Airship AI Holdings Inc

Previous wording

At the merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants. As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding. The warrants are exerciseable at $11.50 per share. See Note 12– Private Placement and Public Warrants for more information.

Current wording

At the merger closing, we assumed 515,000 private placement warrants and 16,184,612 public warrants. On June 3, 2024, we permanently reduced the exercise price of such warrants from $11.50 per share to an exercise price of $7.80 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 June 30, 2024, there were 515,000 private placement warrants and 16,159,012 public warrants outstanding. See Note 12– Private Placement and Public Warrants for more information.

Previous wording

Net Revenues — Revenues for the three months ended March 31, 2024 increased $7,636,000 to $10,575,000 as compared to $2,939,000 for the three months ended March 31, 2023, as a result of increased product sales. We received purchase orders from various federal government agency customers totaling over $13 million from which we shipped and started receiving cash in the first quarter of 2024.

Current wording

Net Revenues — Net revenues for the three months ended June 30, 2024 increased $3,631,000 to $6,401,000 as compared to $2,770,000 for the three months ended June 30, 2023, as a result of increased product sales. We received purchase orders from various federal government agency customers totaling over $13 million from which we partially shipped in the three months ended June 30, 2024.

Previous wording

Research and Development Expenses — Research and development expenses for the three months ended March 31, 2024 increased $21,000 to $695,000 as compared to $674,000 for the three months ended March 31, 2023.

Current wording

Research and Development Expenses — Research and development expenses for the three months ended June 30, 2024 increased $38,000 to $703,000 as compared to $665,000 for the three months ended June 30, 2023.

Previous wording

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended March 31, 2024 increased $1,503,000 to $3,335,000 as compared to $1,832,000 for the three months ended March 31, 2023. The increase was due to (i) increased insurance costs of $291,000; (ii) increased professional fees of $582,000, primarily related to the merger and the Nasdaq listing; and (iii) increased other operating --expenses of $630,000.

Current wording

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended June 30, 2024 decreased $1,265,000 to $2,827,000 as compared to $4,092,000 for the three months ended June 30, 2023. The decrease was due to (i) increased insurance costs of $142,000; (ii) increased professional fees of $291,000, primarily related to the merger and the Nasdaq listing; (iii) issuance of common stock for services of $199,000; (iii) increased other operating --expenses of $114,000; and offset by (iv) decreased stock based compensation of $2,011,000. The stock based compensation expense during the three months ended June 30, 2023 included warrants to purchase common stock issued to Victor Huang and Derek Xu on May 8, 2023 for 765,000 shares to each of the founders valued at $2,136,115.

Previous wording

Other expense for the three months ended March 31, 2023 related primarily to interest and other expense of $10,000.

Current wording

Other expense for the three months ended June 30, 2023 related primarily to interest and other expense of $19,000.

Previous wording

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support. For the three months ended March 31, 2024, cost of sales increased $5,812,000 to $7,947,000 as compared to $2,135,000 for the three months ended March 31, 2023. The increase was due to higher product sales and product mix with high equipment purchases during the three months ended March 31, 2024.

Current wording

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support. For the six months ended June 30, 2024, cost of sales increased $6,611,000 to $9,842,000 as compared to $3,231,000 for the six months ended June 30, 2023. The increase was due to higher product sales and product mix with high equipment purchases during the six months ended June 30, 2024.

Previous wording

Other Expense — Other expense for the three months ended March 31, 2024 was $30,562,000 as compared to other expense of $10,000 for the three months ended March 31, 2023. Other expense for the three months ended March 31, 2024 consisted of (i) loss from change in fair value of warrant liability of $6,847,000; (ii) loss from change in fair value of earnout liability of $21,485,000; (iii) loss from change in fair value of convertible debt of $2,039,000; (iv) loss on note conversion of $159,000; and (iv) noncash interest of $32,000.

Current wording

Other Expense — Other expense for the six months ended June 30, 2024 was $13,076,000 as compared to other expense of $29,000 for the six months ended June 30, 2023. Other expense for the six months ended June 30, 2024 consisted of (i) loss from change in fair value of warrant liability of $5,305,000; (ii) loss from change in fair value of earnout liability of $6,608,000; (iii) loss from change in fair value of convertible debt of $512,000; (iv) loss on note conversion of $159,000; (v) interest expense of $453,000; and (vi) other interest of $39,000.

Previous wording

Net Loss — Net loss for the three months ended March 31, 2024 was $31,964,000 as compared to net loss of $1,712,000 for the three months ended March 31, 2023. The net loss primarily related to noncash charges of $30,881,000. Noncash charges include (i) depreciation of $2,000; (ii) stock based compensation of $269,000; (iii) net amortization of operating lease right of use asset of $81,000; (iv) loss from change in warrant liability of $6,847,000; (v) loss from change in earnout liability of $21,485,000; (vi) loss from change in fair value of convertible note of $2,039,000; and (vii) loss on note conversions of $159,000.

Current wording

Net Loss — Net loss for the six months ended June 30, 2024 was $13,502,000 as compared to net loss of $4,815,000 for the six months ended June 30, 2023. The net loss primarily related to noncash items of $13,987,000. Noncash items included (i) depreciation of $2,000; (ii) stock based compensation of $531,000; (iii) net amortization of operating lease right of use asset of $151,000; (iv) issuance of common stock for services of $198,000; (v) noncash interest expense of $521,000; (vi) loss from change in warrant liability of $5,305,000; (vii) loss from change in earnout liability of $6,608,000; (viii) loss from change in fair value of convertible note of $512,000; and (ix) loss on note conversions of $159,000.

Previous wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. We formally evaluated our liquidity and cash position most recently in May 2024 when preparing our March 31, 2024 unaudited financial statements. During this process we concluded, based upon existing assets and liabilities, our order backlog and projections, plus the ability to borrow in short term loans from our founder, that we would be able to operate at least for the next twelve months. We have received purchase orders from various federal government agency customers totaling over $13 million from which we shipped and started receiving cash in the first quarter of 2024.

Current wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures. We formally evaluated our liquidity and cash position most recently in August 2024 when preparing our June 30, 2024 unaudited financial statements. During this process we concluded, based upon existing assets and liabilities, our order backlog and projections, plus the ability to borrow in short term loans from our founder, that we would be able to operate at least for the next twelve months. We have received purchase orders from various federal government agency customers totaling over $16 million from which we shipped and started receiving cash in the first and second quarters of 2024.

Previous wording

As of March 31, 2024, we had cash of approximately $1,726,000. We have incurred losses from operations the past few years and had an accumulated deficit of $49,441,000 as of March 31, 2024. The accumulated deficit includes noncash charges of $30,881,253 and $19,626,884 for the three months ended March 31, 2024 and the year ended December 31, 2023. We also had at March 31, 2024 an adjusted working capital deficit of approximately $2,000,000. The adjusted net working capital deficit excludes current deferred revenue totaling $3,742,000 and convertible debt totaling $4,205,000 (which we expect to be converted to equity). We have primarily funded its operations from operating cash, proceeds from debt borrowings, advances from founders, and proceeds from the merger.

Current wording

As of June 30, 2024, we had cash of approximately $227,000 and accounts receivable of approximately $3,440,000 which we expect to collect in the near term after quarter end. We have incurred losses from operations over the past few years and had an accumulated deficit of $30,979,000 as of June 30, 2024. We also had at June 30, 2024 a working capital deficit of approximately $6,712,000. The net working capital deficit includes a couple of items that are expected to require limited cash outlays in the future, including the current deferred revenue totaling $3,791,970 and convertible debt totaling $2,675,919, which we expect to be converted to equity. We have primarily funded our operations from operating cash, proceeds from debt borrowings and advances from founders.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $1,695,000. This amount was primarily related to (i) net loss of $31,964,000; and (ii) net working capital reductions of $611,000; offset by (iii) noncash charges of $30,881,000. Noncash charges include (iv) depreciation of $2,000; (v) stock based compensation of $269,000; (vi) net amortization of operating lease right of use asset of $81,000; (vii) loss from change in warrant liability of $6,847,000; (viii) loss from change in earnout liability of $21,485,000; (ix) loss from change in fair value of convertible note of $2,039,000; (x) loss on note conversions of $159,000.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $4,147,000. This amount was primarily related to (i) net loss of $13,502,000; and (ii) net working capital reductions of $4,632,000; offset by (iii) noncash items of $13,987,000. Noncash items included (iv) depreciation of $2,000; (v) stock based compensation of $531,000; (vi) net amortization of operating lease right of use asset of $151,000; (vii) issuance of common stock for services of $198,000; (viii) noncash interest expense of $521,000; (ix) loss from change in warrant liability of $5,305,000; (x) loss from change in earnout liability of $6,608,000; (xi) loss from change in fair value of convertible note of $512,000; and (xii) loss on note conversions of $159,000.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2023 was $990,000. This amount was primarily related to (i) a net loss of $1,712,000; offset by (ii) net working capital increases of $376,000; and (iii) noncash charges of $346,000. Noncash charges include (iii) depreciation of $3,000; (iv) stock based compensation of $137,000; and (v) net amortization of operating lease right of use asset of $206,000.

Current wording

Net cash used in operating activities for the six months ended June 30, 2023 was $737,000. This amount was primarily related to (i) a net loss of $4,815,000; offset by (ii) net working capital increases of $1,303,000; and (iii) noncash charges of $2,775,000. Noncash charges included (iv) depreciation of $7,000; (v) stock based compensation- stock options of $274,000; (vi) stock based compensation- warrants of $2,136,000; and (vii) net amortization of operating lease right of use asset of $358,000.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $293,000 and consisted proceeds from warrant exercise.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $1,240,000 and consisted of (i) proceeds from warrant exercise of $293,000; (ii) advances from founders of $800,000; and (iii) proceeds from stock option exercises of $147,000.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2023 was $865,000 and consisted of founders advances of $950,000 and repayment of small business loan and line of credit of $84,000.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2023 was $2,660,000 and consisted of (i) proceeds from convertible promissory note of $1,985,000; (ii) advances from founders of $1,100,000; and offset by (iii) repayment of small business loan and line of credit of $425,000.

Previous wording

On June 22, 2023, we entered into a senior secured convertible promissory note with Platinum Capital Partners Inc. and received $2,000,000. As a condition of funding, we paid off three small notes and accounts payable totaling $374,000. At the option of the holder, the note is convertible into cash, common stock or a combination of cash and stock. We expect the convertible debt to be converted to equity.

Current wording

On June 22, 2023, we entered into a senior secured convertible promissory note with Platinum Capital Partners Inc. and received $2,000,000. As a condition of funding, we paid off three small notes and accounts payable totaling $374,000. At the option of the holder, the note is convertible into cash, common stock or a combination of cash and stock. We expect the convertible debt to be converted to equity. On June 22, 2024, we entered into an Extension Agreement related to the Platinum convertible note. The Extension Agreement extended the due date of the Platinum convertible note from June 22, 2024 to June 22, 2025.

Previous wording

We believe that our cash on hand, funding from the completion of the business combination, results of operations and financing transactions will be sufficient to fund our operations for the next twelve months.

Current wording

We believe that our cash on hand, funding from the completion of the merger, results of operations and financing transactions will be sufficient to fund our operations for the next twelve months.

Previous wording

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 months ended March 31, 2024 have not materially changed to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

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 six months ended June 30, 2024 have not materially changed to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.