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Item 9A. Controls and Procedures

2025-02-28 compared with 2024-04-01 · 672 added, 739 removed, 1046 unchanged (57% of the section changed)

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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 this evaluation, our principal executive and principal financial officers concluded as of December 31, 2023 that our disclosure controls and procedures were effective at the reasonable assurance level.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2024, our disclosure controls and procedures are effective at the reasonable assurance level.

(b) Management’s Report on Internal Control Over Financial Reporting.

As discussed elsewhere in this Annual Report, we completed the Business Combination on December 21, 2023.

Prior to the Business Combination, our predecessor, Byte Acquisition Corp., was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more operating businesses.

As a result, Byte’s previously existing internal controls are no longer applicable or comprehensive enough as of the assessment date as Byte’s liabilities and operations prior to the Business Combination were insignificant compared to those of the consolidated entity post-Business Combination.

The design of our internal controls over financial reporting post-Business Combination has required and will continue to require significant time and resources from management and other personnel.

As a result, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of our internal control over financial reporting as of December 31, 2023.

Accordingly, we are excluding management’s report on internal control over financial reporting pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Compliance & Disclosure Interpretations.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP).

Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of our company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of our company are being made only in accordance with authorization of management and directors of our company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control-Integrated Framework.

Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2024.

Pursuant to Regulation S-K Item 308(b), this Annual Report on Form 10-K does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting.

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.

Since the Merger and until December 31, 2023, there were no other 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.

(d) Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud.

Any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met.

Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Rover have been detected

During the fourth fiscal quarter ended December 31, 2024, there were no other 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.

OTHER INFORMATION.

We have no information to disclose that was required to be disclosed in a report on Form 8-K during fourth quarter of fiscal year 2024 but was not reported.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

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The following table sets forth certain information about our current directors and executive officers:

Chief Executive Officer and Chairman of the Board and Director

Chief Operating Officer, Secretary, Treasurer and Director

Chief Excutive Officer, Chairman of the Board and Director

Chief Operating Officer and Director

Chief Technology Officer

Chief Financial Officer

Chief Financial Officer, Secretary and Treasurer

Peeyush Ranjan

Louis Lebedin

Set forth below is information regarding our directors and executive officers as of the date of this report.

Background and Business Experience:

Victor Huang joined Airship AI as its first employee in October 2004.

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Scott also served as a consultant and Chief Financial Officer of Valuto, Inc., a bitcoin kiosk company, from January 2021 to November 2021.

Scott served as a consultant and Chief Financial Officer from August 2014 to December 2020 of GrowLife, Inc., an equipment supplier to the cultivation industry.

Scott also served as a member of the Board of Directors and Secretary of GrowLife, Inc.

from February 2017 to December 2020.

Scott has operated a wholly owned consulting firm where he advises companies on financial matters.

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In addition, the Board receives periodic detailed operating performance reviews from management.

Controlled Company Exemption

Victor Huang, Airship AI’s co-Founder and our Chief Executive Officer, and Derek Xu, Airship AI’s co-Founder and our Chief Operating Officer, beneficially own (including shares underlying warrants, stock options and SARs) approximately 70.5% of the combined voting power for the election of directors to the Board, and, as a result, the Company is considered a “controlled company” for the purposes of Nasdaq listing rules.

For so long as the Company remains as a controlled company under that definition, it is permitted to elect to rely on certain exemptions from certain corporate governance requirements, including that a majority of the Company consist of “independent directors,” as defined under Nasdaq listing rules.

In addition, the Company is not required to have a nominating and corporate governance committee or compensation committee that is composed entirely of independent directors with written charters addressing the committees’ purposes and responsibilities and an annual performance evaluation of these committees.

If at any time the Company ceases to be a “controlled company” under Nasdaq listing rules, the Board intends to take any action that may be necessary to comply with Nasdaq listing rules, subject to a permitted “phase-in” period.

Board Meetings and Committees

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Code of Ethics

The Company has adopted code of business conduct that applies to all of its directors, officers and employees, including its principal executive officer, principal financial officer and principal accounting officer.

The Company’s code of business conduct is a “code of ethics,” as defined in Item 406(b) of Regulation S-K.

Please note that the Company’s Internet website address is provided as an inactive textual reference only.

We have adopted code of business conduct that applies to all of its directors, officers and employees, including its principal executive officer, principal financial officer and principal accounting officer.

Our code of business conduct is a “code of ethics,” as defined in Item 406(b) of Regulation S-K.

Please note that our Internet website address is provided as an inactive textual reference only.

The Company will make any legally required disclosures regarding amendments to, or waivers of, provisions of its code of ethics on its Internet website.

Insider Trading Policy

We have adopted an insider trading policy and procedures governing the purchase, sale, and/or other dispositions of its securities by directors, officers and employees, or the Company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company.

Communication with our Board of Directors

Our stockholders and other interested parties may communicate with our Board of Directors by sending written communication in an envelope addressed to “Board of Directors” in care of the Secretary, 8210 154th Avenue NE, Suite 120,

Redmond WA 98052.

Section 16(a) Beneficial Ownership Reporting Compliance

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EXECUTIVE COMPENSATION.

Unless the context requires otherwise, references to “Airship AI,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of Airship AI prior to the merger and the business and operations of the Company as directly or indirectly affected by Airship AI by virtue of the Company’s ownership of the business of Airship AI following the merger.

This section discusses the material components of the executive compensation program for (i) the individual who served as our principal executive officer during fiscal years 2024 and 2023;

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This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.

Actual compensation programs that we adopt following the Business Combination may differ materially from the currently planned programs summarized in this discussion.

Actual compensation programs that we adopt following the merger may differ materially from the currently planned programs summarized in this discussion.

As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies.

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Paul Allen, President (2)

Yanda Ma, Chief Technology Officer

Scott, Interim Chief Financial Officer

These amounts reflect the grant date market value as required by Regulation S-K Item 402(n)(2), computed in accordance with FASB ASC Topic 718.

Allen was paid a discretionary annual bonus of $42,178 during the year ended December 31, 2022.

See “ Outstanding Equity Awards as of the Year Ended December 31, 2022 ” for a discussion of option award compensation.

Outstanding Equity Awards as of the Years Ended December 31, 2024 and 2023

The following table summarizes the number of shares of Airship Common Stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2023 and 2022.

The number of shares subject to Airship Options outstanding at the effective time of the Merger, and the exercise price of such Airship Options, have been adjusted to reflect the Merger.

The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2024 and 2023.

The number of shares subject to Airship AI options outstanding at the effective time of the merger, and the exercise price of such Airship AI options, have been adjusted to reflect the merger.

Option Awards

Shares or Units

That Have Not

Unexerciseable

Have Not Vested

Victor Huang (1)

Victor Huang- SARS

Paul Allen (2)

On January 16, 2018, Mr.

Huang received a stock option grant to purchase 1,758,105 shares of common stock, with an exercise price of $0.12 per share.

As of December 31, 2023, 1,758,105 shares were vested.

These shares were valued at $0.11 per share, or $190,000, as of the date of grant.

On January 16, 2018, Mr.

Huang received 1,758,105 stock appreciation rights for past service.

The stock appreciation rights each has a base value of $0.12 per share.

On January 16, 2022, Mr.

Allen received a stock option grant to purchase 935,058 shares of common stock, with an exercise price of $0.57 per share.

Of these options, 467,528 vested immediately, 233,765 vested on December 31, 2022 and 233,765 vested on December 31, 2023.

These options were valued at grant date Black-Scholes value of $1.35 per share, or $1,270,078.

Stock Option Exercises as of the Years Ended December 31, 2024 and 2023

The following table summarizes the stock option exercises for each named executive officer as of December 31, 2024.

Number of Shares

Acquired on Exercise

Value Realized

There were no stock option exercises for each named executive officer as of December 31, 2023.

Executive Compensation Arrangements

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Related to the Share Exchange Agreement with Super Simple AI, Inc., on February 17, 2022, the Company’s Board of Directors approved the 2022 Combined Incentive and Non-Qualified Stock Option Plan (the “2022 Plan”) to issue options to acquire a maximum of 3,000,000 common stock shares.

Effective upon the Closing, the 2022 Plan will no longer be available for use for the grant of future awards.

Effective upon the closing of the merger, the 2022 Plan will no longer be available for use for the grant of future awards.

The 2022 Plan will continue to govern the terms of awards that have been granted under the 2022 Plan before, and that are still outstanding following, the merger.

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The administrator may exercise its discretion to reduce the exercise price of outstanding stock options to the then current fair market value if the fair market value of the common stock covered by such option has declined since the date the option was granted, without the approval of the Company’s stockholders.

Upon consummation of the Merger, each outstanding option under the 2022 Plan that was outstanding as of immediately prior to the Effective Time converted into (i) an option (each, a “Converted Stock Option”), on substantially the same terms and conditions as are in effect with respect to such award immediately prior to the Effective Time, to purchase the number of shares of Common Stock, determined by multiplying the number of shares of common stock subject to such award as of immediately prior to the Effective Time by the Conversion Ratio, at an exercise price per share of Common Stock equal to (A) the exercise price per share of common stock of such award divided by (B) the Conversion Ratio, and (ii) the right to receive a number of Earnout Shares in accordance with, and subject to, the contingencies set forth in the Merger Agreement.

Upon consummation of the merger, each outstanding option under the 2022 Plan that was outstanding as of immediately prior to the effective time of the merger converted into (i) an option (each, a “Converted Stock Option”), on substantially the same terms and conditions as are in effect with respect to such award immediately prior to the effective time, to purchase the number of shares of common stock, determined by multiplying the number of shares of common stock subject to such award as of immediately prior to the effective time by the conversion ratio, at an exercise price per share of common stock equal to (A) the exercise price per share of common stock of such award divided by (B) the conversion ratio, and (ii) the right to receive a number of earnout shares in accordance with, and subject to, the contingencies set forth in the Merger Agreement.

Stock Appreciation Rights Plan

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Our board of directors may terminate or amend the SAR Plan at any time, but no such action shall adversely affect rights under any outstanding award without the holder’s consent.

Upon consummation of the Merger, each SAR granted under the SAR Plan that was outstanding immediately prior to the Effective Time converted into a stock appreciation right denominated in shares of Common Stock (each, a “Converted SAR”).

Upon consummation of the merger, each SAR granted under the SAR Plan that was outstanding immediately prior to the effective time of the merger converted into a stock appreciation right denominated in shares of common stock (each, a “Converted SAR”).

Each Converted SAR will continue to have and be subject to substantially the same terms and conditions as were applicable to such SAR immediately prior to the effective time, except that (i) each Converted SAR will cover that number of shares of common stock equal to (A) the product of (1) the number of shares of common stock subject to such SAR immediately prior to the effective time and (2) the conversion ratio and (B) a number of earnout shares in accordance with, and subject to, the contingencies set forth in the Merger Agreement, and (ii) the per share base value for each share of common stock covered by the Converted SAR will be equal to the quotient obtained by dividing (A) the base value per share of common stock of such SAR immediately prior to the effective time by (B) the conversion ratio.

2023 Equity Incentive Plan

The Company has adopted the Equity Incentive Plan, which plan was approved by stockholders at the extraordinary general meeting.

The Company has adopted the Airship AI Holdings, Inc.

2023 Equity Incentive Plan (the “Equity Incentive Plan”), which plan was approved by stockholders at the extraordinary general meeting.

This section summarizes certain principal features of the Equity Incentive Plan.

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Administration.

The Equity Incentive Plan is administered by the Board, and upon consummation of the Merger will be administered by the compensation committee of the Board, which shall consist of three members of the Board, each of whom is a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act and “independent” for purposes of any applicable listing requirements.

The Equity Incentive Plan is administered by the compensation committee of the Board, which consists of three members of the Board, each of whom is a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act and “independent” for purposes of any applicable listing requirements.

If a member of the compensation committee is eligible to receive an award under the Equity Incentive Plan, such compensation committee member shall have no authority under the plan with respect to his or her own award.

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The Equity Incentive Plan shall continue in effect, unless sooner terminated, until the tenth (10 th ) anniversary of the date on which it is adopted by the Board.

Following the Closing, it is expected that all of our employees, consultants, advisors and service providers and all of our non-executive officer directors will be eligible to participate in the Equity Incentive Plan.

It is expected that all of our employees, consultants, advisors and service providers and all of our non-executive officer directors will be eligible to participate in the Equity Incentive Plan.

Future new hires and additional non-employee directors and/or consultants would be eligible to participate in the Equity Incentive Plan as well.

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Louis Lebedin

These amounts reflect the grant date market value as required by Regulation S-K Item 402(r)(2), computed in accordance with FASB ASC Topic 718.

Fees earned were monthly payments of $5,000 paid to Peeyush Ranjan.

Ranjan was appointed to the Board of Directors on November 1, 2021.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

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all executive officers and directors of the Company as a group.

Percentage of beneficial ownership of Common Stock is based on 22,812,048 shares of Common Stock outstanding as of the date of this report.

Percentage of beneficial ownership of common stock is based on 30,588,413 shares of common stock outstanding as of December 31, 2024.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to, or the power to receive the economic benefit of ownership of, the securities.

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However, these shares are not included in the computation of the percentage ownership of any other person.

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all of our Ordinary Shares beneficially owned by them.

Number of Shares

of Common Stock

% of Outstanding

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all of shares beneficially owned by them.

Common Stock Beneficially Owned

Name of Beneficial Owner (1)

Beneficially Owned

Directors and Named Executive Officers-

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Peeyush Ranjan (7)

Amit Mital (8)

Louis Lebedin (8)

Amit Mital (9)

Total Directors and Officers (8 in total)

5% Shareholders-

Shares Beneficially Owned

Name and Address of Beneficial Owner

Airship Kirkland FLP (Victor Huang) (9)

Airship Redmond FLP (Derek Xu ) (10)

Mulan Ventures LLC (11)

Airship Kirkland LP (Victor Huang) (10)

Airship Redmond LP (Derek Xu ) (11)

Armistice Capital Master Fund LLC

* Less than 1%

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Includes (i) shares owned by Airship Kirkland Family LP, over which Mr.

Huang has voting and dispositive power and (ii) 1,344,951 shares of Common Stock issuable upon the exercise of warrants to purchase shares of Common Stock.

Huang has voting and dispositive power, (ii) 1,564,951 shares of common stock issuable upon the exercise of warrants to purchase shares of common stock, (iii) 1,761,835 shares of common stock subject to options exercisable within 60 days, and (iv) 1,758,105 shares of common stock subject to stock appreciation rights.