airsp_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2026

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

For the transition period from ____________ to _____________

Commission File No. 001-40222

Airship AI Holdings, Inc.

(Exact name of registrant as specified in its charter)

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

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

(877) 462-4250

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

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

As of May 8, 2026, there were a total of 34,439,562 shares of the registrant’s common stock issued and outstanding.

Airship AI Holdings, Inc.

Quarterly Report on Form 10-Q

Quarterly Period Ended March 31, 2026

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements (Unaudited).	3
	Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025	3
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months ended March 31, 2026 and 2025	4
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30

PART II
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	SIGNATURES	33

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS.

AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2026 and December 31, 2025

	March 31, 2026			December 31, 2025 ⁽¹⁾
ASSETS	Unaudited

CURRENT ASSETS:
Cash and cash equivalents	$	12,567,574		$	11,750,021
Accounts receivable, net of allowance for credit losses of $0		5,379,360			6,462,675
Prepaid expenses and other		309,808			294,191
Total current assets		18,256,742			18,506,887

OTHER ASSETS
Other assets		160,528			160,528
Operating lease right of use asset		705,564			807,915

TOTAL ASSETS	$	19,122,834		$	19,475,330

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable - trade	$	1,208,951		$	1,149,811
Accrued expenses		53,835			27,966
Current portion of operating lease liability		449,980			438,635
Deferred revenue- current portion		5,488,260			4,668,105
Total current liabilities		7,201,026			6,284,517

NON-CURRENT LIABILITIES:
Operating lease liability, net of current portion		308,396			425,109
Warrant liability		11,828,604			13,328,006
Earnout liability		3,347,120			2,620,933
Deferred revenue- non-current		3,638,801			3,966,407
Total liabilities		26,323,947			26,624,972

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' DEFICIT:
Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2026 and December 31, 2025		-			-
Common stock - $0.0001 par value, 200,000,000 shares authorized, 34,412,064 and 34,368,162 shares issued and outstanding as of March 31, 2026 and December 31, 2025		3,439			3,434
Additional paid in capital		39,155,450			38,478,030
Accumulated deficit		(46,340,831	)		(45,620,227	)
Accumulated other comprehensive loss		(19,171	)		(10,879	)
Total stockholders' deficit		(7,201,113	)		(7,149,642	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	19,122,834		$	19,475,330

(1)	Derived from the audited consolidated balance sheet.

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

Table of Contents

AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

For the three months ended March 31, 2026 and 2025

(Unaudited)

	Three Months Ended
	March 31, 2026			March 31, 2025
	Unaudited			Unaudited
NET REVENUES:
Product	$	3,949,335		$	4,497,240
Post contract support		2,381,338			998,051
Other services		22,625			7,737
		6,353,298			5,503,028
COST OF NET REVENUES:
Cost of Sales		2,679,373			2,923,087
Post contract support		468,979			312,021
Other services		39,101			32,916
		3,187,453			3,268,024
GROSS PROFIT		3,165,845			2,235,004
RESEARCH AND DEVELOPMENT EXPENSES		843,696			719,382
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		3,903,719			3,229,979
TOTAL OPERATING EXPENSES		4,747,415			3,949,361
OPERATING LOSS		(1,581,570	)		(1,714,357	)
OTHER INCOME (EXPENSE) :
(Loss) gain from change in fair value of earnout liability		(726,187	)		9,823,605
Gain from change in fair value of warrant liability		1,499,402			15,521,183
Interest income, net		87,751			77,554
Total other income, net		860,966			25,422,342

(LOSS) INCOME BEFORE PROVISON FOR INCOME TAXES		(720,604	)		23,707,985

Provision for income taxes		-			-

NET (LOSS) INCOME		(720,604	)		23,707,985

OTHER COMPREHENSIVE (LOSS)
Foreign currency (loss), net		(8,292	)		(7,409	)

TOTAL COMPREHENSIVE (LOSS) INCOME	$	(728,896	)	$	23,700,576

NET (LOSS) INCOME PER SHARE:
Basic	$	(0.02	)	$	0.75
Diluted	$	(0.02	)	$	0.61

Weighted average shares of common stock outstanding
Basic		34,382,474			31,704,117
Diluted		34,382,474			38,820,839

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

Table of Contents

AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

			Common		Additional					Other			Total
	Common		Stock		Paid in		Accumulated			Comprehensive			Stockholders'
	Stock		$		Capital		Deficit			Income (Loss)			Deficit
Balance as of January 1, 2025		30,588,413	$	3,056	$	21,918,867	$	(74,941,590	)	$	(3,470	)	$	(53,023,137	)
Stock-based compensation		-		-		428,286		-			-			428,286
Issuance of common stock for exercise of warrants		13,200		1		59,399		-			-			59,400
Issuance of common stock for stock options exercise		81,952		8		43,193		-			-			43,201
Issuance of common stock for earnout shares		1,160,906		117		5,282,008		-			-			5,282,125
Foreign currency translation loss		-		-		-		-			(7,409	)		(7,409	)
Net income		-		-		-		23,707,985			-			23,707,985
Balance as of March 31, 2025		31,844,471		3,182		27,731,753		(51,233,605	)		(10,879	)		(23,509,549	)

Balance as of January 1, 2026		34,368,162		3,434		38,478,030		(45,620,227	)		(10,879	)		(7,149,642	)
Stock-based compensation		-		-		666,064		-			-			666,064
Issuance of common stock for exercise of warrants		2		1		9		-			-			10
Issuance of common stock for stock options exercise		43,900		4		11,347		-			-			11,351
Foreign currency translation loss		-		-		-		-			(8,292	)		(8,292	)
Net loss		-		-		-		(720,604	)		-			(720,604	)
Balance as of March 31, 2026		34,412,064	$	3,439	$	39,155,450	$	(46,340,831	)	$	(19,171	)	$	(7,201,113	)

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

Table of Contents

AIRSHIP AI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2026 and 2025

(Unaudited)

	Three Months Ended
	March 31, 2026			March 31, 2025
	Unaudited			Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(720,604	)	$	23,707,985
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities
Stock-based compensation		666,064			428,286
Amortization of operating lease right of use asset		102,351			83,396
(Gain) from change in fair value of warrant liability		(1,499,402	)		(15,521,183	)
Loss (gain) from change in fair value of earnout liability		726,187			(9,823,605	)
Changes in operating assets and liabilities:
Accounts receivable		1,083,315			(1,555,893	)
Prepaid expenses and other		(15,617	)		(49,428	)
Operating lease liability		(105,368	)		(83,750	)
Accounts payable - trade and accrued expenses		85,009			1,429,270
Deferred revenue		492,549			(712,922	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		814,484			(2,097,844	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrant exercise, net		10			59,400
Repayment of advances from founders		-			(600,000	)
Proceeds from stock option exercises		11,351			43,201

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		11,361			(497,399	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		825,845			(2,595,243	)

Effect from exchange rate on cash		(8,292	)		(7,409	)

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

CASH AND CASH EQUIVALENTS, end of period	$	12,567,574		$	8,812,178

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

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

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

Table of Contents

AIRSHIP AI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

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

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

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

Fair Value Transactions in Connection with Merger

As a result of the Merger, the Company entered into the following transactions that were measured at fair value and vary quarterly with the share price and other items. Any change is non-cash and is recorded as a gain or loss in other income (expense). See Note 11– Fair Value Measurements for more information.

	Liability as of		Liability as of
	March 31, 2026		December 31, 2025

Earnout liability	$	3,347,120	$	2,620,933
Warrant liability (Public Warrants)		11,462,954		12,916,006
Warrant liability (Private Warrants)		365,650		412,000
Total liabilities measured at fair value	$	15,175,724	$	15,948,939

Other income related to instruments recorded at fair value during the three months ended March 31, 2026 and 2025
	$	773,215	$	25,344,788

Business

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

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

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

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

Table of Contents

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

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

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

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

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

The Company employed sixty five employees as of March 31, 2026. 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 nine research and development personnel in Taiwan as of March 31, 2026.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

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

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

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

Table of Contents

Functional Currency

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

Cash and Cash Equivalents

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

Revenue Recognition and Deferred Revenue

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

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

Product Revenue

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

Post Contract Support Revenue

Post Contract Support (“PCS”) revenue is derived primarily from the Company’s support and software maintenance agreements (“SMA”). The Company’s PCS includes the right to receive, on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, and email and telephone support. The Company allocates a portion of the transaction price to the PCS performance obligation based on a cost-plus methodology and recognizes the associated revenue on a straight-line basis over the estimated term of the support period. The Company’s support contracts are typically one to five years with an average of four years; payment is due within 30 to 90 calendars days of the invoice date and may include options to renew. For the three months ended March 31, 2026 and 2025, the Company recognized revenue of $494,063 and $101,599, respectively, related to one-year support contracts. For the three months ended March 31, 2026 and 2025, the Company recognized revenue of $1,887,275 and $896,452, respectively, related to multi-year support contracts.

Table of Contents

Contracts with Multiple Performance Obligations

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

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

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

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

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

	☐	Promised performance obligations are identified,

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

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

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

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

The Company’s short-term and long-term deferred revenue balances totaled $5,488,260 and $3,638,801, respectively, as of March 31, 2026. The Company’s short-term and long-term deferred revenue balances totaled $4,668,105 and $3,966,407, respectively, as of December 31, 2025. Of the deferred revenue balance of $8,634,512 and $6,190,333 as of January 1, 2026 and 2025, the Company recognized approximately $1,307,074 and $985,548 during the three months ended March 31, 2026 and 2025, respectively.

Accounts Receivable and Provision for Credit Losses

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

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

Table of Contents

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders. As of March 31, 2026 and December 31, 2025, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible. Accounts receivable balances as of March 31, 2026, December 31, 2025 and January 1, 2025 were $5,379,360, $6,462,675 and $1,226,757, respectively.

Concentration of Credit and Sales Risk

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

For the three months ended March 31, 2026, the Company had revenue from forty eight customers and five customers represented 92% of total revenue. The primary reason for the high level of customer concentration for the three months ended March 31, 2026 was due to reliance on three customers for the three months ended March 31, 2026. As of March 31, 2026, three customers represent approximately 88% of outstanding account receivables. Due to the nature of the customers and timely payment history, customer concentration and credit risk in account receivables is estimated to be minimal.

For the three months ended March 31, 2025, the Company had revenue from twenty customers and three customers represented 83% of total revenue. The primary reason for the high level of customer concentration for the three months ended March 31, 2025 was due to reliance on these three customers for the three months ended March 31, 2025. As of March 31, 2025, two customers represented approximately 94% of outstanding account receivables. Due to the nature of the customers and timely payment history, customer concentration and credit risk in account receivables is estimated to be minimal.

Inventory

The Company’s purchase of inventory, primarily computer servers, is undertaken to match purchase orders received from customers. Upon receipt of inventory, the Company generally configures the servers and loads proprietary software onto the servers before shipping out. The Company holds inventory for a short period of time and as of March 31, 2026 and 2025, 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.

Long-Lived Assets

The Company reviews its long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results. The Company recorded no impairment losses for the three months ended March 31, 2026 and 2025.

Research and Development Expenses

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

Table of Contents

The Company’s current research and development efforts are primarily focused on improving the Company’s products. The Company is also actively involved in identifying new applications. The Company’s current internal team along with outside consultants have considerable experience working with the application of the Company’s technologies and their applications. The Company engages third party experts as required to supplement the Company’s internal team. The Company believes that continued development of new and enhanced technologies is essential to the Company’s future success. The Company incurred research and development expenses of $843,696 and $719,382 for the three months ended March 31, 2026 and 2025, respectively, on development activities.

Software Development Costs

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

Cost of Net Revenues

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

Advertising and Marketing

Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising and marketing costs for the three months ended March 31, 2026 and 2025 were $61,711 and $169,221, respectively.

Shipping and Handling of Products

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

Fair Value Measurements

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

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

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

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

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

Table of Contents

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

Derivative Liabilities and Earnout Liabilities

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

At the Merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants. As of March 31, 2026, there were 515,000 private placement warrants and 16,145,006 public warrants outstanding.

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

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

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

At the closing of the Merger, the earnout shares associated with unvested underlying shares were considered to be equity instruments and valued at approximately $2,675,000. During the three months ended March 31, 2026 and 2025, the Company’s stock-based compensation expense for the vesting of earnout shares was $133,761. As of March 31, 2026, unrecognized compensation cost related to unvested earnout shares totaled $1,471,375. The weighted average period over which this remaining compensation cost is expected to be recognized is 2.75 years.

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

Table of Contents

Stock-Based Compensation

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

Income Taxes

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

Comprehensive (Loss)

Comprehensive (loss) is defined as the change in equity of a business during a period from non-owner sources. There was other comprehensive (loss) of ($8,292) and ($7,409), respectively, related to foreign exchange translation for the three months ended March 31, 2026 and 2025, respectively.

Going Concern Assessment

The Company applies Accounting Standards Codification 205-40 (“ASC 205-40”), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which the Financial Accounting Standards Board (“FASB”) issued to provide guidance on determining when and how reporting companies must disclose going concern uncertainties in their consolidated financial statements. ASC 205-40 requires management to perform assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s consolidated financial statements (or within one year after the date on which the consolidated financial statements are available to be issued, when applicable). 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 May 2026, the Company analyzed its cash requirements and operations at least through May 2027 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

In preparing these consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s consolidated financial statements relate to the calculation of revenue recognition, stock-based compensation, valuation of common stock, warrant liability, earnout share liabilities, accruals for potential liabilities including income taxes, valuation of deferred tax assets and valuation assumptions related to share-based compensation.

Table of Contents

(Loss) Income Per Share

Basic (loss) income per share is based upon the net (loss) income for the three months ended March 31, 2026 and 2025 divided by the weighted average shares of common stock outstanding. Diluted net (loss) 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 months ended March 31, 2026 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 12—Earnings per share.

Reportable Segments

The Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Chief Executive Officer, Chief Financial Officer and President are the Company’s CODM. 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 Income (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.

Recent Accounting Pronouncements

All recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

3. Revenues

Disaggregation of Revenue

The Company’s net revenues for the three months ended March 31, 2026 and 2025 consisted of approximately $3.9 million and $4.5 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 March 31, 2026 and 2025 of approximately $2.4 million and $1.0 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.

Contract Balances

A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset. Receivables are generally paid within thirty days and there is no financing element to the customer contracts. As of March 31, 2026 and December 31, 2025, there are no unbilled receivable balances.

The Company’s short-term and long-term deferred revenue balances totaled $5,488,260 and $3,638,801 as of March 31, 2026. The Company’s short-term and long-term deferred revenue balances totaled $4,668,105 and $3,966,407 as of December 31, 2025.

Remaining Performance Obligations

As of March 31, 2026 and December 31, 2025, the Company had approximately $9.1 million and $8.6 million, respectively, of remaining performance obligations, which were comprised of deferred service contracts not yet delivered. The Company expects to recognize approximately 60% of its remaining performance obligations as revenue in fiscal 2026 and the remaining 40% in fiscal 2027 and years thereafter.

Table of Contents

Costs to Obtain or Fulfill a Contract

The Company does not pay any material variable compensation to obtain a customer contract. Additionally, the majority of the Company’s cost of fulfillment as a seller of products is classified as inventory and then cost of revenue when the product is sold. Other costs of contract fulfillment such as software maintenance are expensed in the period incurred and align with when the revenue is amortized.

4. Stockholders’ Deficit

Authorized and Outstanding Stock

The Company is a Delaware company and its affairs are governed by its certificate of incorporation, its bylaws and the Delaware General Corporation Law and the common law of the State of Delaware. The Company’s charter authorizes the issuance of 205,000,000 shares, consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock, par value $0.0001 per share.

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, 2025 and filed with the SEC on February 17, 2026.

Preferred Stock

As of March 31, 2026 and December 31, 2025, there were no shares of preferred stock outstanding.

Common Stock

As of March 31, 2026 and December 31, 2025, there were 34,412,064 and 34,368,162 shares of common stock outstanding, respectively.

Three months Ended March 31, 2026

During the three months ended March 31, 2026, the Company had the following issuances of equity securities:

During the three months ended March 31, 2026, investors exercised warrants for 2 shares of the Company’s common stock at $4.50 per share, and the Company received proceeds of $9.

During the three months ended March 31, 2026, the Company issued an aggregate of 43,900 shares of common stock and received $11,351 upon the exercise of stock options at exercise prices ranging from $0.12 to $1.64 per share.

Three Months Ended March 31, 2025

During the three months ended March 31, 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 three months ended March 31, 2025, investors exercised warrants for 13,200 shares of the Company’s common stock at $4.50 per share, and the Company received proceeds of $59,400.

During the three months ended March 31, 2025, the Company issued an aggregate of 81,952 shares of common stock and received $43,201 upon the exercise of stock options at exercise prices ranging from $0.12 to $1.64 per share.

Table of Contents

2023 Amended and Restated Equity Incentive Plan

On December 4, 2023, the Company adopted the Airship AI Holdings, Inc. 2023 Equity Incentive Plan, which plan was approved by stockholders at the extraordinary general meeting held on December 19, 2023 in connection with the Merger. On October 15, 2025, the Company adopted the Airship AI Holdings, Inc. 2023 Amended and Restated Equity Incentive Plan (the “Equity Incentive Plan”), which increased the number of shares of common stock authorized for issuance pursuant to awards granted thereunder by 2,000,000 shares. The Equity Incentive Plan was approved by the Company’s stockholders at its annual meeting held on December 11, 2025.

The aggregate number of shares of common stock issued under the Equity Incentive Plan is 6,942,880. 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, 2023 and ending on (and including) January 1, 2032, in an amount equal to 2.0% of the total number of shares of common stock outstanding on December 31 of the preceding year; provided, however, that the Company’s Board of Directors may act prior to January 1 of a given year to provide that the increase for such year will be a lesser number of shares of common stock. The aggregate number of shares of common stock reserved for grant and issuance under the 2023 Plan is 4,574,684 as of March 31, 2026. 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-the requisite service period.

The Company had the following stock option activity during the three months ended March 31, 2026:

	Options			Weighted Average
	Shares			Exercise Price
Outstanding as of January 1, 2026		6,792,880		$	1.68
Granted		194,000			2.72
Exercised		(44,000	)		(0.26	)
Forfeitures		-			-
Outstanding as of March 31, 2026		6,942,880		$	1.72

During the three months ended March 31, 2026, the Company granted stock options to 6 employees to purchase an aggregate of 194,000 shares of common stock with an exercise price of $2.72 of which 109,000 vest quarterly over four years and 85,000 were vested immediately. The 194,000 stock options granted expire during 2033.

The following table summarizes information about stock options outstanding and exercisable as of March 31, 2026:

												Weighted
				Weighted						Weighted		Average
				Average		Weighted				Average		Remaining Life
Range of		Number		Remaining Life		Average		Number		Exercise Price		In Years - Vested
Exercise Prices		Outstanding		In Years		Exercise Price		Exerciseable		Exerciseable		and Exercisable
$	0.12		2,027,033		1.79	$	0.12		2,027,033	$	0.12		1.79
	0.57		879,011		1.04		0.57		879,011		0.57		1.04
1.49-1.65			1,082,086		6.23		1.64		789,305		1.64		6.48
2.72-3.06			1,983,750		9.19		2.95		637,744		2.92		9.09
3.27-4.47			971,000		9.26		3.68		296,996		3.52		9.10
			6,942,880		5.55	$	1.72		4,630,089	$	1.07		3.92

There were 6,942,880 options to purchase common stock at an average exercise price of $1.72 per share outstanding as of March 31, 2026 under the 2023 Plan. The Company recorded $532,303 and $294,525 of compensation expense, net of related tax effects, relative to stock options for the three months ended March 31, 2026 and 2025, respectively, in accordance with ASC 718.

Table of Contents

As of March 31, 2026, there were $3,580,721 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.

The significant weighted-average assumptions relating to the valuation of the Company’s stock option grants were as follows for the three months ended March 31, 2026:

Assumptions	3/31/2026
Exercise price	$	2.72
Dividend yield		0	%
Expected life	4 years
Expected volatility		78.4	%
Risk free interest rate		3.61	%

There were stock incentive plan awards outstanding at March 31, 2026 totaling 6,942,880 shares with an aggregate intrinsic value of $6,496,023.

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 March 31, 2026 and December 31, 2025, 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 March 31, 2026 or the year ended December 31, 2025.

Warrants to Purchase Common Stock

See Note 9 for public and private placement warrants assumed after the Merger.

The Company had the following warrant activity during the three months ended March 31, 2026:

During the three months ended March 31, 2026, investors exercised warrants for 2 shares of the Company’s common stock and the Company received proceeds of $10.

Warrant activity for the three months ended March 31, 2026 was as follows:

				Weighted
				Average
				Exercise
	Warrants			Price
Outstanding January 1, 2025		21,961,690		$	4.13
Issued		2,702,702			6.20
Exercised		(2,175,564	)		(4.50	)
Forfeited		-			-
Outstanding January 1, 2026		22,488,828			4.35
Issued		-			-
Exercised		(2	)		(4.50	)
Forfeited		-			-
Outstanding at March 31, 2026		22,488,826		$	4.35

A summary of the warrants outstanding as of March 31, 2026 were as follows:

Table of Contents

		March 31, 2026
		Weighted		Weighted				Weighted
		Average		Average				Average
Number of		Remaining		Exercise		Shares		Exercise
Warrants		Life (In Years)		Price		Exercisable		Price
	2,689,902		2.20	$	1.77		2,689,902	$	1.77
	220,000		3.50		2.36		220,000		2.36
	216,216		3.37		3.47		216,216		3.47
	16,660,006		2.73		4.50		16,660,006		4.50
	2,702,702		4.38		6.20		2,702,702		6.20
	22,488,826		3.00	$	4.35		22,488,826	$	4.35

There were warrants outstanding at March 31, 2026 totaling 22,488,826 shares with an aggregate intrinsic value of $1,318,052.

Earnout Liability

See Note 10 for common stock shares related to earnout liability.

5. Employee 401(k) Plan

The Company has a 401(k) plan for its employees. The plan provides for a 3.5% match on up to 6% of deferred salary. The Company expensed $50,111 and $50,978 of contributions during the three months ended March 31, 2026 and 2025, respectively.

6. Related Party Transactions

There are no related party transactions outside of the ordinary course of business.

7. Commitments, Contingencies and Legal Proceedings

Legal Proceedings

The Company may from time to time become a party to various legal proceedings arising in the ordinary course of its business. The Company is currently not a party to any pending legal proceedings that is not ordinary routine litigation incidental to its business.

Properties and Operating Leases-Right of Use Asset and Lease Liability

Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases. Right of use lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The incremental borrowing taking into consideration the Company’s credit quality and borrowing rate for similar assets is used in determining the present value of future payments. Lease expense is recorded as general and administrative expenses on the Company’s consolidated statements of operations. The Company elected the package of transitional practical expedients, under which (1) the Company did not reassess whether any expired or existing contracts are or contain leases, (2) the Company did not reassess the lease classification for any expired or existing leases and (3) the Company did not reassess initial direct costs for any existing leases. Additionally, the Company elected the short-term lease recognition exemption for all leases that qualify, meaning it does not recognize right-of use assets or lease liabilities for those leases. The Company also elected the practical expedient to not separate lease and non-lease components for all asset classes.

Table of Contents

The Company has entered into operating leases for office and development facilities for four years and include options to renew. The Company determines whether an arrangement is or contains a lease based upon the unique facts and circumstances at the inception of the lease. Operating lease liabilities and their corresponding right-of-use asses are recorded based upon the present value of the lease payments over the expected lease term. As of March 31, 2026 and December 31, 2025, total operating lease liabilities were approximately $758,376 and $863,744, respectively. Right of use assets totaled approximately $705,564 and $807,915 as of March 31, 2026 and December 31, 2025, respectively. In the three months ended March 31, 2026 and 2025, the Company recognized $116,162 and $102,417 in total lease costs for the leases, respectively. Cash paid for amounts included in the measurement of lease liabilities were $119,177 and $102,771, respectively, for the three months ended March 31, 2026 and 2025. 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 March 31, 2026. The weighted average discount rate was 7% as of March 31, 2026 and December 31, 2025.

The minimum future lease payments as of March 31, 2026 are as follows:

Years Ended March 31,
2027	$	486,075
2028		323,661
Total remaining payments		809,736
Less imputed interest		(51,360	)
Total lease liability	$	758,376

On September 7, 2023, the Company entered into a lease in Redmond, WA for 15,567 square feet of office and warehouse space which started August 1, 2024. The monthly payment is currently approximately $29,600 per month. The lease expires October 31, 2027 and the monthly payment increases 3% on August 1, 2025 and each year thereafter. There is a one three year option to extend the lease based on the fair market rate on October 31, 2027. We do not believe that it is reasonably certain that the lease will be extended.

On December 6, 2024, the Company entered into two separate office leases in Mooresville, North Carolina, the terms of which commenced on February 1, 2025. The Company leases an aggregate of 5,240 square feet and the net monthly payment is approximately $9,105. The leases expire January 31, 2028 and the monthly payment increases 3% on February 1, 2026 and each year thereafter. There is no option to extend the lease.

8. Income Taxes

The Company recorded a provision for income taxes of $0 for the three months ended March 31, 2026 and 2025.

The Company’s effective tax rate was 0% for the three months ended March 31, 2026 and 2025. The difference between the effective tax rate and the federal statutory tax rate for the three months ended March 31, 2026 and 2025 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. The Company also computes the tax provision or benefit related to items reported separately and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

As of March 31, 2026 and December 31, 2025, 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.

Table of Contents

9. Warrant Liability

At the Merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants. On June 3, 2024, the Company reduced the exercise price of such warrants from $11.50 per share to an exercise price of $7.80 per share. On November 20, 2024, the Company further reduced the exercise price of the outstanding public warrants and private warrants to an exercise price of $4.50 per share. The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes. Details on the warrant liability were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and filed with the SEC on February 17, 2026. The public warrants will expire on December 21, 2028.

As of March 31, 2026 and December 31, 2025, the Private and Public Warrants had an aggregate fair value of $11,828,604 and $13,328,006, respectively. The Company recorded a gain of $1,499,402 and $15,521,183 due to change in the fair value of the warrant liability during the three months ended March 31, 2026 and 2025, respectively.

The following table is a summary of the number of shares of the Company’s common stock issuable upon exercise of the public and private warrants outstanding as of March 31, 2026 and December 31, 2025, respectively:

March 31, 2026
			Exercise
	Number of Shares		Price		Expiration Date	Fair Value
Public Warrants		16,145,006	$	4.50	December 21, 2028	$	11,462,954
Private Warrants		515,000	$	4.50	December 21, 2028	$	365,650

December 31, 2025
			Exercise
	Number of Shares		Price		Expiration Date	Fair Value
Public Warrants		16,145,008	$	4.50	December 21, 2028	$	12,916,006
Private Warrants		515,000	$	4.50	December 21, 2028	$	412,000

See Note 11 – Fair Value Measurements for more information.

10. Earnout Liability

At the closing of the Merger, the Airship AI securityholders that hold shares of common stock of Airship AI, Airship AI options, Airship AI earnout warrants or Airship AI SARs had the contingent right to receive up to 5,000,000 earnout shares of the Company’s common stock if certain earnout milestones are met. Refer to the Company’s annual report on Form 10-K filed with the SEC on February 17, 2026 for more information.

As of March 31, 2026, the estimated fair value of the earnout liability increased to $3,347,120 primarily due to the increase in the volatility factor to 78.4%, offset by a decrease in the Company’s share price, which resulted in a loss due to the change in fair value of the earnout liability during the three months ended March 31, 2026 of approximately $726,187 and is recorded on the consolidated statements of operations and comprehensive (loss) income.

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).

Table of Contents

As of September 30, 2024, the Company determined the first operating performance milestone was achieved resulting in the vesting of 1,250,000 earnout shares, of which 1,160,906 shares of the Company’s common stock were issued to applicable personnel on January 7, 2025. The fair value of the 1,160,906 vested shares on the issuance date of $5,282,008 was determined using the Company’s closing trading price on January 7, 2025 and was reclassified from earnout liability to equity as additional paid in capital on the consolidated balance sheet. The remaining 89,094 shares that vested as of September 30, 2024 will continue to be valued on a recurring basis as a Level 1 instrument until issued. The remaining unvested earnout shares continue to be accounted for as liabilities until their respective triggering event occurs.

11. Fair Value Measurements

The following table sets forth by level within the ASC 820, Fair Value Measurement, fair value hierarchy of the Company’s liabilities that are measured at fair value on a recurring basis as of March 31, 2026:

	March 31, 2026
	Level 1		Level 2		Level 3		Total
Liabilities-
Earnout liability	$	201,352	$	-	$	3,145,768	$	3,347,120
Warrant liability (Public Warrants)		11,462,954		-		-		11,462,954
Warrant liability (Private Warrants)		-		365,650		-		365,650
Total liabilities measured at fair value	$	11,664,306	$	365,650	$	3,145,768	$	15,175,724

	December 31, 2025
	Level 1		Level 2		Level 3		Total
Liabilities-
Earnout liability	$	257,481	$	-	$	2,363,452	$	2,620,933
Warrant liability (Public Warrants)		12,916,006		-		-		12,916,006
Warrant liability (Private Warrants)		-		412,000		-		412,000
Total liabilities measured at fair value	$	13,173,487	$	412,000	$	2,363,452	$	15,948,939

The estimated fair value of the earnout liability was determined using a Monte Carlo Model. The assumptions utilized in the calculation are based on the achievement of certain milestones including projected stock price, volatility, probability of meeting the federal law enforcement agency growth and risk-free rate. The following assumptions were used in the simulation at each valuation date:

	March 31, 2026			December 31, 2025
Stock price	$	2.26		$	2.89
Risk-free interest rate		3.80	%		3.55	%
Expected term (in years)		2.75			3
Expected volatility		78.4	%		55.8	%
Dividend yield		0	%		0	%

The fair value of the 1,250,000 vested shares as of December 31, 2024 of $7,825,000 was determined using the Company’s closing trading price on December 31, 2024. 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 March 31, 2026.

Table of Contents

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 three months ended March 31, 2026 and 2025.

12. Earnings per Share

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

	Three Months Ended,
	March 31, 2026			March 31, 2025
Net (loss) income	$	(720,604	)	$	23,707,985

Weighted average shares outstanding-
Basic		34,382,474			31,704,117
Add: dilutive effect of stock options, SARs and warrants		-			7,116,722
Diluted		34,382,474			38,820,839

(Loss) income per share-
Basic	$	(0.02	)	$	0.75
Diluted	$	(0.02	)	$	0.61

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:

Anti-dilutive shares	March 31, 2026		March 31, 2025
Public Warrants		16,145,006		16,145,210
Private Warrants		515,000		515,000
Warrants		3,138,918		2,162,162
Outstanding stock options		2,954,750		25,000
		22,753,674		18,847,372

The 3,750,000 remaining unvested earnout shares as of March 31, 2026 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.

13. Subsequent Events

The Company evaluated subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements were issued. Subsequent to March 31, 2026, there were no material transactions that occurred that would require recognition or disclosure in the financial statements.

On April 20, 2026, the Company extended the maturity date of stock option grants for four employees and a director for 4,860,197 shares by five years.

On April 20, 2026, the Company entered into an employment agreement with Yanda Ma to serve as its Chief Technology Officer, which provides for a base salary of $300,000. The term of the employment agreement is for a period of three years, which will be automatically extended for additional one-year periods unless either party gives the other party written notice of such party’s decision not to renew the term at least 90 days prior to the end of the initial three-year term or any renewal term. Mr. Ma is also eligible to participate in annual performance-based bonus programs established from time to time by the Board, subject to the achievement by Mr. Ma and the Company of the applicable performance criteria set forth in the employment agreement and established for Mr. Ma by the Board. The employment agreement is terminable by either party at any time. In the event of termination by us without cause or by Mr. Ma for good reason, as those terms are defined in the employment agreement, he is entitled to three months’ severance. In connection with entering into the employment agreement, Mr. Ma was granted ten-year options under our 2023 Equity Incentive Plan to purchase 400,000 shares of our common stock, which options vest quarterly over four years, at an exercise price equal to $2.49, being the fair market value on the date of grant.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Recent Developments

Backlog and Pipeline

Backlog as of May 6, 2026 was approximately $4.6 million, representing firm fixed price contracts awarded in the first quarter of 2026 that will be shipped and invoiced through the remainder of 2026.

Our total validated pipeline as of March 31, 2026 was $165.3 million, consisting of single and multi-year opportunities for AI-driven edge, video, and sensor and data management platform across our customer verticals. Our pipeline includes opportunities at varying stages of progression with expected award timeframes over the next 18-24 months.

Overview

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

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

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

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

Table of Contents

Our AI modelling process starts with pre-trained AI models from our technology ecosystem partners which we then customize using proprietary datasets tailored towards our customers unique workflow requirements. Where customers have pre-existing AI models or engines, we integrate those models or engines into our edge platform allowing customers to leverage proprietary models within the Airship AI software ecosystem.

Our primary offerings include Outpost AI, Acropolis, and Airship Command. Our 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.

Outpost AI is our edge hardware and software offering that is purpose built to structure and analyze data efficiently and effectively at the source using Airship AI trained models. Once structured, Outpost AI securely encodes the data and streams it to Acropolis for further processing. In the automobile example, Outpost AI will process the unstructured and unlabeled video data into structured data including images of vehicles, images of plates, make, model, color, locations and plate numbers, as well as confidence levels on the structured results.

Acropolis is our enterprise management software suite which serves as the backbone of our software ecosystem. Acropolis allows customers with a handful of devices or hundreds of thousands of devices to manage their user and install base efficiently and securely from a single graphical user interface. Acropolis can be installed and managed locally (on-premises) as well as in cloud/multi-cloud-based system architectures. Acropolis can work with structured and unstructured data. In the scenario where Outpost AI processes the unstructured video of vehicles into images, plate numbers and other structured data, Acropolis will compare the structured data against customer repositories of structured data in order to add labels to results for user attention. Here, Acropolis leaves the initial processing of unstructured data to the edge device (Outpost AI) and handles additional labeling which requires bigger centralized datasets. Where Acropolis is receiving unstructured data as input from devices, it will do the initial processing of unstructured to structured data similar to what Outpost AI does at the edge before any additional labelling. This holistic approach allows customers to leverage the benefits of both edge and back-end data structuring and analysis in a “single-pane-of-glass” approach.

Airship Command then allows the customer to view the final labelled data which can be presented in real-time or as search results, as alerts, in automatically updating lists or on maps. In the vehicle example, Airship Command can present alarms on specific filters such as specific plates, intelligent partial matches, make, model, color and any combination thereof, as well as searches using the same filters against character recognition and vehicle characteristics results.

Airship Command is our suite of visualization tools that allow customers to interact with their data and devices securely and efficiently. Customer data interaction may include receiving and viewing an alarm triggered by an AI detected event at the edge on a mobile phone, or receiving and viewing events from thousands of edge devices spread across multiple different locations on a large video wall in a Security Operations Center (“SOC”). Our visualization tools span applications for workstations, web-based browsers, and applications for mobile handheld devices ensuring our customers data is never out of their immediate reach.

Table of Contents

We apply AI across the entire offering suite, ensuring that we are extracting as much value from our customers’ existing and emerging data as possible. Whether it is using machine learning to train new models for deployment at the edge, or using a rules-based approach to detect anomalies based on data generated by machine learning models, we are constantly expanding and evolving our AI capabilities.

Our offerings are used by some of the largest government agencies and commercial organizations in the world. While we are heavily focused on continuing to grow market share in the United States, our offerings are currently deployed around the world, with significant room to grow in both the governmental and commercial markets.

Our typical customer engagement is a multi-year contractual agreement, an agreement which includes our core offerings as well as professional services, technical support, and software maintenance, which we expect will result in predictable, long-term recurring revenue. Our history shows that organizations that have chosen to partner with Airship AI stick with Airship AI.

Since our inception and until the Merger in December 2023, we have operated as a 100% employee-owned bootstrapped company with no outside investment, operating in a fiscally conservative model. As a U.S. based company, we operate in high growth areas, namely the intersection of public safety and AI, with a combined $7 billion edge AI hardware and software addressable market.

Our customers trust us to collect and analyze vast amounts of data in real-time as well as make it available to their users when they need it, where they need it, as securely as possible. We believe our offerings are purpose-built from the ground up to help ensure we continue to meet or exceed these expectations.

Fair Value Transactions in Connection with Merger

As a result of the merger, we entered into the following transactions that were measured at fair value and vary quarterly with the share price and other items. Any change is non-cash and is recorded as a gain or loss in other income (expense). See Note 11– Fair Value Measurements for more information.

	Liability as of		Liability as of
	March 31, 2026		December 31, 2025

Earnout liability	$	3,347,120	$	2,620,933
Warrant liability (Public Warrants)		11,462,954		12,916,006
Warrant liability (Private Warrants)		365,650		412,000
Total liabilities measured at fair value	$	15,175,724	$	15,948,939

Other income related to instruments recorded at fair value during the three months ended March 31, 2026 and 2025
	$	773,215	$	25,344,788

Private Placement and Public Warrants in Connection with Merger

At the Merger closing, we assumed 515,000 private placement warrants and 16,184,612 public warrants. On June 3, 2024, we reduced the exercise price of such warrants from $11.50 per share to an exercise price of $7.80 per share. On November 20, 2024, we further reduced the exercise price of the outstanding public warrants and private warrants to an exercise price of $4.50 per share. The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes. As of March 31, 2026, there were 515,000 private placement warrants and 16,145,006 public warrants outstanding.

Segment Reporting

The Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, Topic 280, Segment Reporting, requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders. Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Chief Executive Officer, Chief Financial Officer and President are the Company’s CODM. The CODM monitors the revenue and expense components of the various products and services we offer, 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.

Table of Contents

Results of Operations

The following table sets forth key components of our results of operations during the three months ended March 31, 2026 and 2025.

(dollars in thousands)

	Three Months Ended,
	2026		2025		$ Variance			% Variance

Net revenues	$	6,353	$	5,503	$	850			15.4	%
Cost of net revenues		3,187		3,268		81			2.5	%
Gross profit		3,166		2,235		931			41.7	%
Research and development expenses		844		719		(125	)

SEC Form 10-Q filed by Airship AI Holdings Inc.