UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
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.
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
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(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 |
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| The | ||
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| The |
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.
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).
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 | ☐ |
☒ | 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
As of November 5, 2026, there were a total of
Airship AI Holdings, Inc.
Quarterly Report on Form 10-Q
Quarterly Period Ended September 30, 2026
TABLE OF CONTENTS
| 2 |
| Table of Contents |
PART I
ITEM 1. FINANCIAL STATEMENTS.
AIRSHIP AI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2026 and December 31, 2025
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| September 30, 2026 |
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| December 31, 2025 (1) |
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ASSETS |
| Unaudited |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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Accounts receivable, net of allowance for credit losses of $ |
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Inventory |
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Prepaid expenses and other |
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Total current assets |
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OTHER ASSETS |
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Other assets |
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Operating lease right of use asset |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable - trade |
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Accrued expenses |
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Current portion of operating lease liability |
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Deferred revenue- current portion |
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Total current liabilities |
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NON-CURRENT LIABILITIES: |
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Operating lease liability, net of current portion |
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Warrant liability |
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Earnout liability |
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Deferred revenue- non-current |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Note 8) |
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STOCKHOLDERS' EQUITY (DEFICIT): |
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Preferred stock - no par value, |
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Common stock - $ |
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Additional paid in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders' equity (deficit) |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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(1) | Derived from the audited consolidated balance sheet. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
| Table of Contents |
AIRSHIP AI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the three and nine months ended September 30, 2026 and 2025
(Unaudited)
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| Three Months Ended |
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| September 30, 2026 |
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| September 30, 2025 |
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NET REVENUES: |
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Product |
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Post contract support |
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Other services |
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COST OF NET REVENUES: |
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Cost of sales |
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Post contract support |
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Other services |
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GROSS PROFIT |
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RESEARCH AND DEVELOPMENT EXPENSES |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
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TOTAL OPERATING EXPENSES |
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OPERATING LOSS |
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OTHER INCOME: |
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Gain from change in fair value of earnout liability |
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Gain from change in fair value of warrant liability |
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Interest income, net |
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Total other income, net |
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INCOME BEFORE PROVISION FOR INCOME TAXES |
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Provision for income taxes |
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NET INCOME |
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OTHER COMPREHENSIVE (LOSS) |
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Foreign currency (loss), net |
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TOTAL COMPREHENSIVE INCOME |
| $ |
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NET INCOME PER SHARE: |
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Basic |
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Diluted |
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Weighted average shares of common stock outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
| Table of Contents |
AIRSHIP AI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
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| Common |
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| Other |
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| Total |
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| Accumulated |
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| Comprehensive |
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| Stockholders' |
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| Stock |
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| Capital |
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| Deficit |
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| Income (Loss) |
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| Equity (Deficit) |
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Balance as of January 1, 2025 |
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Stock-based compensation |
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Issuance of common stock for exercise of warrants |
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Issuance of common stock for stock options exercise |
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Issuance of common stock for earnout shares |
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Foreign currency translation loss |
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Net income |
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Balance as of March 31, 2025 |
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Stock-based compensation |
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Issuance of common stock for exercise of warrants |
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Issuance of common stock for stock options exercise |
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Net loss |
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Balance as of June 30, 2025 |
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Stock-based compensation |
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Issuance of common stock for exercise of warrants |
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Issuance of common stock for stock options exercise |
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Net income |
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Balance as of September 30, 2025 |
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Balance as of January 1, 2026 |
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Stock-based compensation |
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Issuance of common stock for exercise of warrants |
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Issuance of common stock for stock options exercise |
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Foreign currency translation loss |
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Net loss |
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Balance as of March 31, 2026 |
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Stock-based compensation |
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Issuance of common stock for stock options exercise |
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Foreign currency translation loss |
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Net loss |
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Balance as of June 30, 2026 |
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Stock-based compensation |
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Foreign currency translation loss |
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Net income |
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Balance as of September 30, 2026 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
| Table of Contents |
AIRSHIP AI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2026 and 2025
(Unaudited)
|
| Nine Months Ended |
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|
| September 30, 2026 |
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| September 30, 2025 |
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| Unaudited |
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| Unaudited |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
| $ |
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Adjustments to reconcile net income (loss) to net cash provided by |
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(used in) operating activities |
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Stock-based compensation |
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Amortization of operating lease right of use asset |
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(Gain) from change in fair value of warrant liability |
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(Gain) from change in fair value of earnout liability |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other |
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Other Assets |
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Operating lease liability |
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Accounts payable - trade and accrued expenses |
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Deferred revenue |
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from warrant exercise, net |
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Repayment of advances from founders |
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Proceeds from stock option exercises |
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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Effect from exchange rate on cash |
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CASH AND CASH EQUIVALENTS, beginning of period |
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CASH AND CASH EQUIVALENTS, end of period |
| $ |
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| $ |
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Supplemental disclosures of cash flow information: |
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Interest paid |
| $ |
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| $ |
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Taxes paid |
| $ |
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| $ |
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Noncash investing and financing |
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Issuance of common stock for earnout shares |
| $ |
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| $ |
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Recognition of operating right-of-use asset |
| $ |
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| $ |
| ||
Recognition of operating lease liability |
| $ |
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| $ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 12– Fair Value Measurements for more information.
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Business
The Company is an artificial intelligence (“AI”) software company. The Company’s platform ingests video, sensor and event data generated at the edge by surveillance cameras and other sensors, as well as by the video management, access control and other physical security systems its customers have already deployed; structures that data using AI models; and makes the resulting structured data available to users for real-time alerting, historical search and, increasingly, natural-language query and agentic AI workflows. The Company serves government and law enforcement agencies, principally U.S. federal homeland security and law enforcement customers, as well as large commercial organizations with similar sensor, security and data-management requirements.
Unstructured, or “dark,” data, such as raw video, cannot be processed and analyzed using conventional data tools and methods. The Company’s software structures this data at the edge, the location at which it is generated and collected, by detecting objects within a video frame (for example, a vehicle, person, aircraft, boat, bag or weapon) and extracting identifying characteristics of those objects (for example, a vehicle’s license plate characters and its make, model and color, or an aircraft’s tail number). The Company refers to this process of analyzing, logging and categorizing ingested data as “structuring” the data. Structured data can be used in real time (for example, alarms on a specific license plate) and through historical search of previously ingested data. Structuring data at the edge, rather than transmitting raw data to a central location for processing, enables real-time decision-making and reduces the volume of data that must be transmitted and stored.
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The Company’s AI modeling process starts with pre-trained models from its technology ecosystem partners, which the Company customizes using proprietary datasets tailored to its customers’ workflow requirements. Where customers have pre-existing AI models or engines, the Company integrates those models into its platform. The Company’s platform is designed to be model-agnostic, allowing customers to apply the vision-language or large language model best suited to their use case, security requirements and cost constraints.
The Company’s software platform consists of Outpost AI (edge software for structuring and analyzing sensor data at the point of collection), Acropolis (the enterprise management software backbone, deployable on-premises or in cloud and multi-cloud architectures), Airship Command (visualization and operator tools across workstation, web and mobile) and Ask Airship (an agentic AI layer, currently under development, designed to allow users to query, analyze and act on structured data using natural language). The platform is designed to operate as an open software layer above a customer’s existing video management, access control and other physical security systems, independent of the underlying camera or hardware vendor, so that customers can add analytical and agentic capability to infrastructure they have already deployed. The platform uses a secure, permission-based architecture that allows customers to manage their data across the full data lifecycle while retaining control of that data within their own on-premises or customer-controlled cloud environment.
The Company delivers its software through software subscriptions, consumption-based arrangements and, where a customer’s environment requires it, pre-configured appliances and servers on which the Company’s software is installed, including Outpost AI edge appliances and Fortress Server, the Company’s on premises data center server and storage platform. Historically, the majority of the Company’s revenue has been derived from bundled hardware and software systems delivered under multi-year agreements together with professional services, technical support and software maintenance. Agentic AI software is the primary focus of the Company’s current product development efforts, and the Company is seeking to increase over time the proportion of its revenue derived from software subscriptions and consumption-based arrangements. See Note 2 – Revenue Recognition and Deferred Revenue.
The Company employed sixty four employees as of September 30, 2026. The employees are headquartered in Redmond, WA and are supported by a team at its Customer Center of Excellence located in Charlotte, NC. The Company employed nine research and development personnel in Taiwan as of September 30, 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 with 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.
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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 its 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 U.S. banks are insured by the Federal Deposit Insurance Corporation up to $
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). Historically, the Company has not incurred any significant warranty expenses and as such, a warranty reserve was not considered necessary as of September 30, 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 calendar days of the invoice date and may include options to renew. For the three months ended September 30, 2026 and 2025, the Company recognized revenue of $
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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, |
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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 $
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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, 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.
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 September 30, 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 September 30, 2026, December 31, 2025 and January 1, 2025 were $
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 nine months ended September 30, 2026, the Company had revenue from 103 customers and four customers represented
For the nine months ended September 30, 2025, the Company had revenue from eighty nine customers and two customers represented
Inventory
The Company’s purchase of inventory, primarily computer servers and AI hardware, 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. Inventory is recorded on a first in first out basis. The Company reviews its inventory on a periodic basis to identify products that are slow moving and/or obsolete, and if such products are identified, the Company records the appropriate inventory impairment charge at such time. The Company recorded no impairment losses for the three and nine months ended September 30, 2026 and 2025.
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 and nine months ended September 30, 2026 and 2025.
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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.
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 $
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 September 30, 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 September 30, 2026 and 2025 were $
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:
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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, and they are 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 September 30, 2026 and December 31, 2025 are based upon the short-term nature of the assets and liabilities.
The Company classifies as liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
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
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
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.
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At the closing of the Merger, the earnout shares associated with unvested underlying shares were considered to be equity instruments and valued at approximately $
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.
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 Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business during a period from non-owner sources. There was other comprehensive (loss) of ($
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 November 2026, the Company analyzed its cash requirements and operations at least through November 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.
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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.
Income Per Share
Basic income per share is based upon the net income for the three and nine months ended September 30, 2026 and 2025 divided by the weighted average shares of common stock outstanding. Diluted net income per share is determined using the weighted average number of shares of common stock and potential common stock (representing the dilutive effect of stock options, warrants and stock appreciation rights) outstanding during the period using the treasury stock method. See Note 13—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 September 30, 2026 and 2025 consisted of approximately $
The Company’s remaining net revenue for the three months ended September 30, 2026 and 2025 of approximately $
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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 September 30, 2026 and December 31, 2025, there are no unbilled receivable balances.
The Company’s short-term and long-term deferred revenue balances totaled $
Remaining Performance Obligations
As of September 30, 2026 and December 31, 2025, the Company had approximately $
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. Inventory
Inventory was $
5. Stockholders’ Equity 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
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 September 30, 2026 and December 31, 2025, there were no shares of preferred stock outstanding.
Common Stock
As of September 30, 2026 and December 31, 2025, there were
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Nine Months Ended September 30, 2026
During the nine months ended September 30, 2026, the Company had the following issuances of equity securities:
During the nine months ended September 30, 2026, investors exercised warrants for two shares of the Company’s common stock at $
During the nine months ended September 30, 2026, the Company issued an aggregate of
Nine Months Ended September 30, 2025
During the nine months ended September 30, 2025, the Company had the following issuances of equity securities:
As of September 30, 2024, the Company determined the First Operating Performance Milestone of the earnout shares was achieved resulting in the vesting of
During the nine months ended September 30, 2025, investors exercised warrants for
During the nine months ended September 30, 2025, the Company issued an aggregate of
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
The aggregate number of shares of common stock pursuant to awards granted under the Equity Incentive Plan is
The Company had the following stock option activity during the nine months ended September 30, 2026:
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During the nine months ended September 30, 2026, the Company granted stock options to eight employees and consultants to purchase an aggregate of
During the nine months ended September 30, 2026, previous employees forfeited an aggregate of
On April 20, 2026, the Company modified
The following table summarizes information about stock options outstanding and exercisable as of September 30, 2026:
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| 0.57 |
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1.49-1.65 |
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2.27-2.49 |
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2.72-3.06 |
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3.27-4.47 |
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There were
As of September 30, 2026, there were $
There were stock incentive plan awards outstanding at September 30, 2026 totaling
Stock Appreciation Rights Plan
On February 17, 2022, in connection with the Share Exchange Agreement with Super Simple AI, Inc., the
As of September 30, 2026 and December 31, 2025, there were
Warrants to Purchase Common Stock
See Note 10 for public and private placement warrants assumed after the Merger.
The Company had the following warrant activity during the three months ended September 30, 2026:
During the nine months ended September 30, 2026, investors exercised warrants for two shares of the Company’s common stock and the Company received proceeds of $
| 18 |
| Table of Contents |
Warrant activity for the nine months ended September 30, 2026 was as follows:
|
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| Weighted |
| |||
|
|
|
| Average |
| |||
|
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| Exercise |
| |||
|
| Warrants |
|
| Price |
| ||
| Outstanding January 1, 2025 |
|
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|
| $ |
| ||
| Issued |
|
|
|
|
|
| ||
| Exercised |
|
| ( | ) |
|
| ( | ) |
| Forfeited |
|
| - |
|
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| |
| Outstanding January 1, 2026 |
|
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| ||
| Issued |
|
| - |
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| |
| Exercised |
|
| ( | ) |
|
| ( | ) |
| Forfeited |
|
| - |
|
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| |
| Outstanding at September 30, 2026 |
|
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| $ |
| ||
A summary of the warrants outstanding as of September 30, 2026 was as follows:
|
|
| September 30, 2026 |
| ||||||||||||||
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| Weighted |
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| Weighted |
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Number of |
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| Remaining |
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| Exercise |
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| Shares |
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| Exercise |
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Warrants |
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| Exercisable |
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There were warrants outstanding at September 30, 2026 totaling
Earnout Liability
See Note 11 for shares of common stock related to earnout liability.
6. Employee 401(k) Plan
The Company has a 401(k) plan for its employees.
7. Related Party Transactions
There are no related party transactions outside of the ordinary course of business.
| 19 |
| Table of Contents |
8. 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.
Employment Agreement
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 $
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 rate 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.
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 assets are recorded based upon the present value of the lease payments over the expected lease term. As of September 30, 2026 and December 31, 2025, total operating lease liabilities were $
The weighted average remaining lease term for the operating leases was twenty three months at September 30, 2026. The weighted average discount rate was
| 20 |
| Table of Contents |
The minimum future lease payments as of September 30, 2026 are as follows:
| Years Ended September 30, |
|
|
| |
2027 |
| $ |
| |
2028 |
|
|
| |
| Total remaining payments |
|
|
| |
| Less imputed interest |
|
| ( | ) |
| Total lease liability |
| $ |
| |
On September 7, 2023, the Company entered into a lease in Redmond, WA for
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
9. Income Taxes
The Company recorded a provision for income taxes of $
The Company’s effective tax rate was
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 September 30, 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.
10. Warrant Liability
At the Merger closing, the Company assumed
| 21 |
| Table of Contents |
As of September 30, 2026 and December 31, 2025, the Private and Public Warrants had an aggregate fair value of $
The following table is a summary of the number of shares of the Company’s common stock issuable upon exercise of the public and private warrants outstanding as of September 30, 2026 and December 31, 2025, respectively:
September 30, 2026 | ||||||||||||||
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| Number of Shares |
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| Price |
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| Expiration Date |
| Fair Value |
| |||
| Public Warrants |
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| $ |
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| $ |
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| Private Warrants |
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December 31, 2025 | ||||||||||||||
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| Number of Shares |
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| Price |
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| Expiration Date |
| Fair Value |
| |||
| Public Warrants |
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| $ |
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| Private Warrants |
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See Note 12 – Fair Value Measurements for more information.
11. Earnout Liability
At the closing of the Merger, the Airship AI securityholders that held 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
As of September 30, 2026, the estimated fair value of the earnout liability decreased to $
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 $
As of September 30, 2024, the Company determined the first operating performance milestone was achieved resulting in the vesting of
| 22 |
| Table of Contents |
12. 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 September 30, 2026:
|
| September 30, 2026 |
| |||||||||||||
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| Level 1 |
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| Level 2 |
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| Level 3 |
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| Total |
| ||||
Liabilities- |
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Earnout liability |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
Warrant liability (Public Warrants) |
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Warrant liability (Private Warrants) |
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Total liabilities measured at fair value |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
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 December 31, 2025:
|
| December 31, 2025 |
| |||||||||||||
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| Level 1 |
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| Level 2 |
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| Level 3 |
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| Total |
| ||||
Liabilities- |
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Earnout liability |
| $ |
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| $ |
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| $ |
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| $ |
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Warrant liability (Public Warrants) |
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Warrant liability (Private Warrants) |
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Total liabilities measured at fair value |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
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:
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
Stock price |
| $ |
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| $ |
| ||
Risk-free interest rate |
|
| % |
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| % | ||
Expected term (in years) |
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Expected volatility |
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| % |
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| % | ||
Dividend yield |
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| % |
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| % | ||
The fair value of the
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 and nine months ended September 30, 2026 and 2025.
| 23 |
| Table of Contents |
13. Earnings per Share
The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders:
|
| September 30, 2026 |
|
| September 30, 2025 |
| ||||||||||
|
| Three Months Ended, |
|
| Nine Months Ended, |
|
| Three Months Ended, |
|
| Nine Months Ended, |
| ||||
| Net income |
| $ |
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| Weighted average shares outstanding- |
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Basic |
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Add: dilutive effect of stock options, SARs and warrants |
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Diluted |
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| Income per share- |
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Basic |
| $ |
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| $ |
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| $ |
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| ||||
Diluted |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
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 |
| September 30, 2026 |
|
| September 30, 2025 |
| ||
| Public Warrants |
|
|
|
|
| - |
| |
| Private Warrants |
|
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| - |
| |
| Warrants |
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| - |
| |
| Outstanding stock options |
|
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| - |
| |
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| - |
| |
The
14. 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 September 30, 2026, there were no material transactions that occurred that would require recognition or disclosure in the financial statements.
| 24 |
| 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 October 1, 2026 was approximately $28.3 million, representing firm validated contract backlog. This backlog represents firm commitments scheduled for systematic execution and delivery during the quarters ending December 31, 2026 and March 31, 2027.
Separately, our total validated pipeline as of October 1, 2026 was $215.1 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. The increase in our validated pipeline compared with prior periods reflects both continued progression of federal opportunities and a growing contribution from commercial opportunities sourced through our partner and channel relationships, which we discuss under “Strategic Initiatives” below. 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.
Federal Funding Environment
A substantial majority of our revenue is derived from U.S. federal law enforcement and homeland security customers. During 2025, uncertainty surrounding federal budget priorities and the pace of government spending, including federal initiatives to reform government processes and reduce expenditures contributed to variability in the timing of government awards and procurement activity, which affected our government business. More recently, we have observed an improving federal funding environment for the mission areas our platform supports, including border security and public safety, which we believe is reflected in the growth and stage progression of our validated pipeline. The timing and amount of government awards remain subject to factors outside our control, including appropriations, shifting agency priorities and procurement cycles, and we can provide no assurance regarding the conversion of any particular opportunity.
Strategic Initiatives
We are pursuing a deliberate expansion of our commercial business to complement our established federal law enforcement and homeland security customer base. While a substantial majority of our revenue is currently derived from government customers, we believe our edge AI and data management platform is directly applicable to commercial organizations with large-scale sensor, security and data-management requirements, and we are investing to broaden our presence across commercial verticals. The strategic initiatives described below are central to this expansion.
Agentic AI (Ask Airship)
We are developing Ask Airship, an agentic AI capability designed to allow users to query, analyze and act on structured data across our platform using natural language, which we intend to offer as a standalone product complementary to our Outpost AI, Acropolis, Airship Command and Fortress Server offerings. We intend to make Ask Airship available on a software-as-a-service (subscription) basis as well as on a pay-per-use, consumption-based basis.
Ask Airship is intended to differentiate our platform from traditional video management system (“VMS”) providers. Rather than competing with VMS, access control and other established physical security systems, Ask Airship is designed to operate as a layer above them, ingesting and structuring the video, sensor and event data those systems generate and consolidating it into a single decision-support environment. We believe most organizations have made substantial investments in security infrastructure that produces large volumes of camera-derived data but offers limited ability to reason across that data or act on it. Our objective is to become the data and decision platform for camera-derived and related sensor data, independent of the underlying VMS or hardware vendor, so that a customer can retain its existing systems and add analytical and agentic capability on top of them rather than replacing infrastructure it has already deployed. We also believe that the data these systems generate has value beyond physical security. By structuring camera and sensor data and making it accessible to operational users, Ask Airship is intended to help customers extract operational intelligence from existing infrastructure in areas such as facility utilization, process compliance, safety and logistics, which we believe broadens both the set of users within a customer organization and the budgets available to fund our solutions. A significant element of our integration roadmap is the large installed base of commercial camera and recording systems manufactured by large installed base of commercial camera systems, including manufacturers restricted in federal procurement, with which our platform already integrates. We believe this installed base, which is typically treated as commodity video capture and storage equipment, is under-served by analytics and represents an opportunity for Ask Airship and Airship Light to add intelligence to equipment customers already own. Our integrations with these systems are directed at commercial customers; we do not supply or resell such equipment, and our federal and other government engagements remain subject to applicable restrictions on covered telecommunications and video surveillance equipment. Consistent with this positioning, we are seeking to shift a greater portion of our commercial revenue from the capital-expenditure purchasing model that has traditionally characterized security technology toward operating-expenditure, subscription and consumption-based arrangements. Over time, we believe this shift could increase the proportion of our revenue that is recurring; however, it may also reduce the size of initial orders relative to our historical hardware-inclusive engagements and affect the timing of revenue recognition, and there can be no assurance that customers will adopt these purchasing models at the rate we anticipate.
| 25 |
| Table of Contents |
A core design principle of Ask Airship is that the customer retains control of its data. Structured data remains within the customer's own environment, whether on-premises or in a customer-controlled cloud, and Ask Airship is architected to be model-agnostic, allowing the customer to apply the vision-language model (“VLM”) or large language model (“LLM”) best suited to its particular use case, security requirements and cost constraints rather than being limited to a single vendor's model. We believe this approach is attractive both to federal and other security-sensitive customers, for whom data sovereignty and model provenance are procurement requirements, and to commercial customers seeking to benefit from rapid improvements in foundation models without re-platforming. For deployments in federal and other security-sensitive environments, we expect on-premises inference to rely on Western open-weight models to satisfy applicable procurement and model-origin requirements. Our ability to execute on this strategy depends on, among other things, maintaining integrations with third-party VMS and security systems, continued availability of suitable third-party models on acceptable terms, and market acceptance of a vendor-independent architecture, and we can give no assurance that we will be successful.
Agentic AI is now the primary focus of our product development efforts. During the third quarter of 2026 we significantly increased our engineering investment in Ask Airship, including expanding our dedicated development team, and we expect research and development expenses to continue to increase in the coming quarters as a result. Building on the Ask Airship core, we are developing Airship Light, a standardized, lower-cost appliance that packages our edge AI structuring and agentic capabilities in a pre-configured form intended for commercial customers that operate large numbers of sites and existing camera installations, and that is designed to be deployed through our partner and channel relationships rather than through the customized, professional-services intensive engagements that characterize our federal business. We currently expect to make Airship Light commercially available in the first half of 2027. The timing of any product release, as well as market acceptance, pricing and the ultimate financial contribution of these initiatives, is subject to development, integration and competitive risks, and we can give no assurance that these initiatives will be completed on the timeline we currently anticipate or that they will generate meaningful revenue.
Commercial Expansion and Partner Channels
In 2026, we added dedicated commercial sales leadership and began building a partner and channel program to reach commercial customers through systems integrators, distributors and technology partners rather than solely through direct sales. These efforts are at an early stage, but during the third quarter of 2026 we began to see increased engagement from our partner channels, which contributed to the growth in our validated pipeline described above. Commercial opportunities generally carry shorter sales cycles and smaller initial deployment sizes than our federal engagements, and we can give no assurance as to whether or when these opportunities will convert into revenue.
Separately, one of our largest commercial customers has informed us that it intends to migrate its video management operations to a different platform. Purchases by this customer had already been declining over the past several years, and we expect the transition to occur gradually over approximately the next 12 to 18 months, during which we anticipate continuing to provide support and maintenance under our existing arrangements while revenue from this customer declines. Revenue from this customer represented approximately 18.5% of our total revenue for the nine months ended September 30, 2026. A separate company that was formerly affiliated with this customer, and is no longer part of the same corporate group, continues to be a customer and is not affected by this transition. We do not currently expect this transition to have a material impact on our overall results of operations, but the timing and extent of the decline are outside our control, and we can give no assurance that our commercial expansion efforts will offset the associated revenue in any particular period.
Overview
We address a problem common to these organizations: they have invested heavily in sensors and security infrastructure that generate large volumes of unstructured, or “dark,” data, principally video, but have limited ability to reason across that data or act on it. Our software structures this data at the edge, the location at which it is generated and collected, by detecting objects within a video frame and extracting their identifying characteristics (for example, a vehicle’s license plate characters and its make, model and color), a process we refer to as “structuring” the data. Structuring at the edge, rather than transmitting raw data to a central location for processing, enables real-time decision-making and reduces transmission and storage requirements.
| 26 |
| Table of Contents |
Our software platform consists of Outpost AI (edge software for structuring and analyzing sensor data at the point of collection), Acropolis (our enterprise management software backbone, deployable on-premises or in cloud and multi-cloud architectures), Airship Command (visualization and operator tools across workstation, web and mobile) and Ask Airship (our agentic AI layer, currently under development, described under “Strategic Initiatives” above). The platform is designed to operate as an open software layer above a customer’s existing VMS and physical security systems, independent of the underlying camera or hardware vendor, and uses a secure, permission-based, single-pane-of-glass architecture under which the customer retains control of its data within its own on premises or customer-controlled cloud environment.
Where a customer’s environment requires it, we deliver our software on pre-configured appliances and servers, including Outpost AI edge appliances and Fortress Server, our on-premises data center server and storage platform. We view this hardware as a delivery vehicle for our software rather than as a business in itself. Historically, the majority of our revenue has been derived from bundled hardware and software systems sold under multi-year agreements together with professional services, technical support and software maintenance, with support and maintenance providing a recurring revenue component. Agentic AI software is now the primary focus of our product development efforts, and we are seeking to increase over time the proportion of our revenue derived from software subscriptions and consumption-based arrangements. This shift is at an early stage; see “Strategic Initiatives” above for a discussion of the related opportunities and risks.
From inception until the Merger in December 2023, we operated as a 100% employee-owned, bootstrapped company with no outside investment. As a U.S.-based company, we operate at the intersection of public safety and AI, in which we address a combined market we estimate at approximately $40 billion in 2026 and growing, spanning edge AI hardware and software (approximately $30 billion, according to Grand View Research, 2026) and agentic AI (approximately $10 billion, according to multiple industry analysts, 2026).
Employees
We employed sixty four employees as of September 30, 2026. The employees are headquartered in Redmond, WA and are supported by a growing team at our Customer Center of Excellence located in Charlotte, NC. We employed nine research and development personnel in Taiwan as of September 30, 2026.
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 12– Fair Value Measurements for more information.
| 27 |
| Table of Contents |
|
| Liability as of |
|
| Liability as of |
| ||
|
| September 30, 2026 |
|
| December 31, 2025 |
| ||
|
|
|
|
|
|
| ||
Earnout liability |
| $ | 309,204 |
|
| $ | 2,620,933 |
|
Warrant liability (Public Warrants) |
|
| 5,650,752 |
|
|
| 12,916,006 |
|
Warrant liability (Private Warrants) |
|
| 180,250 |
|
|
| 412,000 |
|
Total liabilities measured at fair value |
| $ | 6,140,206 |
|
| $ | 15,948,939 |
|
|
|
|
|
|
|
|
|
|
Other income related to instruments recorded at fair value during the three months ended September 30, 2026 and 2025 |
| $ | 10,061,651 |
|
| $ | 9,224,113 |
|
|
|
|
|
|
|
|
|
|
Other income related to instruments recorded at fair value during the nine months ended September 30, 2026 and 2025 |
| $ | 11,647,371 |
|
| $ | 12,773,132 |
|
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 September 30, 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 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.
| 28 |
| Table of Contents |
Results of Operations
The following table sets forth key components of our results of operations during the three months ended September 30, 2026 and 2025.
(dollars in thousands)
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2026 |
|
| 2025 |
|
| $ Variance |
|
| % Variance |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Net revenues |
| $ | 6,231 |
|
| $ | 1,177 |
|
| $ | 5,054 |
|
|
| 429.4 | % |
| Cost of net revenues |
|
| 2,728 |
|
|
| 574 |
|
|
| (2,154 | ) |
|
| -375.3 | % |
| Gross profit |
|
| 3,503 |
|
|
| 603 |
|
|
| 2,900 |
|
|
| 480.9 | % |
| Research and development expenses |
|
| 906 |
|
|
| 753 |
|
|
| (153 | ) |
|
| -20.3 | % |
| Selling, general and administrative expenses |
|
| 3,158 |
|
|
| 2,717 |
|
|
| (441 | ) |
|
| -16.2 | % |
| Total operating expenses |
|
| 4,064 |
|
|
| 3,470 |
|
|
| (594 | ) |
|
| -17.1 | % |
| Operating loss |
|
| (561 | ) |
|
| (2,867 | ) |
|
| 2,306 |
|
|
| 80.4 | % |
| Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain from change in fair value of earnout liability |
|
| 3,231 |
|
|
| 3,893 |
|
|
| (662 | ) |
|
| -17.0 | % |
| Gain in fair value of warrant liability |
|
| 6,831 |
|
|
| 5,331 |
|
|
| 1,500 |
|
|
| 28.1 | % |
| Interest income, net |
|
| 114 |
|
|
| 53 |
|
|
| 61 |
|
|
| 115.1 | % |
| Total other income, net |
|
| 10,176 |
|
|
| 9,277 |
|
|
| 899 |
|
|
| 9.7 | % |
| Income before provision for income taxes |
|
| 9,615 |
|
|
| 6,410 |
|
|
| 3,205 |
|
|
| 50.0 | % |
| Provision for income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Net income |
| $ | 9,615 |
|
| $ | 6,410 |
|
| $ | 3,205 |
|
|
| 50.0 | % |
Net Revenues — Net revenues for the three months ended September 30, 2026 increased $5,054,000 to $6,231,000 as compared to $1,177,000 for the three months ended September 30, 2025. The increase was due to increased commercial orders, which more than offset variability in the timing of federal awards during the period. Consistent with the concentrated, enterprise nature of our customer base, four customers represented approximately 87.5% of revenue for the three months ended September 30, 2026. Backlog as of October 1, 2026 was approximately $28.3 million, representing firm fixed price contracts awarded in 2026 that are expected to be shipped during the remainder of 2026 and early 2027.
Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support. For the three months ended September 30, 2026, cost of sales increased $2,154,000 to $2,728,000 as compared to $574,000 for the three months ended September 30, 2025. The increase was due to increased sales and reflects product mix with increased higher margin commercial sales during the three months ended September 30, 2026, offset by raw material cost increases.
Research and Development Expenses — Research and development expenses for the three months ended September 30, 2026 increased $153,000 to $906,000 as compared to $753,000 for the three months ended September 30, 2025. The increase was due to increased expenses for product development in the United States and Taiwan, including the development of the Agentic AI product.
Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended September 30, 2026 increased $441,000 to $3,158,000 as compared to $2,717,000 for the three months ended September 30, 2025. The increase is primarily due to an increase in stock-based compensation expense of $199,000 and other personnel costs.
Other Income — Other income for the three months ended September 30, 2026 was $10,176,000 as compared to other income for the three months ended September 30, 2025 of $9,277,000. Other income for the three months ended September 30, 2026 consisted of (i) gain from change in fair value of earnout liability of $3,231,000; (ii) gain from change in fair value of warrant liability of $6,831,000; and (iii) interest income of $114,000. The gain from change in fair value of earnout liability resulted from a decrease in our share price, offset by increase in the volatility factor to 77%. The gain from change in fair value of warrant liability was primarily the result of a decrease in the trading price of the warrants.
Other income for the three months ended September 30, 2025 consisted of (i) gain from change in fair value of earnout liability of $3,893,000; (ii) gain from change in fair value of warrant liability of $5,331,000; and (iii) interest income of $53,000. The income from change in fair value of various financial instruments was primarily the result of a decrease in our stock price.
| 29 |
| Table of Contents |
Net Income — Net income for the three months ended September 30, 2026 was $9,615,000 as compared to net income of $6,410,000 for the three months ended September 30, 2025. The net income primarily related to other income, offset by increases in selling, general and administrative and research and development expenses.
The following table sets forth key components of our results of operations during the nine months ended September 30, 2026 and 2025.
(dollars in thousands)
|
| Nine Months Ended September 30, |
| |||||||||||||
|
| 2026 |
|
| 2025 |
|
| $ Variance |
|
| % Variance |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Net revenues |
| $ | 16,708 |
|
| $ | 8,827 |
|
| $ | 7,881 |
|
|
| 89.3 | % |
| Cost of net revenues |
|
| 6,942 |
|
|
| 4,456 |
|
|
| (2,486 | ) |
|
| -55.8 | % |
| Gross profit |
|
| 9,766 |
|
|
| 4,371 |
|
|
| 5,395 |
|
|
| 123.4 | % |
| Research and development expenses |
|
| 2,604 |
|
|
| 2,213 |
|
|
| (391 | ) |
|
| -17.7 | % |
| Selling, general and administrative expenses |
|
| 10,795 |
|
|
| 8,761 |
|
|
| (2,034 | ) |
|
| -23.2 | % |
| Total operating expenses |
|
| 13,399 |
|
|
| 10,974 |
|
|
| (2,425 | ) |
|
| -22.1 | % |
| Operating loss |
|
| (3,633 | ) |
|
| (6,603 | ) |
|
| 2,970 |
|
|
| 45.0 | % |
| Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain from change in fair value of earnout liability |
|
| 2,312 |
|
|
| 6,415 |
|
|
| (4,103 | ) |
|
| -64.0 | % |
| Gain in fair value of warrant liability |
|
| 7,497 |
|
|
| 6,358 |
|
|
| 1,139 |
|
|
| 17.9 | % |
| Interest income, net |
|
| 311 |
|
|
| 191 |
|
|
| 120 |
|
|
| 62.8 | % |
| Total other income, net |
|
| 10,120 |
|
|
| 12,964 |
|
|
| (2,844 | ) |
|
| -21.9 | % |
| Income before provision for income taxes |
|
| 6,487 |
|
|
| 6,361 |
|
|
| 126 |
|
|
| 2.0 | % |
| Provision for income taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Net income |
| $ | 6,487 |
|
| $ | 6,361 |
|
| $ | 126 |
|
|
| 2.0 | % |
Net Revenues — Net revenues for the nine months ended September 30, 2026 increased $7,881,000 to $16,708,000 as compared to $8,827,000 for the nine months ended September 30, 2025. The increase was due to increased commercial orders, which more than offset variability in the timing of federal awards during the period. Consistent with the concentrated, enterprise nature of our customer base, four customers represented approximately 80.7% of revenue for the nine months ended September 30, 2026. Backlog as of October 1, 2026 was approximately $28.3 million, representing firm fixed price contracts awarded in 2026 that are expected to be shipped during the remainder of 2026 and early 2027.
Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support. For the nine months ended September 30, 2026, cost of sales increased $2,486,000 to $6,942,000 as compared to $4,456,000 for the nine months ended September 30, 2025. The increase was due to increased sales and reflects product mix with increased higher margin commercial sales during the nine months ended September 30, 2026, offset by raw material cost increases.
Research and Development Expenses — Research and development expenses for the nine months ended September 30, 2026 increased $391,000 to $2,604,000 as compared to $2,213,000 for the nine months ended September 30, 2025. The increase was due to increased expenses for product development in the United States and Taiwan, including the development of the Agentic AI product.
Selling, General and Administrative Expenses — Selling, general and administrative expenses for the nine months ended September 30, 2026 increased $2,034,000 to $10,795,000 as compared to $8,761,000 for the nine months ended September 30, 2025. The increase is primarily due to an increase in stock-based compensation expense of $1,015,000 and other personnel costs.
Other Income — Other income for the nine months ended September 30, 2026 was $10,120,000 as compared to other income for the nine months ended September 30, 2025 was $12,964,000. Other Income for the nine months ended September 30, 2026 consisted of (i) gain from change in fair value of earnout liability of $2,312,000; (ii) gain from change in fair value of warrant liability of $7,497,000; and (iii) interest income of $311,000. The gain from change in fair value of earnout liability resulted from the increase in the volatility factor to 77%. The gain from change in fair value of earnout liability resulted from a decrease in our share price, offset by increase in the volatility factor to 77%. The gain from change in fair value of warrant liability was primarily the result of a decrease in the trading price of the warrants.
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| Table of Contents |
Other income for the nine months ended September 30, 2025 consisted of (i) gain from change in fair value of earnout liability of $6,415,000; (ii) gain from change in fair value of warrant liability of $6,358,000; and (iii) other income of $191,000. The income from change in fair value of various financial instruments was primarily the result of a decrease in our stock price.
Net Income (Loss) — Net income (loss) for the nine months ended September 30, 2026 was $6,487,000 as compared to net income of $6,361,000 for the nine months ended September 30, 2025. The net income primarily related to other income, offset by increases in selling, general and administrative and research and development expenses.
Net income for the nine months ended September 30, 2025 was $6,361,000. The net income primarily related to noncash items of $11,339,000. Noncash items included (i) gain from change in warrant liability of $6,359,000; (ii) gain from change in earnout liability of $6,415,000; and offset by (iii) stock based compensation of $1,156,000 and (iv) net amortization of operating lease right of use asset of $278,000.
Liquidity and Capital Resources as of September 30, 2026 and 2025
Liquidity is our ability to generate funds to support our current and future operations, satisfy our 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 $39.1 million as of September 30, 2026. As of September 30, 2026, we had cash and cash equivalents of $12.7 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 $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.
Operating Activities
Net cash generated by operating activities for the nine months ended September 30, 2026 was $963,000. This amount was primarily related to (i) net income of $6,487,000; (ii) operating assets and liabilities changes of $1,800,000 (including a $2,540,000 increase in deferred revenues); and offset by (iii) noncash items of $7,324,000. Noncash items included (iv) gain from change in earnout liability of $2,312,000; (v) gain from change in warrant liability of $7,497,000; and offset by (vi) stock based compensation of $2,172,000; and (vii) net amortization of operating lease right of use asset of $313,000.
Net cash used in operating activities for the nine months ended September 30, 2025 was $4,502,000. This amount was primarily related to (i) net income of $6,361,000; (ii) net working capital changes of $476,000 (including a $1,211,000 increase in deferred revenues); and offset by (iii) noncash items of $11,339,000. Noncash items included (iv) gain from change in warrant liability of $6,359,000; (v) gain from change in earnout liability of $6,415,000; and offset by (vi) stock based compensation of $1,156,000 and (vii) net amortization of operating lease right of use asset of $278,000.
| 31 |
| Table of Contents |
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2026 was $56,000 and consisted of net proceeds from stock option and warrant exercises.
Net cash used in financing activities for the nine months ended September 30, 2025 was $1,149,000 and consisted of (i) repayment of advances by founders of $1,300,000; and offset by (ii) net proceeds from exercise of warrants of $60,000; and (iii) proceeds from stock option exercises of $91,000.
Contractual Obligations and Commitments
|
|
|
| Less Than |
|
|
| |||||
Contractual Cash Obligations |
| Total |
|
| 1 Year |
|
| 1-3 Years |
| |||
| Operating lease cash payments |
| $ | 568,749 |
|
| $ | 493,302 |
|
| $ | 75,447 |
|
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
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 $9,105. The leases expire
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment. To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be affected.
We believe that the significant accounting policies described in “Note 2, Summary of Significant Accounting Policies” to our audited consolidated financial statements are accurate and complete. The critical accounting estimates and policies during the three and nine months ended September 30, 2026 have not materially changed to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2025.
| 32 |
| Table of Contents |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
a) Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2026, our disclosure controls and procedures are effective at the reasonable assurance level.
b) Inherent Limitations on Internal control
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost.
c) Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2026, there were no changes in our internal controls over financial reporting, which were identified in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that materially affected, or is reasonably likely to have a material effect on our internal control over financial reporting.
| 33 |
| Table of Contents |
PART II
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in actions, claims, litigation, and other legal proceedings occurring in the ordinary course of its business from time to time, including assertions by third parties relating to intellectual property infringement, contract or warranty breaches, or employment-related matters. We are not currently a party to any actions, claims, suits, or other legal proceedings whose conclusion, if not determined in our favor, would have a material adverse effect on our business, financial condition, or results of operations, either individually or in the aggregate.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. Except as set forth below, there have been no material changes to the risk factors disclosed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, and our other filings with the SEC.
Airship AI sells its product to various divisions of a large commercial customer. We also sell to government customers under agreements in the United States. Accounts receivable are recorded at invoiced amounts and are non-interest bearing. All invoices are normally paid within 30 days of contract completion.
For the nine months ended September 30, 2026, we had revenue from one hundred and three customers and four customers represented 80.7% of total revenue. For the nine months ended September 30, 2025, we had revenue from eighty nine customers and two customers represented 68% of total revenue.
As of September 30, 2026, three customers represented approximately 84.8% of outstanding accounts receivable. As of September 30, 2025, one customer represented approximately 73% of outstanding accounts receivable.
We expect to continue to derive a significant portion of our revenue from a limited number of customers in the future and, in some cases, the portion of our revenue attributable to individual customers may increase. The loss of one or more significant divisions of a commercial customer or a government customer or a reduction in the amount of revenue we derive from any such customer could significantly and adversely affect our business, financial condition and results of operations. Customers may choose not to renew their contracts or may otherwise reduce the breadth of the offerings which they purchase for any number of reasons. We are also subject to the risk that any such customer will experience financial difficulties that prevent them from making payments to us on a timely basis or at all.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no unregistered sales of equity securities during the three months ended September 30, 2026.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
| 34 |
| Table of Contents |
ITEM 6. EXHIBITS.
Exhibit No. |
| Description |
| ||
| ||
| ||
| ||
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document). |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| The Cover Page Interactive Data File, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
| 35 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 5, 2026 |
|
| |
| Airship AI Holdings, Inc. | ||
| /s/ Victor Huang |
|
| Name: Victor Huang |
|
| Title: Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
|
| /s/ Mark E. Scott |
|
| Name: Mark E. Scott |
|
| Title: Chief Financial Officer |
|
| (Principal Financial and Accounting Officer) |
|
| 36 |