warranty reserve was not considered necessary as of June 30, 2025 and December 31, 2024.

For the three and nine months ended September 30, 2025 and 2024, the Company did not incur any significant warranty expenses and as such a warranty reserve was not considered necessary as of September 30, 2025 and December 31, 2024.

Product Revenue

7 unchanged sentences

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, 2025 and 2024, the Company recognized revenue of $ 475,551 and $ 80,236 , respectively, related to one-year support contracts.

For the three months ended June 30, 2025 and 2024, the Company recognized revenue of $ 899,820 and $ 961,987 , respectively, related to multi-year support contracts.

For the six months ended June 30, 2025 and 2024, the Company recognized revenue of $ 577,150 and $ 139,597 , respectively, related to one-year support contracts.

For the six months ended June 30, 2025 and 2024, the Company recognized revenue of $ 2,251,797 and $ 2,078,865 , respectively, related to multi-year support contracts.

For the three months ended September 30, 2025 and 2024, the Company recognized revenue of $ 230,991 and $ 95,120 , respectively, related to one-year support contracts.

For the three months ended September 30, 2025 and 2024, the Company recognized revenue of $ 725,051 and $ 1,042,008 , respectively, related to multi-year support contracts.

For the nine months ended September 30, 2025 and 2024, the Company recognized revenue of $ 902,257 and $ 234,717 , respectively, related to one-year support contracts.

For the nine months ended September 30, 2025 and 2024, the Company recognized revenue of $ 2,882,732 and $ 3,083,464 , respectively, related to multi-year support contracts.

Contracts with Multiple Performance Obligations

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Promised performance obligations are identified,

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

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

The transaction price is allocated to multiple performance obligations, and

The Company has satisfied the performance obligations to the customer.

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

The Company’s short-term and long-term deferred revenue balances totaled $ 4,629,075 and $ 2,167,307 as of June 30, 2025.

The Company’s short-term and long-term deferred revenue balances totaled $ 4,652,485 and $ 2,749,263 as of September 30, 2025.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,238,483 and $ 2,951,850 as of December 31, 2024.

Of the deferred revenue balance of $ 6,190,333 as of January 1, 2025, the Company recognized $ 727,659 and $ 2,580,131 during the three and nine months ended September 30, 2025.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized $ 933,675 and $ 3,061,613 during the three and nine months ended September 30, 2024.

Accounts Receivable and Provision for Credit Losses

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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, 2025 and December 31, 2024, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible.

Accounts receivable balances as of June 30, 2025, December 31, 2024 and January 1, 2024 were $ 2,557,427 , $ 1,226,757 and $ 1,648,904 , respectively.

As of September 30, 2025 and December 31, 2024, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible.

Accounts receivable balances as of September 30, 2025, December 31, 2024 and January 1, 2024 were $ 1,247,321 , $ 1,226,757 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, 2025, the Company had revenue from thirty customers and two customers represented 65 % of total revenue.

The primary reason for the high level of customer concentration for the six months ended June 30, 2025 was due to reliance on these two customers for the six months ended June 30, 2025.

As of June 30, 2025, one customer represents approximately 83 % of outstanding account receivables.

For the nine months ended September 30, 2025, the Company had revenue from eighty nine customers and two customers represented 68 % of total revenue.

The primary reason for the high level of customer concentration for the nine months ended September 30, 2025 was due to reliance on these two customers for the nine months ended September 30, 2025.

As of September 30, 2025, one customer represents approximately 73 % 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, 2024, the Company had revenue from 36 customers and two customers 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.

1 unchanged sentence

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, 2025 and December 31, 2024, it had no inventory in stock.

The Company holds inventory for a short period of time and as of September 30, 2025 and December 31, 2024, 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 no impairment losses for the three and six months ended June 30, 2025 and 2024.

The Company recorded no impairment losses for the three and nine months ended September 30, 2025 and 2024.

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 $ 740,571 and $ 702,771 for the three months ended June 30, 2025 and 2024, respectively, on development activities.

The Company incurred research and development expenses of $ 1,459,953 and $ 1,398,137 for the six months ended June 30, 2025 and 2024, respectively, on development activities.

The Company incurred research and development expenses of $ 753,229 and $ 1,073,735 for the three months ended September 30, 2025 and 2024, respectively, on development activities.

The Company incurred research and development expenses of $ 2,213,182 and $ 2,471,872 for the nine months ended September 30, 2025 and 2024, 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, 2025 and December 31, 2024.

No software development costs have been capitalized as of September 30, 2025 and December 31, 2024.

Cost of Net Revenues

3 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, 2025 and 2024 were $ 55,694 and $ 66,863 , respectively.

Advertising and marketing costs for the six months ended June 30, 2025 and 2024 were $ 224,915 and $ 89,321 , respectively.

Advertising and marketing costs for the three months ended September 30, 2025 and 2024 were $ 27,002 and $ 41,107 , respectively.

Advertising and marketing costs for the nine months ended September 30, 2025 and 2024 were $ 251,918 and $ 130,428 , respectively.

Shipping and Handling of Products

12 unchanged sentences

The senior secured convertible promissory notes were converted to equity during the year ended December 31, 2024.

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, 2025 and December 31, 2024 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 September 30, 2025 and December 31, 2024 are based upon the short-term nature of the assets and liabilities.

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

5 unchanged sentences

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

As of June 30, 2025, there were 515,000 private placement warrants and 16,145,110 public warrants outstanding.

As of September 30, 2025, there were 515,000 private placement warrants and 16,145,108 public warrants outstanding.

Upon consummation of the Merger, the Company evaluated the warrants and concluded that they did not meet the criteria to be classified within the stockholders’ deficit.

10 unchanged sentences

At the closing of the Merger, the earnout shares associated with unvested underlying shares were considered to be equity instruments and valued at approximately $ 2,675,000 .

During the six months ended June 30, 2025 and 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 267,522 .

As of June 30, 2025, unrecognized compensation cost related to unvested earnout shares totaled $ 1,872,658 .

During the nine months ended September 30, 2025 and 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 401,283 .

As of September 30, 2025, unrecognized compensation cost related to unvested earnout shares totaled $ 1,738,897 .

The weighted average period over which this remaining compensation cost is expected to be recognized is 3.25 years.

13 unchanged sentences

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

There was other comprehensive (loss) gain of $ 0 and $ 3,239 , respectively, related to foreign exchange translation for the three months ended June 30, 2025 and 2024, respectively.

There was other comprehensive (loss) gain of $( 7,409 ) and $ 8,984 related foreign exchange translation for the six months ended June 30, 2025 and 2024, respectively.

There was other comprehensive gain of $ 0 and $ 354 , respectively, related to foreign exchange translation for the three months ended September 30, 2025 and 2024, respectively.

There was other comprehensive loss of $ 7,409 and a gain of $ 9,338 related foreign exchange translation for the nine months ended September 30, 2025 and 2024, 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 August 2025, the Company analyzed its cash requirements and operations at least through August 2026 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.

In November 2025, the Company analyzed its cash requirements and operations at least through November 2026 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, 2025 and 2024 divided by the weighted average shares of common stock outstanding.

Basic income (loss) per share is based upon the net income (loss) for the three and nine months ended September 30, 2025 and 2024 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 and stock appreciation rights) outstanding during the period using the treasury stock method.

Common stock equivalents for the three and six months ended June 30, 2025 and the six months ended June 30, 2024 are not included in the calculation of diluted earnings (loss) per share given the Company incurred a loss and they are anti-dilutive.

Common stock equivalents for the nine months ended September 30, 2024 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 14—Earnings per share.

4 unchanged sentences

The CODM monitors the revenue and expense components of the various products and services the Company offers, but operations are managed and financial performance is evaluated on a corporation-wide basis in comparison to a business plan which is developed each year.

Accordingly, all operations are considered by the CODM to be one operating segment and one reportable segment as contained in the Consolidated Statements of Operations and Comprehensive Loss to the consolidated financial statements.

The CODM uses consolidated net income (loss) as its required measure of segment profit/loss, as such measure is determined in accordance with the measurement principles most consistent with the consolidated financial statements.

6 unchanged sentences

Huang and Mr.

Xu advanced Airship AI $ 2,100,000 and were repaid $ 2,550,000 , with $ 1,300,000 recorded as advances from founders as of December 31, 2024.

Xu (founders and officers) advanced Airship AI $ 2,100,000 and were repaid $ 2,550,000 , with $ 1,300,000 recorded as advances from founders as of December 31, 2024.

During 2025, Mr.

Huang and Mr.

Xu were repaid $ 650,000 each, with $ 0 recorded as advances from founders as of June 30, 2025.

The outstanding advances as of December 31, 2024 were non-interest bearing and the Company paid the balance off as of June 30, 2025.

Xu were repaid $ 650,000 each, with $ 0 recorded as advances from founders as of September 30, 2025.

The outstanding advances as of December 31, 2024 were non-interest bearing and the Company paid the balance off as of September 30, 2025.

Disaggregation of Revenue

The Company’s net revenues for the three months ended June 30, 2025 and 2024 consisted of approximately $ 0.7 million and $ 5.4 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, 2025 and 2024 consisted of approximately $ 4.8 million and $ 14.8 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, 2025 and 2024 of approximately $ 1.4 million and $ 1 million, respectively relates to PCS revenue and other services which are transferred over time.

The Company’s remaining net revenue for the six months ended June 30, 2025 and 2024 of approximately $ 2.8 million and $ 2.2 million, respectively, relates to PCS revenue and other services which are transferred over time.

The Company’s net revenues for the three months ended September 30, 2025 and 2024 consisted of approximately $ 0.2 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 net revenues for the nine months ended September 30, 2025 and 2024 consisted of approximately $ 5.0 million and $ 16.5 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 September 30, 2025 and 2024 of approximately $ 1.0 million and $ 1.1 million, respectively relates to PCS revenue and other services which are transferred over time.

The Company’s remaining net revenue for the nine months ended September 30, 2025 and 2024 of approximately $ 3.8 million and $ 3.3 million, respectively, relates 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, 2025 and December 31, 2024, there are no unbilled receivable balances.

The Company’s short-term and long-term deferred revenue balances totaled $ 4,629,075 and $ 2,167,307 as of June 30, 2025.

As of September 30, 2025 and December 31, 2024, there are no unbilled receivable balances.

The Company’s short-term and long-term deferred revenue balances totaled $ 4,652,485 and $ 2,749,263 as of September 30, 2025.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,238,483 and $ 2,951,850 as of December 31, 2024.

Remaining Performance Obligations

As of June 30, 2025 and December 31, 2024, the Company had approximately $ 6.8 million and $ 6.2 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered.

As of September 30, 2025 and December 31, 2024, the Company had approximately $ 7.4 million and $ 6.2 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered.

The Company expects to recognize approximately 16 % of its remaining performance obligations as revenue in fiscal 2025 and the remaining 84 % in fiscal 2026 and years thereafter.

10 unchanged sentences

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 six months ended June 30, 2024, the Company recorded an unrealized loss due to the increase in the fair value of the convertible notes payable totaling $ 512,184 .

During the nine months ended September 30, 2024, the Company recorded an unrealized loss due to the increase in the fair value of the convertible notes payable totaling $ 141,636 .

Stockholders’ Deficit

3 unchanged sentences

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, 2024 and filed with the SEC on February 28, 2025.

As of June 30, 2025 and December 31, 2024, there were 31,909,096 and 30,588,413 shares of common stock outstanding, respectively.

Six Months Ended June 30, 2025

During the six months ended June 30, 2025, the Company had the following issuances of equity securities:

As of September 30, 2025 and December 31, 2024, there were 32,013,300 and 30,588,413 shares of common stock outstanding, respectively.

Nine months Ended September 30, 2025

During the nine months ended September 30, 2025, the Company had the following issuances of equity securities:

As of September 30, 2024, the Company determined the First Operating Performance Milestone of the earnout shares was achieved resulting in the vesting of 1,250,000 shares, of which 1,160,906 shares of the Company’s common stock were issued to applicable personnel on January 7, 2025.

During the six months ended June 30, 2025, investors exercised warrants for 13,300 shares of the Company’s common stock at $ 4.50 per share, and the Company received proceeds of $ 59,850 .

During the six months ended June 30, 2025, the Company issued an aggregate of 146,477 shares of common stock and received $ 57,822 upon the exercise of stock options at exercise prices ranging from $ 0.12 to $ 2.64 per share.

During the nine months ended September 30, 2025, investors exercised warrants for 13,302 shares of the Company’s common stock at $4.50 per share, and the Company received proceeds of $59,850.

During the nine months ended September 30, 2025, the Company issued an aggregate of 250,679 shares of common stock and received $ 90,811 upon the exercise of stock options at exercise prices ranging from $ 0.12 to $ 2.95 per share.

2023 Equity Incentive Plan

5 unchanged sentences

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 aggregate number of shares of common stock reserved for grant and issuance under the 2023 Plan is 3,419,247 as of June 30, 2025.

The aggregate number of shares of common stock reserved for grant and issuance under the 2023 Plan is 3,240,949 as of September 30, 2025.

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

The cost is recognized over the period which an employee is required to provide service in exchange for the award requisite service period.

The Company had the following stock option activity during the six months ended June 30, 2025:

During the six months ended June 30, 2025, the Company granted stock options to 3 employees to purchase an aggregate of 455,000 shares of common stock with an exercise price of $ 3.34 and which vest primarily quarterly over four years and expire during 2035.

Stock option activity for the three months ended June 30, 2025 was as follows:

The Company had the following stock option activity during the nine months ended September 30, 2025:

Weighted Average

1 unchanged sentence

Outstanding as of January 1, 2025

Outstanding as of June 30, 2025

The following table summarizes information about stock options outstanding and exercisable as of June 30, 2025:

Outstanding as of September 30, 2025

During the nine months ended September 30, 2025, the Company granted stock options to nine employees and directors to purchase an aggregate of 825,000 shares of common stock with an exercise price of $ 3.75 and which vest primarily quarterly over four years and expire during 2035.

The following table summarizes information about stock options outstanding and exercisable as of September 30, 2025:

Remaining Life

5 unchanged sentences

and Exercisable

There were 5,816,083 options to purchase common stock at an average exercise price of $5.56 per share outstanding as of June 30, 2025 under the 2023 and 2022 Plans.

The Company recorded $ 372,139 and $ 261,636 of compensation expense, net of related tax effects, relative to stock options for the three months ended June 30, 2025 and 2024, respectively, in accordance with ASC 718.

The Company recorded $ 800,425 and $ 530,625 of compensation expense, net of related tax effects, relative to stock options for the six months ended June 30, 2025 and 2024, respectively, in accordance with ASC 718.

As of June 30, 2025, there was $ 2,508,297 of total unrecognized costs related to employee granted stock options that were not vested.

There were 5,994,380 options to purchase common stock at an average exercise price of $ 1.40 per share outstanding as of September 30, 2025 under the 2023 Plan.

The Company recorded $ 221,659 and $ 139,409 of compensation expense, net of related tax effects, relative to stock options for the three months ended September 30, 2025 and 2024, respectively, in accordance with ASC 718.

The Company recorded $ 765,764 and $ 420,824 of compensation expense, net of related tax effects, relative to stock options for the nine months ended September 30, 2025 and 2024, respectively, in accordance with ASC 718.

As of September 30, 2025, there were $ 2,879,281 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 years.

There were stock incentive plan awards outstanding at June 30, 2025 totaling 5,816,083 shares with an aggregate intrinsic value of $ 27,106,313 .

The significant weighted-average assumptions relating to the valuation of the Company’s stock option grants were as follows for the three months ended September 30, 2025:

Estimated stock price

Exercise price

Dividend yield

Expected life

Expected volatility

Risk free interest rate

There were stock incentive plan awards outstanding at September 30, 2025 totaling 5,994,380 shares with an aggregate intrinsic value of $ 22,572,097 .

Stock Appreciation Rights Plan

Related to the Share Exchange Agreement with Super Simple AI, Inc., on February 17, 2022, the Company’s Board of Directors approved the 2022 Stock Appreciation Rights Plan (the “SAR Plan”) to issue a maximum of 1,500,000, which was later adjusted to 2,637,150 stock appreciation rights (“SARs”) after the Merger .

As of June 30, 2025 and December 31, 2024, there were 1,758,000 SARs outstanding with a base value of $ 0.12 and January 2028 expiration.

There were no SAR grants during the three months ended June 30, 2025 or the year ended December 31, 2024.

As of September 30, 2025 and December 31, 2024, there were 1,758,000 SARs outstanding with a base value of $ 0.12 and January 2028 expiration.

There were no SAR grants during the three months ended September 30, 2025 or the year ended December 31, 2024.

Warrants to Purchase Common Stock

See Note 11 for public and private placement warrants assumed after the merger.

The Company had the following warrant activity during the six months ended June 30, 2025:

During the six months ended June 30, 2025, investors exercised warrants for 13,300 shares of the Company’s common stock at $ 4.50 per share, and the Company received proceeds of $ 59,850 .

Warrant activity for the six months ended June 30, 2025 was as follows:

The Company had the following warrant activity during the nine months ended September 30, 2025:

During the nine months ended September 30, 2025, investors exercised warrants for 13,302 shares of the Company’s common stock at $ 4.50 per share, and the Company received proceeds of $ 59,850 .

Warrant activity for the nine months ended September 30, 2025 was as follows:

Outstanding January 1, 2025

Outstanding at June 30, 2025

A summary of the warrants outstanding as of June 30, 2025 were as follows:

June 30, 2025

Outstanding at September 30, 2025

A summary of the warrants outstanding as of September 30, 2025 were as follows:

Life ( In Years)

There were warrants outstanding at June 30, 2025 totaling 21,948,390 shares with an aggregate intrinsic value of $ 38,545,413 .

There were warrants outstanding at September 30, 2025 totaling 21,948,388 shares with an aggregate intrinsic value of $ 22,742,571 .

Earnout Liability

3 unchanged sentences

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

The Company expensed $ 55,668 and $ 50,696 of contributions during the three months ended June 30, 2025 and 2024, respectively.

The Company expensed $ 106,646 and $ 100,798 of contributions during the six months ended June 30, 2025 and 2024, respectively.

The Company expensed $ 27,354 and $ 52,456 of contributions during the three months ended September 30, 2025 and 2024, respectively.

The Company expensed $ 134,000 and $ 153,254 of contributions during the nine months ended September 30, 2025 and 2024, respectively.

Related Party Transactions

6 unchanged sentences

Huang and Mr.

Xu were repaid $ 650,000 each, with $ 0 recorded as advances from founders as of June 30, 2025.

The outstanding advances as of June December 31, 2024 were non-interest bearing and the Company paid the balance off as of June 30, 2025.

Xu were repaid $ 650,000 each, with $ 0 recorded as advances from founders as of September 30, 2025.

The outstanding advances as of December 31, 2024 were non-interest bearing and the Company paid the balance off as of September 30, 2025.

Commitments, Contingencies and Legal Proceedings

21 unchanged sentences

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, 2025 and December 31, 2024, total operating lease liabilities were $ 1,067,331 and $ 943,703 , respectively.

Right of use assets was $ 1,006,359 and $ 882,024 at June 30, 2025 and December 31, 2024, respectively.

Current lease liabilities were $ 416,583 and $ 305,178 at June 30, 2025 and December 31, 2024, respectively.

In the three months ended June 30, 2025 and 2024, the Company recognized $ 115,742 and $ 128,124 in total lease costs for the leases, respectively.

In the six months ended June 30, 2025 and 2024, the Company recognized $ 218,159 and $ 227,067 in total lease costs for the leases, respectively.

As of September 30, 2025 and December 31, 2024, total operating lease liabilities were $ 966,873 and $ 943,703 , respectively.

Right of use assets was $ 908,029 and $ 882,024 at September 30, 2025 and December 31, 2024, respectively.

Current lease liabilities were $ 427,498 and $ 305,178 at September 30, 2025 and December 31, 2024, respectively.

In the three months ended September 30, 2025 and 2024, the Company recognized $ 115,742 and $ 88,428 in total lease costs for the leases, respectively.

In the nine months ended September 30, 2025 and 2024, the Company recognized $ 333,902 and $ 265,283 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 twenty nine months at June 30, 2025 and the weighted average discount rate was 7 %.

The minimum future lease payments as of June 30, 2025 are as follows:

Years Ended June 30,

The weighted average remaining lease term for the operating leases was twenty nine months at September 30, 2025 and the weighted average discount rate was 7 %.

The minimum future lease payments as of September 30, 2025 are as follows:

Years Ended September 30,

Total remaining payments

1 unchanged sentence

Total lease liability

The Company recorded a provision for income taxes of $ 0 for the six months ended June 30, 2025 and 2024.

The Company’s effective tax rate was 0 % for the six months ended June 30, 2025 and 2024.

The difference between the effective tax rate and the federal statutory tax rate for the six months ended June 30, 2025 and 2024 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, 2025 and 2024.

The Company’s effective tax rate was 0 % for the nine months ended September 30, 2025 and 2024.

The difference between the effective tax rate and the federal statutory tax rate for the nine months ended September 30, 2025 and 2024 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 June 30, 2025 and December 31, 2024, the Company retains a full valuation allowance on its deferred tax assets.

As of September 30, 2025 and December 31, 2024, 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.

The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.

On July 4, 2025, the United States enacted federal tax legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBB Act”).

The OBBB Act makes permanent certain elements of the Tax Cuts and Jobs Act, including immediate expensing of U.S.

research and experimentation expenditures, various modifications to the international tax framework, and updates to executive compensation aggregation rules under Section 162(m) of the Internal Revenue Code.

The Company evaluated the impact of the OBBB Act on its tax provision, valuation allowance, and uncertain tax positions.

The OBBB Act did not have a material impact on the Company’s financial statements.

The Company maintains a full valuation allowance, and any change in net deferred tax assets from the OBBB Act would be accompanied by a corresponding adjustment to the valuation allowance.

Warrant Liability

5 unchanged sentences

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, 2025 and December 31, 2024:

June 30, 2025

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, 2025 and December 31, 2024:

September 30, 2025

Number of Shares

14 unchanged sentences

Refer to the Company’s annual report on Form 10-K filed with the SEC on February 28, 2025 for more information.

As of June 30, 2025, the estimated fair value of the earnout liability decreased to $ 15,500,664 primarily due to the common stock issued to settle approximately $ 5.3 million of earnout liability that was previously achieved plus the decrease in the Company’s share price, which resulted in a gain due to the change in fair value of the earnout liability during the six months ended June 30, 2025 of approximately $ 2.5 million and is recorded on the consolidated statements of operations and comprehensive income (loss).

As of September 30, 2025, the estimated fair value of the earnout liability decreased to $ 11,607,790 primarily due to the common stock issued to settle approximately $ 5.3 million of earnout liability that was previously achieved plus the decrease in the Company’s share price, which resulted in a gain due to the change in fair value of the earnout liability during the nine months ended September 30, 2025 of approximately $ 6.4 million and is recorded on the consolidated statements of operations and comprehensive income (loss).

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

6 unchanged sentences

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, 2025:

June 30, 2025

September 30, 2025

Earnout liability

11 unchanged sentences

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

June 30, 2025

September 30, 2025

December 31, 2024

Risk-free interest rate

4 unchanged sentences

On January 7, 2025, 1,160,906 shares were issued with a fair value of $ 5,282,125 to applicable personnel and were reclassified to equity as additional paid in capital.

The fair value of the remaining 89,094 shares that vested as of September 30, 2024 was determined using the Company’s closing stock price on June 30, 2025.

The fair value of the remaining 89,094 shares that vested as of September 30, 2024 was determined using the Company’s closing stock price on September 30, 2025.

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

The estimated fair value of the public warrants is based on the listed price in an active market for such warrants and the fair value of the private placement warrants continues to be measured based on the public warrants listed price.

There were no transfers of financial instruments between valuation levels during the six months ended June 30, 2025 and 2024.

There were no transfers of financial instruments between valuation levels during the nine months ended September 30, 2025 and 2024.

Earnings per Share

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

June 30, 2025

June 30, 2024

September 30, 2025

September 30, 2024

Three Months Ended

Six Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

Nine Months Ended

Net income (loss)

( 7,288,520 )

$ ( 13,502,474 )

interest expense and remeasurement of convertible debt

( 1,005,611 )

Net income (loss) - Diluted

( 7,288,520 )

( 13,502,474 )

Weighted average shares outstanding-

2 unchanged sentences

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, 2025

June 30, 2024

September 30, 2025

September 30, 2024

Public Warrants

1 unchanged sentence

Outstanding stock options

The 3,750,000 remaining unvested earnout shares as of June 30, 2025 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 3,750,000 remaining unvested earnout shares as of September 30, 2025 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.

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 June 30, 2025, there were no material transactions that occurred that would require recognition or disclosure in the financial statements.

Subsequent to September 30, 2025, there were no material transactions that occurred that would require recognition or disclosure in the financial statements.

Backlog as of October 6, 2025 was approximately $ 11 million, representing firm fixed price contracts awarded in the third quarter of 2025 that will be shipped and invoiced through the remainder of calendar year 2025 and early 2026.

Warrant Exercise

On October 8, 2025, the Company entered into warrant exercise inducement offer letter with the holder of its existing common stock warrants exercisable for an aggregate of 2,162,162 shares of its common stock to exercise its existing warrants at the existing exercise price of $ 4.50 per share, in exchange for the Company’s agreement to issue new common stock warrants to purchase 2,702,702 shares of common stock at an exercise price per share of $ 6.20 .

The aggregate gross proceeds from the exercise of the existing warrants were approximately $ 9,729,729 , before deducting financial advisory fees.

The Company intends to use the net proceeds from the exercise of the existing warrants for working capital and general corporate purposes.

The shares of common stock issuable upon exercise of the existing warrants are registered for issuance pursuant to a registration statement on Form S-3 (File No.

333-284462), which was declared effective by the SEC on January 31, 2025.

In consideration for the immediate exercise of the existing warrants for cash, the holder received the inducement warrants in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

The inducement warrants have an exercise price of $6.20 per share, are immediately exercisable and will be exercisable for five and one-half years from the date of issuance.

The inducement warrants and the shares of common stock underlying the inducement warrants offered in the private placement have not been registered under the Securities Act or applicable state securities laws.

Accordingly, the securities may not be offered or sold in the United States except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act and such applicable state securities laws.

As part of the transaction, the Company filed a resale registration statement on Form S-3 with the SEC to register the resale of the shares of common stock underlying the inducement warrants.

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