AISP 10-K & 10-Q changes, risk factors and insider trading

We have incurred losses from operations the past few years and had an accumulated deficit of $74,942,000$45.6 million as of December 31, 2024.2025. There can be no assurance that Airship AI will ever achieve the level of revenues needed to be profitable in the future and if profitability is achieved, that it will be sustained. Airship AI’s revenues have fluctuated and may likely continue to fluctuate significantly from quarter to quarter and from year to year. Airship AI will need to obtain additional capital and increase sales to become profitable. The net income for the year ended December 31, 20232025 was $29,321,000 primarily as a result of the gain from change in fair value of change in fair value of warrant liability of $20,853,000 and the gain from change in fair value of change earnout liability of approximately $21,976,000.$15,402,000. The net loss for the year ended December 31, 2024 was primarily a result of the loss from change in fair value of warrant liability of $33,513,000 and the loss from change in fair value of earnout liability of $18,171,000.

Airship AI sells its product to commercial and government customers under agreements that are normally paid within 30 days of contract completion. For the year ended December 31, 2024,2025, we had revenue from seventy-fourninety two customers and onefour customercustomers represented 57%87% of total revenue, although such a high level of customer concentration is not typical.revenue. The primary reason for the high level of customer concentration for the year ended December 31, 20242025 was due to onereliance largeon orderthese receivedfour incustomers late 2023 which was fulfilled infor the year ended December 31, 2024.2025. As of December 31, 2024,2025, fourthree customers represent approximately 36%,34%, 25%, 19%33% and 12%17% 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.

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 customerscustomers’ 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.

On DecemberOctober 24,8, 2024,2025, we entered into a warrant exercise inducement agreementoffer letter with athe holder of existing common stock warrants exercisable for an aggregate of 2,882,8832,162,162 shares of common stock to exercise such warrants at the existing exercise price of $2.65$4.50 per share (collectively, the “Existing Warrants”),share, in exchange for theour issuanceagreement ofto issue new common stock warrants to purchase 2,162,1622,702,702 shares of common stock at an exercise price per share of $4.50 (collectively, the “Inducement Warrants”).$6.20. The investor agreed to exercise the existing 2,882,883 warrants for cash resulting in aggregate gross proceeds received from the exercise of the existing warrants were approximately $7.6$9,729,729, millionbefore withdeducting approximatelyfinancial $7.4advisory millionfees. inWe intend to use the net proceeds after deducting advisory fees. The Inducement Warrants are immediately exercisable and will be exercisable for five years from the dateexercise of issuance.the existing warrants for working capital and general corporate purposes.

Net Revenues — Net revenues for the year ended December 31, 20242025 increaseddecreased $10,750,000$7,729,000 to $23,050,000$15,321,000 as compared to $12,300,000$23,050,000 for the year ended December 31, 2023,2024. asThe anet resultrevenues offor increasedthe productyear sales.ended WeDecember received31, 2024 included purchase orders from various federal government agency customers totaling over $16 millionmillion, which we primarily shipped in the year ended December 31, 2024.

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support. For the year ended December 31, 2024,2025, cost of sales increaseddecreased $5,987,000$4,899,000 to $12,523,000$7,624,000 as compared to $6,536,000$12,523,000 for the year ended December 31, 2023.2024. The increasedecrease was due to higherlower productsales, salesoffset andby product mix with increaseddecreased equipment purchases during the year ended December 31, 2024.2025.

Research and Development Expenses — Research and development expenses for the year ended December 31, 20242025 increased $76,000$271,000 to $2,805,000$3,076,000 as compared to $2,729,000$2,805,000 for the year ended December 31, 2023.2024. The increase was due to increased expenses for product development.development in the United States and Taiwan.

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the year ended December 31, 20242025 increased $1,552,000$610,000 to $11,227,000$11,837,000 as compared to $9,675,000$11,227,000 for the year ended December 31, 2023.2024. The increase wasis primarily due to (i)an increasedincrease insurancein costsstock-based compensation expense of $626,000; (ii) increased professional fees of $944,000, primarily related to the merger and the Nasdaq listing; (iii) increased other operating expenses of $1,471,000 including higher wages$267,000 and other costspersonnel associated with the Nasdaq listing; and offset by (iv) decreased stock based compensation of $1,489,000. The stock based compensation during the year ended December 31, 2023 included warrants to purchase common stock issued on May 8, 2023 for 765,000 shares to each of the two founders valued at $2,136,000.costs.

Other Income (Expense) — Other expenseincome for the year ended December 31, 20242025 was $53,960,000$36,537,000 as compared to other incomeexpense of $23,011,000$53,960,000 for the year ended December 31, 2023.2024. Other expenseincome for the year ended December 31, 20242025 consisted of (i) lossgain from change in fair value of earnout liability of $18,171,000$15,402,000; (ii) lossgain from change in fair value of warrant liability of $33,513,000$20,853,000; and (iii) loss from change in fair value of convertible debt of $142,000; (iv) loss on note conversion of $1,145,000; (v) interest expense of $1,003,000: and offset by (vi) other income of $14,000.$282,000. The lossincome from change in fair value of various financial instruments was primarily the result of ana increasedecrease in theour stock price.

Other incomeexpense for the year ended December 31, 20232024 consisted of (i) gainloss from change in fair value of earnout liability of $18,171,000; (ii) loss from change in fair value of warrant liability of $1,341,000$33,513,000; (iiiii) gainloss from change in fair value of earnoutconvertible liabilitydebt of $21,977,000$142,000; (iv) loss on note conversion of $1,145,000; (v) interest expense of $1,003,000; and offset by (iiivi) unrealizedother loss for increase in fair valueincome of convertible promissory note of $241,000 and (iv) noncash interest and other, net of $66,000.$14,000. The gainloss from change in fair value of various financial instruments was primarily the result of aan decreaseincrease in the stock price from the merger date to December 31, 2023.price.

Net Income (Loss) — Net income (loss) for the year ended December 31, 20242025 was $57,465,000$29,321,000 as compared to a net incomeloss of $16,371,000$57,465,000 for the year ended December 31, 2023.2024. The net lossincome primarily related to noncash items of $55,766 ,000.$34,247,000. Noncash items included (i) depreciationgain from change in warrant liability of $2,000$20,853,000; (ii) gain from change in earnout liability of $15,402,000; and offset by (iii) stock based compensation of $1,363,000$1,630,000; and (iiiiv) net amortization of operating lease right of use asset of $223,000; (iv) issuance of common stock for services of $199,000; (v) noncash interest expense of $1,008,000; (vi) loss from change in warrant liability of $33,513,000; (vii) loss from change in earnout liability of $18,171,000; (viii) loss from change in fair value of convertible note of $142,000; and (ix) loss on note conversions of $1,145,000.$378,000.

Net cash provided by financing activities for the year ended December 31, 20242025 was $14,785,000$8,347,000 and consisted of (i) net proceeds from offering of $7,290,000; (ii) net proceeds from exercise of warrants of $7,705,000$9,498,000; and (iiiii) proceeds from stock option exercises of $240,000$149,000; and offset by (iii) repayment of advances by founders of $450,000.$1,300,000.

Net cash provided by financing activities for the year ended December 31, 20232024 was $6,120,000$14,785,000 and consisted of (i) issuancenet proceeds from offering of a senior secured convertible promissory note of $2,585,000$7,290,000; (ii) net advancesproceeds providedfrom by the foundersexercise of $1,150,000warrants of $7,705,000; and (iii) proceeds from reversestock capitalizationoption exercises of $2,800,000$240,000; and (iv) offset by (iv) the payoffrepayment of smalladvances businessby loan and linefounders of credit of $425,000.$450,000.

On June 22, 2023, we entered into a senior secured convertible promissory note with Platinum Capital Partners Inc. (“Platinum”) and received $2,000,000. On June 22, 2024, we entered into an extension agreement with Platinum Capital Partner, Inc. to extend the maturity date of the $2,000,000 senior secured convertible promissory note to June 22, 2025. In consideration for entering into the extension agreement, we issued to Platinum 232,360 shares of common stock in payment of all interest and extension fees through June 22, 2025. As of December 31, 2024, the Platinum convertible note was fully converted to equity. We issued 879,051 shares of common stock related to the conversion.

On October 3, 2023, we issued senior secured convertible promissory notes for $600,000 to two private investors. At the option of the holders, the notes were convertible into cash, common stock or a combination of cash and stock. On March 5, 2024, the two private investors converted the notes with a face value of $600,000 and interest into 169,204 shares of the Company’sour common stock valued at $835,610. On September 13, 2024, we issued an additional 86,198 shares of our common stock related to the conversion of notes at $2.65 per share. We recognized a loss on debt conversion of $393,253 during the year ended December 31, 2024.

Contractual Obligations and Commitments [MAKE CHANGES TO SAME DISCLOSURE THAT APPEARS ON PAGE 36] On July 13, 2023, we entered into a lease in Redmond, WA for 15,567 square feet of office and warehouse space which started on October 1, 2023. The monthly payment is $25,000 per month. The lease expires October 31, 2027 and the monthly payment increases 3% on July 31, 2024 and each year thereafter. There is a one three year option to extend the lease based on the fair market rate on October 31, 2027. We do not believe that is reasonably certain that the lease will be extended.

We recorded our senior secured convertible promissory note, earnout liability (unvested earnout shares), and public and private placement warrants and the warrants that were issued with the senior secured convertible note at fair value,warrants, remeasured on a recurring basis The senior secured convertible note was fully converted to equity as of 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 December 31, 20242025 and 20232024 are based upon the short-term nature of the assets and liabilities.

TheWe Company classifiesclassify 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).

Backlog as of MayAugust 6, 2026 waswere approximately $4.6$6.9 million, representing firm fixed price contracts awarded in the first quarterand second quarters of 2026 that willare expected to be shipped and primarily invoiced throughin the remainderthird quarter of 2026.

OurSeparately, our total validated pipeline as of MarchAugust 31,6, 2026 was $165.3$206.1 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. Backlog reflects awards already executed, whereas pipeline reflects identified and qualified opportunities that have not yet resulted in awards. We can give no assurance as to whether, when, or in what amount pipeline opportunities will convert into backlog or revenue.

We are a robustan AI-driven data management platform that solves complex data challenges for large institutions operating in dynamic and mission-critical environments withcharacterized by rapidly increasing volumes of data being ingested from a similarly rapidly growing number of data sources. We address these challenges by structuring “dark” or unstructured data at the edge, the location at which the data is generated and collected using purpose-built AI models, enabling real-time decision-making rather than transmitting raw data to a central location for processing.

We specialize in ingesting all available metadata from edge-based sensors used by government and law enforcement agencies around the world,worldwide, including surveillance cameras (video),video, audio, telemetry, acoustic, seismic,seismic and autonomous devices, alongas withwell as by large commercial corporationsorganizations with fundamentally similar capabilitiesrequirements. Our trained AI models detect and requirements.extract identifying characteristics of objects within a video frame (for example, a vehicle’s license plate characters and its make, model and color), a process we refer to as “structuring” the data, and allow customers to act on that data both in real time and through historical search.

Our primary offerings include Outpost AI,AI Acropolis,(edge structuring and analysis), Acropolis (enterprise management software backbone, deployable on-premises or in cloud/multi-cloud architectures), Airship Command.Command Our(visualization across workstation, web and mobile) and Fortress Server (our on-premises data center server and storage platform). These product offerings allow customers to manage their data across the full data lifecycle,lifecycle when and where they need it, usingthrough a highlysecure, securepermission-based, permissioned basedsingle-pane-of-glass architecture.

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 MarchJune 31,30, 2026, there were 515,000 private placement warrants and 16,145,006 public warrants outstanding.

The following table sets forth key components of our results of operations during the three months ended MarchJune 31,30, 2026 and 2025.

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support. For the three months ended MarchJune 31,30, 2026, cost of sales decreasedincreased $81,000$412,000 to $3,187,000$1,026,000 as compared to $3,268,000$614,000 for the three months ended MarchJune 31,30, 2025. The decreaseincrease was due to increased sales and reflects product mix with increased higher margin commercial sales during the three months ended MarchJune 31,30, 2026, offset by raw material cost increases.

Research and Development Expenses — Research and development expenses for the three months ended MarchJune 31,30, 2026 increased $125,000$113,000 to $844,000$854,000 as compared to $719,000$741,000 for the three months ended MarchJune 31,30, 2025. The increase was due to increased expenses for product development in the United States and Taiwan.

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended MarchJune 31,30, 2026 increased $674,000$921,000 to $3,904,000$3,735,000 as compared to $3,230,000$2,814,000 for the three months ended MarchJune 31,30, 2025. The increase is primarily due to an increase in stock-based compensation expense of $238,000$579,000 and other personnel costs.

Other Income (Expense) — Other incomeexpense for the three months ended MarchJune 31,30, 2026 was $861,000$916,000 as compared to other incomeexpense for the three months ended MarchJune 31,30, 2025 was $25,422,000.$21,735,000. Other incomeexpense for the three months ended MarchJune 31,30, 2026 consisted of (i) loss from change in fair value of earnout liability of $726,000$193,000; (ii) gainloss from change in fair value of warrant liability of $1,499,000$833,000; and offset by (iii) interest income of $88,000.$110,000. The loss from change in fair value of earnout liability resulted from thean increase in the volatility factor to 78.4%, offset by a decrease in the our share price. The incomeexpense from change in fair value of warrant liability was primarily the result of aan decreaseincrease in our stock price.

Other incomeexpense for the three months ended MarchJune 31,30, 2025 was $21,735,000 as compared to other income of $17,486,000 for the three months ended June 30, 2024. Other expense for the three months ended June 30, 2025 consisted of (i) gainloss from change in fair value of earnout liability of $9,824,000$7,302,000; (ii) gainloss from change in fair value of warrant liability of $15,521,000$14,494,000; and (iii) other income of $77,000.$61,000. The gainloss from change in fair value of various financial instruments was primarily the result of aan decreaseincrease in our stock price.

Net (Loss)Income — Net (loss) for the three months ended MarchJune 31,30, 2026 was $721,000$2,407,000 as compared to a net income(loss) of $23,708,000$23,757,000 for the three months ended MarchJune 31,30, 2025. The net loss primarily related to increases in selling, general and administrative and research and development expenses.

Net incomeloss for the three months ended MarchJune 31,30, 2025 was $23,757,000 as compared to net income of $18,462,000 for the three months ended June 30, 2024. The net loss primarily related to noncash itemsexpenses of $24,833,000.$22,264,000. Noncash items included (i) gainloss from change in warrant liability of $15,521,000$14,494,000; and (ii) gainloss from change in earnout liability of $9,823,000$7,301,000; and offset by (iii) stock based compensation of $428,000$372,000; and (iv) net amortization of operating lease right of use assetsasset of $83,000.$97,000.

Liquidity and Capital Resources as of MarchJune 31,30, 2026 and 2025

Liquidity is our ability to generate funds to support itsour current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. We have incurred losses from operations in the past few years and had an accumulated deficit of $46$48.7 million as of MarchJune 31,30, 2026. As of June 30, 2026, we had cash and cash equivalents of $12.4 million and no outstanding debt. Based on our current available cash and operations, we have concluded there is no substantial doubt about our ability to continue as a going concern for at least twelve months from the issuance of these financial statements.

On October 8, 2025, we entered into warrant exercise inducement offer letter with the holder of existing common stock warrants exercisable for an aggregate of 2,162,162 shares of common stock to exercise such warrants at the existing exercise price of $4.50 per share, in exchange for our 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 received from the exercise of the existing warrants were approximately $9,729,729, before deducting financial advisory fees. We intend to use the net proceeds from the exercise of the existing warrants for working capital and general corporate purposes.

Net cash generated by operating activities for the threesix months ended MarchJune 31,30, 2026 was $814,000.$579,000. This amount was primarily related to (i) net loss of $721,0003,127,000; andoffset by (ii) noncash items of $5,000$2,077,000; offset byand (iii) operating assets and liabilities changes of $1,540,000$1,629,000 (including a $493,000$314,000 increase in deferred revenues). Noncash items included (iv) gain from change in warrant liability of $1,499,000; and offset by (v) loss from change in earnout liability of $726,000$919,000; (viv) stock based compensation of $666,000$1,617,000; and (viivi) net amortization of operating lease right of use asset of $102,000.$207,000; and offset by gain from change in warrant liability of $666,000.

Net cash used in operating activities for the threesix months ended MarchJune 31,30, 2025 was $2,098,000.$3,919,000. This amount was primarily related to (i) net incomeloss of $23,708,000$49,000; and offset by (ii) operatingnet assetsworking and liabilitiescapital reductions of $973,000$1,301,000 (including a $713,000$606,000 reduction in deferred revenues); and offset by (iii) noncash items of $24,833,000.$2,569,000. Noncash items included (iv) gain from change in warrant liability of $15,521,000$1,027,000; and (v) gain from change in earnout liability of $9,823,0002,522,000; and offset by (vi) stock based compensation of $428,000$800,000; and (vii) net amortization of operating lease right of use assetsasset of $83,000.$180,000.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2026 was $11,000$56,000 and consisted of net proceeds from stock option and warrant exercises.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2025 was $497,000$1,182,000 and consisted of (i) repayment of advances by founders of $600,000$1,300,000; and offset by (ii) net proceeds from exercise of warrants of $60,000; and (iii) proceeds from stock option exercises of $43,000.$58,000.

On September 7, 2023, we 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 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. The option must be exercised by October 31, 2026. We do not believe that is reasonably certain that the lease will be extended.

On December 6, 2024, we entered into two separate office leases in Mooresville, North Carolina, the terms of which commenced on February 1, 2025. We lease 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.