Airship AI Holdings, Inc. 10-K

ITEM 9A. 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 December 31, 2025, our disclosure controls and procedures are effective at the reasonable assurance level. (b) Management’s Report on Internal Control Over Financial Reporting. 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, 2025. 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, 2025. 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. (c) Changes in Internal Control over Financial Reporting During the fourth fiscal quarter ended December 31, 2025, 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. 58 Table of Contents ITEM 9B. OTHER INFORMATION. We have no information to disclose that was required to be disclosed in a report on Form 8-K during the fourth quarter of fiscal year 2025 but was not reported. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 59 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Directors and Executive Officers The following table sets forth certain information about our current directors and executive officers: Name Age Position Victor Huang 56 Chief Executive Officer, Chairman of the Board and Director Derek Xu 69 Chief Operating Officer and Director Paul Allen 56 President Mark E. Scott 72 Chief Financial Officer, Secretary and Treasurer Peeyush Ranjan 51 Director Louis Lebedin 68 Director Amit Mital 56 Director Background and Business Experience: Victor Huang joined Airship as its first employee in October 2004. Mr. Huang has served as our Chief Executive Officer and Chairman of the Board since December 2023. He has served as Airship’s Chief Executive Officer since April 2007, a member of its Board of Directors since March 2005 and as its Chairman of the Board beginning in January 2012. From June 1996 to September 2004, Mr. Huang was an independent trader and investor. From January 1992 to June 1996, Mr. Huang worked at Smith Barney as a financial consultant. Mr. Huang attended University of Washington where he studied business administration. Mr. Huang is our co-founder and was appointed as a director due to the perspective and experience he brings as an investor, Chairman, Chief Executive Officer and one of our largest stockholders. Derek Xu is a co-founder of Airship. Mr. Xu has served as our Chief Operating Officer, Secretary and Treasurer and a member of the Board since December 2023. He has served as Airship’s Chief Operating Officer since March 2022 and as a member of its Board of Directors since the incorporation of Airship in 2003. Mr. Xu previously served as Airship’s Secretary and Treasurer. Mr. Xu also previously served as Airship’s Chief Technology Officer from April 2007 to December 2023. Prior to 2003, Mr. Xu co-founded and sold his Web service company that provided eCommerce solutions for small businesses. Before that, Mr. Xu worked in leadership positions at various tech companies where he helped develop and launch several Web based products for financial institutions. Mr. Xu holds a Ph.D. degree in Geophysics from University of Washington. Mr. Xu is our co-founder and was appointed as a director due to the perspective and experience he brings as an investor, director, Chief Operating Officer and one of our largest stockholders. Paul Allen has served as our President since December 2023. He has served as Airship’s President since 2019. Mr. Allen joined Airship as the Director of Business Development in 2015 and was promoted to Vice President of Sales in 2017 before being promoted to President in 2019. Prior to joining Airship, Mr. Allen was partner at a boutique firm in Northern Virginia, providing technical goods and services to the U.S. Government and Department of Defense, which he left following a successful private acquisition. Mr. Allen previously spent 14 years with IBM, leaving as a Business Unit Executive in their partner channel organization to pursue a career in direct support of the U.S. Government and Department of Defense. Mr. Allen retired from the U.S. Army 1st Special Forces Command in 2021 with over 28 years of service, the majority of which he spent in the U.S. Army Special Forces as a Green Beret, retiring as the 3rd Battalion 20th Special Forces Group (National Guard) Senior Warrant Officer at the rank of Chief Warrant Officer 3 (CW3). Mr. Allen holds a bachelor’s degree in Strategic Studies & Defense Analysis from Norwich University. Mark E. Scott has served as our Chief Financial Officer since March 1, 2024. He served as Interim Chief Financial Officer of Airship AI since November 2021 and served as a consultant from February 2021 to November 2021. Mr. Scott has served as a consultant and Chief Financial Officer for Valterra Partners LLC, a private equity firm, from 2017 to 2024. Mr. Scott also served as a consultant and Chief Financial Officer of Valuto, Inc., a bitcoin kiosk company, from January 2021 to November 2021. Mr. Scott has operated a wholly owned consulting firm where he advises companies on financial matters. Mr. Scott has significant financial, SEC and merger and acquisition experience in public and private microcap companies. Mr. Scott is a certified public accountant and received a Bachelor of Arts in Accounting from the University of Washington. 60 Table of Contents Peeyush Ranjan has served as a member of the Board since December 2023. From 2017 to March 2025 and from 2006-2015, Mr. Ranjan has served as VP, Director or Manager of Engineering at Google, a technology services firm. From 2015 to 2016, he was CTO of Flipkart, an e-commerce services company based in India, and a VP of Engineering at Airbnb. Previously, he was part of engineering teams at Consera Technologies, Hewlett Packard, Infospace, Inc. and Microsoft. He holds a B.Tech. degree in Computer Science from IIT Kharagpur, an M.S. in Computer Science from Purdue University and an M.B.A. in Technology Management from University of Washington. Mr. Ranjan was appointed as a director based on his extensive technology experience. Louis Lebedin has served as a member of the Board since December 2023. Mr. Lebedin has over 25 years of banking experience with a proven track record of building and leading a world class business. From 2017 to 2019, Mr. Lebedin served as an advisor to Unio Capital LLC, an asset management firm, responsible for product development. From 2006 to 2012, Mr. Lebedin was global head of JP Morgan’s prime brokerage business, a leading provider of clearing and financing services for equity and fixed income hedge funds. He was responsible for defining and executing the strategy for the business, to expand its market share while continuing to meet the evolving needs of its hedge fund clients. From 2008 to 2012, Mr. Lebedin served on JP Morgan Clearing Corp.’s Operations Committee and the Equities Division’s Executive Committee. From 2001 to 2005, Mr. Lebedin was the chief operating officer and chief financial officer of Bear Stearns’s Global Clearing Services division. Mr. Lebedin joined the Clearance Division in 1988 assuming the role of controller before being promoted to chief financial officer in 1996. From 1980 to 1987, he worked at Coopers & Lybrand, rising to the level of audit manager specializing in financial services. Mr. Lebedin holds a B.S. in accounting from Syracuse University, and he earned his CPA license in 1982. Mr. Lebedin was appointed as a director based on his extensive banking and business experience. Amit Mital has served as a member of the Board since December 2023. Mr. Mital has over two decades of experience in the tech field and currently serves as CEO and founder of Kernel Labs, which focuses on machine learning, virtual reality and cybersecurity, a position he also held from 2018 to 2021. From 2021 to 2022, Mr. Mital was on the National Security Council (NSC) as the senior director for cybersecurity strategy and policy and also served in the White House as a special assistant to the President. Before Kernel Labs, Mr. Mital was chief technology officer at Symantec Corporation, where he oversaw technology strategy for the cybersecurity company from 2013-2015. While at Kernel Labs, Mr. Mital was also co-founder and chairman of the blockchain-based distributed identification platform Trusted Key, which was later acquired by Workday. Mr. Mital’s longest-tenured job came at Microsoft, where he worked as a corporate vice president for 20 years, and as a general manager concurrently for seven years. Mr. Mital holds a Master of Science degree in Engineering from Dartmouth College. Mr. Mital was appointed as a director based on his executive leadership experience in the technology industry and his senior leadership experience in the United States government, as well as being a cybersecurity industry veteran. Term of Office Our directors currently have terms which will end at our next annual meeting of stockholders or until their successors are elected and qualified, subject to their prior death, resignation or removal. Officers serve at the discretion of the Board. Family Relationships There are no family relationships among any of our officers or directors. 61 Table of Contents Involvement in Certain Legal Proceedings To the best of our knowledge, except as described below, none of our directors or executive officers has, during the past ten years: · been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences); · had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; · been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; · been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; · been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or · been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. The Board’s Role in Risk Oversight The Company’s business and affairs are managed under the direction of the Board. The Board consists of five directors, including three independent directors, namely Amit Mital, Peeyush Ranjan and Louis Lebedin. A director is not required to hold any shares in the Company to qualify as a director. The Board has extensive involvement in the oversight of risk management related to the Company and its business and will accomplish this oversight through the regular reporting to the Board by the audit committee. The audit committee represents the Board by periodically reviewing the Company’s accounting, reporting and financial practices, including the integrity of its financial statements, the surveillance of administrative and financial controls and its compliance with legal and regulatory requirements. Through its regular meetings with management, including the finance, legal, internal audit and information technology functions, the audit committee reviews and discusses all significant areas of the Company’s business and summarize for the Board all areas of risk and the appropriate mitigating factors. In addition, the Board receives periodic detailed operating performance reviews from management. Board Meetings and Committees During our last fiscal year, each of our directors attended at least 75% of the aggregate of (i) the total number of Board meetings and (ii) the total number of meetings of the committees on which the director served. 62 Table of Contents Independent Directors Nasdaq rules generally require that independent directors must comprise a majority of a listed company’s board of directors. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, the Company has determined that Peeyush Ranjan, Louis Lebedin, and Amit Mital, representing three of the Company’s five directors, are “independent” as defined in the Nasdaq listing standards and applicable SEC rules. Committees of the Board of Directors The Board has established an audit committee, a compensation committee and a nominating and corporate governance committee, which have the responsibilities and authority necessary to comply with applicable Nasdaq and SEC rules. The Board may from time to time establish other committees. The Company’s chief executive officer and other executive officers will regularly report to the non-executive directors and the audit, the compensation and the nominating and corporate governance committees to ensure effective and efficient oversight of the Company’s activities and to assist in proper risk management and the ongoing evaluation of management controls. We believe that the leadership structure of the Board will provide appropriate risk oversight of the Company’s activities. Audit Committee Amit Mital, Peeyush Ranjan and Louis Lebedin serve as members of the audit committee of the Company (the “Audit Committee”), with Mr. Mital serving as the chairperson. Each of the members of the Audit Committee satisfies all independence requirements under the applicable rules and regulations of the SEC and Nasdaq. Our Board has determined that Louis Lebedin possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC and Nasdaq. The Audit Committee oversees our accounting and financial reporting processes and the audits of our financial statements. The Audit Committee is generally responsible for, among other things: · appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; · reviewing with the independent auditors any audit problems or difficulties and management’s response; · discussing the annual audited financial statements with management and the independent auditors; · reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; · reviewing and approving all proposed related party transactions as defined by applicable law or Nasdaq listing requirements; · meeting separately and periodically with management and the independent auditors; and · monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. Compensation Committee Louis Lebedin, Peeyush Ranjan and Amit Mital serve as members of the compensation committee of the Company (the “Compensation Committee”), with Mr. Lebedin serving as the chairperson. Each of the members of the Compensation Committee satisfies the independence requirements under the applicable rules and regulations of the SEC and Nasdaq. 63 Table of Contents The Compensation Committee is generally responsible for overseeing and making recommendations to the Board regarding the salaries and other compensation of our Executive Officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices. The Compensation Committee is generally responsible for, among other things: · reviewing and approving the corporate goals and objectives applicable to the compensation of the chief executive officer, evaluating the chief executive officer’s performance, and determining and approving the chief executive officer’s compensation level based on this evaluation; · reviewing and approving the compensation of all other Executive Officers; · reviewing, approving and recommending incentive compensation plans and equity-based plans to the Board and stockholders of the Company for approval, and administering the Company’s incentive compensation plans, equity-based plans and the clawback policy; · reviewing, approving and recommending employment agreements and severance arrangements or plans to the Board for approval; · reviewing all Director compensation and benefits for service on the Board and Board committees, and recommending any changes to the Board as necessary; and · overseeing, in conjunction with the Nominating and Corporate Governance Committee, engagement with stockholders and proxy advisory firms on executive compensation matters. Nominating and Corporate Governance Committee Peeyush Ranjan, Amit Mital and Victor Huang serve as members of the nominating and governance committee of the Company (the “Nominating and Governance Committee”), with Mr. Ranjan serving as the chairperson. The Nominating and Governance Committee is generally responsible for identifying and proposing new potential director nominees to the Board for consideration and for reviewing our corporate governance policies. The Nominating and Governance Committee is generally responsible for, among other things: · determining the qualifications, qualities, skills, and other expertise required to be a director, and developing and recommending to the Board the criteria to be considered in selecting director nominees for the Board’s approval; · identifying and screening individuals qualified to become members of the Board, and considering any director candidates recommended by the Company’s stockholders; · selecting and approving the director nominees to be submitted to a stockholder vote at the stockholders’ annual meeting, subject to approval by the Board; · developing and recommending to the Board a set of corporate governance guidelines applicable to the Company, reviewing these principles and recommending any changes to the Board; · overseeing the Company’s corporate governance practices and procedures, including identifying best practices, and reviewing and recommending to the Board for approval any changes to the documents, policies and procedures in the Company’s corporate governance framework; · reviewing the Board’s committee structure and composition and to make recommendations to the Board annually regarding the appointment of directors to serve as members of each committee and committee chairmen; 64 Table of Contents · if a vacancy on the Board and/or any Board committee occurs, identifying and making recommendations to the Board regarding the selection and approval of candidates to fill such vacancy either by election by stockholders or appointment by the Board; · developing and overseeing a Company orientation program for new Directors and a continuing education program for current Directors, periodically reviewing these programs and updating them as necessary; · reviewing and discussing with management disclosure of the Company’s corporate governance practices; · developing and recommending to the Board for approval an officer succession plan, to review such succession plan periodically with the chief executive officer, developing and evaluating potential candidates for executive positions, and recommending to the Board any changes to and any candidates for succession under the succession plan. Code of Ethics 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 Our executive officers, directors and 10% stockholders are required under Section 16(a) of the Exchange Act to file reports of ownership and changes in ownership with the SEC. Copies of these reports must also be furnished to us. Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the fiscal year ended December 31, 2025, all such reports were filed timely. ITEM 11. 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 2025 and 2024; and (ii) our next two most highly compensated executive officers who earned more than $100,000 during fiscal years 2025 and 2024 and were serving as executive officers as of December 31, 2025 or 2024. We refer to these individuals as our “named executive officers.” 65 Table of Contents This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the merger may differ materially from the currently planned programs summarized in this discussion. As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies. Summary Compensation Table - Years Ended December 31, 2025 and 2024 The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2025 and 2024: Non-Equity Incentive Stock Plan Option Other Salary Bonus Awards Compensation Awards Compensation Total Name and Principal Position Year ($) ($) ($) ($) ($) ($) ($) Victor Huang, Chief Executive Officer, Chairman of the Board and Director 12/31/2025 $ 397,266 $ - $ - $ - $ 66,390 $ 21,511 $ 485,167 12/31/2024 $ 408,717 $ - $ - $ 284,478 $ 49,464 $ 11,584 $ 754,243 Derek Xu, Chief Operating Officer and Director 12/31/2025 $ 388,000 $ - $ - $ - $ 66,390 $ - $ 454,390 12/31/2024 $ 388,000 $ - $ - $ - $ 49,464 $ 328 $ 437,792 Paul Allen, President 12/31/2025 $ 319,000 $ - $ - $ - $ 296,053 $ - $ 615,053 12/31/2024 $ 320,875 $ - $ - $ - $ 49,464 $ - $ 370,339 Mark E. Scott, Chief Financial Officer, Secretary and Treasurer 12/31/2025 $ 244,167 $ 30,000 $ - $ - $ 105,168 $ - $ 379,335 12/31/2024 $ 266,699 $ 50,000 $ - $ - $ 85,691 $ - $ 402,390 66 Table of Contents Outstanding Equity Awards as of the Years Ended December 31, 2025 and 2024 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, 2025 and 2024. Option Awards Number of Number of Securities Securities Underlying Underlying Unexercised Unexercised Option Options Options Exercise Option Exercisable Unexerciseable Price Expiration Name (#) (#) ($) Date Victor Huang 1,749,335 - $ 0.12 1/15//2032 37,500 62,500 $ 2.86 8/16/2034 6,250 43,750 $ 4.25 9/3/2035 Victor Huang- SARS 1,758,105 - $ 0.12 2/16/2032 Derek Xu 37,500 62,500 $ 2.86 8/16/2034 6,250 43,750 $ 4.25 9/3/2035 Paul Allen 835,058 - $ 0.57 1/15/2032 56,250 93,750 $ 2.86 8/16/2034 100,000 - $ 3.27 3/4/2035 175,000 125,000 $ 3.27 3/4/2035 6,250 43,750 $ 4.25 9/3/2035 Mark E. Scott 25,000 - $ 1.49 3/1/2034 31,250 68,750 $ 2.86 8/16/2034 7,500 22,500 $ 3.27 3/4/2035 6,250 43,750 $ 4.25 9/3/2035 Stock Option Exercises as of the Years Ended December 31, 2025 and 2024 The following table summarizes the stock option exercises for each named executive officer as of December 31, 2025: Option Awards Stock Awards Number of Shares Value Realized Number of Shares Value Realized Acquired on Exercise on Exercise Acquired on Vesting on Vesting Name (#) ($) (#) ($) Victor Huang - $ - - $ - Derek Xu - $ - - $ - Paul Allen - $ - - $ - Mark E. Scott 26,836 $ 166,537 43,952 $ - 67 Table of Contents The following table summarizes the stock option exercises for each named executive officer as of December 31, 2024: Executive Compensation Arrangements Other than the annual compensation, bonus and equity incentive awards described above and below, the Company has no other executive compensation, change in control or similar agreements or arrangements. On March 1, 2024, the Company entered into an employment agreement with Mark E. Scott, the Company’s Chief Financial Officer, which provides for a base salary of $250,000 annually. Mr. Scott is also eligible to participate in annual performance-based bonus programs established by the Board or Compensation Committee, subject to the achievement of applicable performance criteria established by the Board or Compensation Committee, which shall be determined in good faith by the Board or Compensation Committee. Mr. Scott was also granted options to purchase up to Twenty Five Thousand (25,000) shares of common stock with an exercise price equal to $1.49, which options vested in full on the date of issuance. On March 4, 2025, we entered into an employment agreement with Paul Allen to serve as our President, which provides for a base salary of $350,000. The term of the employment agreement is for a period of three years, which will be automatically extended for additional one-year periods unless either party gives the other party written notice of such party’s decision not to renew the term at least 90 days prior to the end of the initial three-year term or any renewal term. Mr. Allen is also eligible to participate in annual performance-based bonus programs established from time to time by the Board, subject to the achievement by Mr. Allen and the Company of the applicable performance criteria set forth in the employment agreement and established for Mr. Allen by the Board. The employment agreement is terminable by either party at any time. In the event of termination by us without cause or by Mr. Allen for good reason, as those terms are defined in the employment agreement, he is entitled to three months’ severance. In connection with entering into the employment agreement, Mr. Allen was granted ten-year options under our 2023 Equity Incentive Plan to purchase 100,000 shares of our common stock, which options vest immediately, at an exercise price equal to $3.27, being the fair market value on the date of grant. Mr. Allen was also granted ten-year options under the Plan to purchase 300,000 shares of our common stock, which options vest quarterly over four years, at an exercise price equal to $3.27, being the fair market value on the date of grant. 68 Table of Contents Potential Payments upon Termination or Change in Control Mr. Huang and Mr. Xu have stock option grants with a grant date fair value of $216,649 that vest with a change in control. We have the following potential payments upon termination or change in control with Mark E. Scott: Early Not For Good Change in Executive For Cause or Normal Cause Control Disability Payments Upon Termination Retirement Termination Termination or Death Separation 12/31/2025 Compensation: Base salary (1) $ - $ - $ 83,333 $ - $ - Performance-based incentive compensation $ - $ - $ - $ - $ - Stock options $ - $ - $ - $ 323,491 $ - Benefits and Perquisites: Health and welfare benefits $ - $ - $ - $ - $ - Accrued vacation pay $ - $ - $ - $ - $ - Total $ - $ - $ 83,333 $ 323,491 $ - We have the following potential payments upon termination or change in control with Paul Allen: Early Not For Good Change in Executive For Cause or Normal Cause Control Disability Payments Upon Termination Retirement Termination Termination or Death Separation 12/31/2025 Compensation: Base salary (1) $ - $ - $ 116,667 $ - $ - Performance-based incentive compensation $ - $ - $ - $ - $ - Stock options $ - $ - $ - $ 534,041 $ - Benefits and Perquisites: Health and welfare benefits $ - $ - $ - $ - $ - Accrued vacation pay $ - $ - $ - $ - $ - Total $ - $ - $ 116,667 $ 534,041 $ - Stock Appreciation Rights Plan Related to the Share Exchange Agreement with Super Simple AI, Inc., on February 17, 2022, the Company’s Board of Directors approved the 2022 Stock Appreciation Rights Plan (the “SAR Plan”) to issue a maximum of 1,500,000 stock appreciation rights (“SARs”), which was later adjusted to 2,637,150 SARs after the merger. As of December 31, 2025 and 2024, there were 1,758,000 SARs outstanding with a base value of $0.12 and January 2028 expiration. There were no SAR grants during the years ended December 31, 2025 and 2024. 69 Table of Contents Payment of Appreciation Amount The appreciation distribution in respect to a SAR may be paid in cash, in common stock of the Company, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the stock appreciation rights agreement evidencing such SAR. Amendment and Termination 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 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 Amended and Restated Equity Incentive Plan On December 4, 2023, the Company adopted the Airship AI Holdings, Inc. 2023 Equity Incentive Plan, which plan was approved by stockholders at the extraordinary general meeting held on December 19, 2023 in connection with the merger. On October 15, 2025, the Company adopted the Airship AI Holdings, Inc. 2023 Amended and Restated Equity Incentive Plan (the “Equity Incentive Plan”), which increased the number of shares of common stock authorized for issuance pursuant to awards granted thereunder by 2,000,000 shares. The Equity Incentive Plan was approved by our stockholders at our annual meeting held on December 11, 2025. This section summarizes certain principal features of the Equity Incentive Plan. The Equity Incentive Plan is a comprehensive incentive compensation plan under which the Company can grant equity-based and other incentive awards to its officers, employees, directors, consultants and advisers. The purpose of the Equity Incentive Plan is to help the Company attract, motivate and retain such persons with awards under the Equity Incentive Plan and thereby enhance shareholder value. Administration. 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. Among other things, the compensation committee has complete discretion, subject to the express limits of the Equity Incentive Plan, to determine the directors, employees and nonemployee consultants to be granted an award, the type of award to be granted the terms and conditions of the award, the form of payment to be made and/or the number of shares of common stock subject to each award, the exercise price of each option and base price of each stock appreciation right (“SAR”), the term of each award, the vesting schedule for an award, whether to accelerate vesting, the value of the common stock underlying the award, and the required withholding, if any. The compensation committee may amend, modify or terminate any outstanding award, provided that the participant’s consent to such action is required if the action would impair the participant’s rights or entitlements with respect to that award. The compensation committee is also authorized to construe the award agreements, and may prescribe rules relating to the Equity Incentive Plan. Notwithstanding the foregoing, the compensation committee does not have any authority to grant or modify an award under the Equity Incentive Plan with terms or conditions that would cause the grant, vesting or exercise thereof to be considered nonqualified “deferred compensation” subject to Code Section 409A, unless such award is structured to be exempt from or comply with all requirements of Code Section 409A. Grant of Awards; Shares Available for Awards. The Equity Incentive Plan provides for the grant of stock options, SARs, performance share awards, performance unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and unrestricted stock awards to non-employee directors, officers, employees and nonemployee consultants of the Company or its affiliates. The aggregate number of shares of common stock initially reserved and available for grant and issuance under the Equity Incentive Plan is 7,068,009. Such aggregate number of shares of stock will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2026 and ending on (and including) January 1, 2035, in an amount equal to 2.0% of the total number of shares of common stock outstanding on December 31 of the preceding year; provided, however, that the Board may act prior to January 1 of a given year to provide that the increase for such year will be a lesser number of shares of common stock. No more than 7,068,009 shares of common stock in the aggregate may be issued under the Equity Incentive Plan in connection with incentive stock options. Shares shall be deemed to have been issued under the Equity Incentive Plan solely to the extent actually issued and delivered pursuant to an award. If any award granted under the Equity Incentive Plan expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject thereto is again available for grant under the Equity Incentive Plan, other than any shares tendered or withheld in order to exercise or satisfy withholding obligation in respect of any award. 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. 70 Table of Contents 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. The number of stock options and/or shares of restricted stock to be granted to executives and directors cannot be determined at this time as the grant of stock options and/or shares of restricted stock is dependent upon various factors such as hiring requirements and job performance. Non-Employee Director Compensation Limit. The Equity Incentive Plan provides for a limit on non-employee director compensation. The maximum number of shares of stock that may be subject to an award granted under the Equity Incentive Plan during any single fiscal year to any non-employee director, when taken together with any cash fees paid to such non-employee director during such year in respect of his or her service as a non-employee director (including service as a member or chair of any committee of the board), shall not exceed $250,000 in total value (calculating the value of any such award based on the fair market value on the date of grant of such award for financial reporting purposes). Stock Options. The Equity Incentive Plan provides for the grant of either “incentive stock options” (“ISOs”), which are intended to meet the requirements for special federal income tax treatment under Section 422 of the Code, or “nonqualified stock options” (“NQSOs”). Stock options may be granted on such terms and conditions as the compensation committee may determine, which shall be specified in the option agreement; provided, however, that the per share exercise price under a stock option may not be less than the fair market value of a share of common stock on the date of grant and the term of the stock option may not exceed 10 years (110% of such value and five years in the case of an ISO granted to an employee who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of capital stock of our company or a parent or subsidiary of our company). ISOs may only be granted to employees. In addition, the aggregate fair market value of common stock covered by one or more ISOs (determined at the time of grant), which are exercisable for the first time by an employee during any calendar year may not exceed $100,000. Any excess is treated as a NQSO. Stock Appreciation Rights. A SAR entitles the participant, upon exercise, to receive an amount, in cash or stock or a combination thereof, equal to the increase in the fair market value of the underlying common stock between the date of grant and the date of exercise. The compensation committee shall set forth in the applicable SAR award agreement the terms and conditions of the SAR, including the base value for the SAR (which shall not be less than the fair market value of a share on the date of grant), the number of shares subject to the SAR and the period during which the SAR may be exercised and any other special rules and/or requirements which the compensation committee imposes on the SAR. No SAR shall be exercisable after the expiration of ten (10) years from the date of grant. SARs may be granted in tandem with, or independently of, stock options granted under the Equity Incentive Plan. A SAR granted in tandem with a stock option (i) is exercisable only at such times, and to the extent, that the related stock option is exercisable in accordance with the procedure for exercise of the related stock option; (ii) terminates upon termination or exercise of the related stock option (likewise, the common stock option granted in tandem with a SAR terminates upon exercise of the SAR); (iii) is transferable only with the related stock option; and (iv) if the related stock option is an ISO, may be exercised only when the value of the stock subject to the stock option exceeds the exercise price of the stock option. A SAR that is not granted in tandem with a stock option is exercisable at such times as the compensation committee may specify. Performance Shares and Performance Unit Awards. Performance share and performance unit awards entitle the participant to receive cash or shares of common stock upon the attainment of specified performance goals. In the case of performance units, the right to acquire the units is denominated in cash values. The compensation committee shall set forth in the applicable award agreement the performance goals and objectives and the period of time to which such goals and objectives shall apply. If such goals and objectives are achieved, such distribution of shares, or payment in cash, as the case may be, shall be made no later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the company’s fiscal year to which such performance goals and objectives relate, unless otherwise structured to comply with Code Section 409A. 71 Table of Contents Distribution Equivalent Right Awards. A distribution equivalent right award entitles the participant to receive bookkeeping credits, cash payments and/or common stock distributions equal in amount to the distributions that would have been made to the participant had the participant held a specified number of shares of common stock during the period the participant held the distribution equivalent right. A distribution equivalent right may be awarded as a component of another award (but not an option or SAR award) under the Equity Incentive Plan, where, if so awarded, such distribution equivalent right will expire or be forfeited by the participant under the same conditions as under such other award. The compensation committee shall set forth in the applicable distribution equivalent rights award agreement the terms and conditions, if any, including whether the holder is to receive credits currently in cash, is to have such credits reinvested (at fair market value determined as of the date of reinvestment) in additional shares of common stock, or is to be entitled to choose among such alternatives. Restricted Stock Awards. A restricted stock award is a grant or sale of common stock to the holder, subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the compensation committee or the board of directors may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such instalments or otherwise, as the compensation committee or the board of directors may determine at the date of grant or purchase or thereafter. If provided for under the restricted stock award agreement, a participant who is granted or has purchased restricted stock shall have all of the rights of a shareholder, including the right to vote the restricted stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the compensation committee or the board of directors or in the award agreement). During the restricted period applicable to the restricted stock, subject to certain exceptions, the restricted stock may not be sold, transferred, pledged, exchanged, hypothecated, or otherwise disposed of by the participant. Restricted Stock Unit Awards . A restricted stock unit award provides for a grant of shares or a cash payment to be made to the holder upon the satisfaction of predetermined individual service-related vesting requirements, based on the number of units awarded to the holder. The compensation committee shall set forth in the applicable restricted stock unit award agreement the individual service-based vesting requirements which the holder would be required to satisfy before the holder would become entitled to payment and the number of units awarded to the holder. The holder of a restricted stock unit shall be entitled to receive a cash payment equal to the fair market value of a share of common stock, or one share of common stock, as determined in the sole discretion of the compensation committee and as set forth in the restricted stock unit award agreement, for each restricted stock unit subject to such restricted stock unit award, if and to the extent the holder satisfies the applicable vesting requirements. Such payment or distribution shall be made no later than by the fifteenth (15th ) day of the third (3rd) calendar month next following the end of the calendar year in which the restricted stock unit first becomes vested, unless otherwise structured to comply with Code Section 409A. A restricted stock unit shall not constitute an equity interest in the company and shall not entitle the holder to voting rights, dividends or any other rights associated with ownership of shares prior to the time the holder shall receive a distribution of shares. Unrestricted Stock Awards. An unrestricted stock award is a grant or sale of shares of common stock to the employees, non-employee directors or non-employee consultants that are not subject to transfer, forfeiture or other restrictions, in consideration for past services rendered to the company or an affiliate or for other valid consideration. Adjustment to Shares. Subject to any required action by shareholders of the company, the number of shares of common stock covered by each outstanding award shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares, including, but not limited to, a stock split, reverse stock split, recapitalization, continuation or reclassification, or the payment of a stock dividend (but only on the stock) or any other increase or decrease in the number of such shares effected without receipt of consideration by the company. Change-in-Control Provisions. The compensation committee may, in its sole discretion, at the time an award is granted or at any time prior to, coincident with or after the time of a change in control, cause any award either (i) to be cancelled in consideration of a payment in cash or other consideration in amount per share equal to the excess, if any, of the price or implied price per share of common stock in the change in control over the per share exercise, base or purchase price of such award, which may be paid immediately or over the vesting schedule of the award; (ii) to be assumed, or new rights substituted therefore, by the surviving corporation or a parent or subsidiary of such surviving corporation following such change in control; (iii) accelerate any time periods, or waive any other conditions, relating to the vesting, exercise, payment or distribution of an award so that any award to a holder whose employment has been terminated as a result of a change in control may be vested, exercised, paid or distributed in full on or before a date fixed by the compensation committee; (iv) to be purchased from a holder whose employment has been terminated as a result of a change of control, upon the holder’s request, for an amount of cash equal to the amount that could have been obtained upon the exercise, payment or distribution of such rights had such award been currently exercisable or payable; or (v) terminate any then outstanding award or make any other adjustment to the awards then outstanding as the compensation committee deems necessary or appropriate to reflect such transaction or change. The number of shares subject to any award shall be rounded to the nearest whole number. 72 Table of Contents Transferability. No award may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a holder except by will or by the laws of descent and distribution, or by gift to any immediate family member of the holder, subject to compliance with applicable laws. Amendment and Termination. The compensation committee may adopt, amend and rescind rules relating to the administration of the Equity Incentive Plan, and amend, suspend or terminate the Equity Incentive Plan, but no such amendment or termination will be made that materially and adversely impairs the rights of any participant with respect to any award received thereby under the Equity Incentive Plan without the participant’s consent, other than amendments that are necessary to permit the granting of awards in compliance with applicable laws. In addition, no amendment that results (directly or indirectly ) in the reduction of the exercise price of an option or SAR or that otherwise requires shareholder approval under applicable law will be made without shareholder approval. Director Compensation We primarily use monthly fees and stock option grants to attract and retain qualified candidates to serve on the Board. This compensation reflected the financial condition of the Company. In setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill-level required by our members of the Board. During the year ended December 31, 2025, Victor Huang and Derek Xu did not receive any compensation for their services as directors. The compensation disclosed in the “Summary Compensation Table” above represents the total compensation for Mr. Huang and Mr. Xu. Our independent non-employee directors are compensated in cash and stock option grants. The non-employee directors receive $100,000 of compensation in cash and stock option grants after appointment at the annual shareholder meetings. The stock option grants generally vest quarterly over four years. Our non-employee directors received the following compensation during the year ended December 31, 2025: Non-Equity Non-Qualified Fees Earned Incentive Deferred or Paid in Plan Compensation Other Cash Stock Option Compensation Earnings Compensation Name $ Awards Awards (1) ($) $ ($) Total Peeyush Ranjan $ 60,000 - $ 54,172 - - - $ 114,172 Louis Lebedin $ - - $ 47,502 - - - $ 47,502 Amit Mital $ - - $ 67,281 - - - $ 67,281 73 Table of Contents ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information as of December 31, 2025 regarding the beneficial ownership of shares of our common stock by: ● each person known by us to be the beneficial owner of more than 5% of the outstanding shares of any class of our voting securities; ● each of our current executive officers and directors; and ● all executive officers and directors of the Company as a group. Percentage of beneficial ownership of common stock is based on 34,368,162 shares of common stock outstanding as of December 31, 2025. 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. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares that the person has the right to acquire within 60 days are included, including through the exercise of any option or other right or the conversion of any other security. 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 shares beneficially owned by them. Common Stock Beneficially Owned Name of Beneficial Owner (1) Shares % Directors and Named Executive Officers- Victor Huang (2) 9,214,833 23.3 % Derek Xu (3) 6,611,621 18.5 % Paul Allen (4) 1,224,507 3.5 % Mark E. Scott (5) 113,952 * Peeyush Ranjan (6) 167,599 * Louis Lebedin (7) 197,562 * Amit Mital (8) 148,253 * Total Directors and Officers (8 in total) 17,678,327 41.6 % Armistice Capital Master Fund LLC (9) 2,702,702 7.3 % _________ * Less than 1% (1) Unless otherwise noted, the business address of each of the directors and executive officers of is c/o Airship AI Holdings, Inc., 8210 154th Ave NE, Redmond, WA 98052. (2) Includes (i) shares by Mr. Huang and has voting and dispositive power, (ii) 1,691,076 shares of common stock issuable upon the exercise of warrants to purchase shares of common stock, (iii) 1,793,085 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. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. 74 Table of Contents (3) Includes (i) shares owned by Mr. Xu and has voting and dispositive power, (ii) 1,344,951 shares of common stock issuable upon the exercise of warrants to purchase shares of common stock, and (iii) 43,750 shares of common stock subject to options exercisable within 60 days. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. (4) Includes (i) shares owned by Mr. Allen, and (ii) 1,072,559 shares of common stock subject to options exercisable within 60 days. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. (5) Includes (i) shares owned by Mr. Scott, and (ii) 70,000 shares of common stock subject to options exercisable within 60 days. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. (6) Includes (i) shares owned by Mr. Ranjan, and (ii) 157,832 shares of common stock subject to options exercisable within 60 days. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. (7) Includes (i) shares owned by Mr. Lebedin, and (ii) 97,562 shares of common stock subject to options exercisable within 60 days. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. (8) Includes (i) shares owned by Mr. Mital, and (ii) 136,972 shares of common stock subject to options exercisable within 60 days. Excludes the right to receive a number of earnout shares, in accordance with and subject to the contingencies set forth in the Merger Agreement. (9) The securities are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the “Master Fund”), and may be deemed to be beneficially owned by: (i) Armistice Capital, LLC (“Armistice Capital”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. The warrants are subject to a beneficial ownership limitation of 9.99%, which such limitation restricts the holder from exercising that portion of the warrants that would result in the holder and its affiliates owning, after exercise, a number of shares of common stock in excess of the beneficial ownership limitation. The address of Armistice Capital Master Fund Ltd. is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022. Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth certain information about the securities authorized for issuance under our incentive plans as of December 31, 2025: (a) (b) (c) Number of securities remaining available Number of securities Weighted-average for future issuance to be issued upon exercise price of under equity compensation exercise of outstanding outstanding options, plan (excluding securities Plan Category options, warrants and rights warrants and rights reflected in column (a) ) Equity compensation plan approved by shareholders 6,792,880 $ 1.68 4,768,585 Equity compensation plans not approved by shareholders - - - Total 6,792,880 $ 1.68 4,768,585 75 Table of Contents The following table sets forth certain information about the securities authorized for issuance under our incentive plans for SARS as of December 31, 2025: (a) (b) (c) Number of securities remaining available Number of securities Weighted-average for future issuance to be issued upon exercise price of under equity compensation exercise of outstanding outstanding options, plan (excluding securities Plan Category options, warrants and rights warrants and rights reflected in column (a) ) Equity compensation plan approved by shareholders 1,758,105 $ 0.120 879,045 Equity compensation plans not approved by shareholders - - - Total 1,758,105 $ 0.120 879,045 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Advances due to Founders As of January 1, 2024, advances due to founders totaled $1,750,000. During 2024, Mr. Huang and Mr. Xu advanced Airship AI $2,100,000 and were repaid $2,550,000, with $1,300,000 recorded as advances from founders as of December 31, 2024. During 2025, Mr. Huang and Mr. Xu were repaid $650,000 each, with $0 recorded as advances from founders as of December 31, 2025. Master Loan Agreement with Victor Huang On September 27, 2024, we entered into a master loan agreement with Mr. Huang, whereby he may provide additional funding of up to $1,500,000 under certain terms and conditions. The agreement provides for interest of 6%. We agreed to pay interest for the 2024 advances of $11,913 and issued warrants to purchase up to 220,000 shares of common stock. The warrants have an exercise price of $2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance. The $284,478 fair value of the warrant is recorded in permanent equity in the consolidated balance sheets and was fully expensed on the date of grant. There are no outstanding advances under the master loan agreement as of December 31, 2024. The master loan agreement was terminated September 2, 2025. Indemnification The Company’s charter and bylaws provide that the Company will indemnify its directors and officers to the fullest extent permitted by Delaware law. In addition, the Company has entered into indemnification agreements with its directors and executive officers. Policies and Procedures for Related Persons Transactions Pursuant to its Audit Committee charter, the Audit Committee will have the responsibility to review related party transactions. A “related person transaction” is a transaction, arrangement or relationship in which the post-combination company or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000 (or, for so long as we remain a “smaller reporting company” the lesser of (i) $120,000 and (ii) 1% of our average total assets of the two completed fiscal years), and in which any related person had, has or will have a direct or indirect material interest. A “related person” means: · any person who is, or at any time during the applicable period was, one of the Company’s executive officers or directors; · any person who is known by the post-combination company to be the beneficial owner of more than 5% of the Company voting stock; · any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of the Company’s voting stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of the Company’s voting stock; and · any firm, corporation or other entity in which any of the foregoing persons is a partner or principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. 76 Table of Contents ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Audit Committee Pre-Approval Policy The Audit Committee has established a pre-approval policy and procedures for audit, audit-related and tax services that can be performed by the independent auditors without specific authorization from the Audit Committee subject to certain restrictions. The policy sets out the specific services pre-approved by the Audit Committee and the applicable limitations, while ensuring the independence of the independent auditors to audit our financial statements is not impaired. The pre-approval policy does not include a delegation to management of the Audit Committee’s responsibilities under the Exchange Act. During the year ended December 31, 2025, the Audit Committee pre-approved all audit and permissible non-audit services provided by our independent auditors. Service Fees Paid to the Independent Registered Public Accounting Firm The Audit Committee engaged BPM LLP to perform an annual audit of our financial statements for the fiscal years ended December 31, 2025 and 2024. The following is the breakdown of aggregate fees paid for the last two fiscal years. Another tax firm prepares our tax returns. Year Ended Year Ended December 31, 2025 December 31, 2024 Audit fees $ 246,052 $ 281,375 Tax fees - - All other fees 51,863 159,265 $ 297,915 $ 440,640 -”Audit Fees” are fees paid for professional services for the audit and quarterly reviews of our financial statements. - “Tax Fees” are fees primarily for tax compliance in connection with filing US income tax returns. “All other fees” related to the reviews of Registration Statements on Form S-1 and S-4. 77 Table of Contents PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES. (a) List of Documents Filed as a Part of This Report: The Company’s financial statements, as indicated by the Index to Consolidated Financial Statements set forth below, begin on page F-1. Financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 207 ) F-1 Consolidated Balance Sheets F-2 Consolidated Statement of Operations and Comprehensive Loss F-3 Consolidated Statement of Changes in Stockholders' Deficit F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 (2) Index to Financial Statement Schedules: All schedules have been omitted because the required information is included in the financial statements or the notes thereto, or because it is not required. (3) Index to Exhibits: See exhibits listed under Part (b) below. 78 Table of Contents (b) Exhibits: Exhibit No. Description 2.1† Merger Agreement, dated June 27, 2023, by and among BYTE Acquisition Corp., BYTE Merger Sub, Inc. and Airship AI Holdings, Inc. (incorporated by reference to Exhibit 2.1 to BYTE Acquisition Corp.’s Current Report on Form 8-K filed with the SEC on June 27, 2023). 2.2 First Amendment to Merger Agreement, dated September 22, 2023, by and among BYTE Acquisition Corp., BYTE Merger Sub, Inc. and Airship AI Holdings, Inc. (incorporated by reference to Exhibit 2.1 to BYTE Acquisition Corp.’s Current Report on Form 8-K filed with the SEC on September 26, 2023). 3.1 Certificate of Incorporation of BYTE Acquisition Corp. (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 27, 2023). 3.2 Certificate of Amendment to Certificate of Incorporation of BYTE Acquisition Corp. (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the SEC on December 27, 2023). 3.3 Bylaws of Airship AI Holdings, Inc., as amended (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 10, 2025). 4.1 Specimen Common Stock Certificate of Airship AI Holdings, Inc. (incorporated by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-l (File No. 333-276932), filed with the SEC on February 7, 2024). 4.2 Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to BYTE Acquisition Corp.’s Registration Statement on Form S-l (File No. 333-253618), filed with the SEC on February 26, 2021). 4.3 Warrant Agreement, dated March 18, 2021, by and between BYTE Acquisition Corp. and Equiniti Trust Company, LLC, as warrant agent (incorporated by reference to Exhibit 4.1 to BYTE Acquisition Corp.’s Current Report on Form 8-K filed with the SEC on March 23, 2021). 4.4 Common Stock Purchase Warrant dated October 10, 2025. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 9, 2025). 4.5 Description of registrant’s securities (incorporated by reference to Exhibit 4.5 to the registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2025). 10.1 Amended and Restated Registration Rights Agreement, dated December 21, 2023 by and among Airship AI Holdings, Inc. and certain of its stockholders (incorporated by reference to Exhibit 10.8 to the registrant’s Current Report on Form 8-K filed with the SEC on December 28, 2023). 10.2 Earnout Escrow Agreement, dated December 21, 2023 by and between Airship AI Holdings, Inc. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.9 to the registrant’s Current Report on Form 8-K filed with the SEC on December 28, 2023). 10.3 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K filed with the SEC on December 28, 2023). 10.4+ Airship AI Holdings, Inc. Amended and Restated 2023 Equity Incentive Plan (incorporated by reference to Annex A to the registrant’s definitive proxy statement on Schedule 14A filed with the SEC on October 27, 2025). 10.5* Agreement of Lease dated September 7, 2023 by and between Kore Westpark, LLC and JDL Digital Systems, Inc., relating to the leased premises in Redmond, WA. 10.6* Commercial Lease Agreement dated December 6, 2024 by and between Park 35 LLC and Airship AI Holdings, Inc, relating to the leased premises (Suite 8) in Mooresville, NC. 10.7* Commercial Lease Agreement dated December 6, 2024 by and between Park 35 LLC and Airship AI Holdings, Inc, relating to the leased premises (Suite 9) in Mooresville, NC. 79 Table of Contents 10.8 Master Loan Agreement dated September 27, 2024 by and between the Company and Victor Huang (incorporated by reference to Exhibit 10.4 of the registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2024). 10.9 Warrant Letter Agreement dated October 8, 2025 by and between Airship AI Holdings, Inc. and the holder named therein (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 9, 2025). 14.1 Code of Ethics (incorporated by reference to Exhibit 14.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 28, 2023). 19.1 Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2025). 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 28, 2023). 23.1* Consent of BPM LLP, Independent Registered Accounting Firm. 31.1* Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 Clawback Policy (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on January 4, 2024). 99.1 Audit Committee Charter (incorporated by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K filed with the SEC on January 3, 2024). 99.2 Compensation Committee Charter (incorporated by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K filed with the SEC on January 3, 2024). 99.3 Nominations and Corporate Governance Committee Charter (incorporated by reference to Exhibit 99.3 to the registrant’s Current Report on Form 8-K filed with the SEC on January 3, 2024). 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* Cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 formatted in Inline XBRL (included in Exhibit 101). * Filed herewith + Indicates a management or compensatory plan. † Certain schedules and similar attachments to this Exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request. 80 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Airship AI Holdings, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Airship AI Holdings, Inc. (a Delaware corporation) (the “Company”) as of December 31, 2025 and 2024 and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BPM LLP We have served as the Company’s auditor since 2021. Santa Rosa, California February 16, 2026 F-1 Table of Contents AIRSHIP AI HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2025 and 2024 December 31, 2025 December 31, 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,750,021 $ 11,414,830 Accounts receivable, net of allowance for credit losses of $ 0 6,462,675 1,226,757 Prepaid expenses and other 294,191 17,883 Total current assets 18,506,887 12,659,470 OTHER ASSETS Other assets 160,528 165,960 Operating lease right of use asset 807,915 882,024 TOTAL ASSETS $ 19,475,330 $ 13,707,454 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable - trade $ 1,149,811 $ 759,480 Advances from founders - 1,300,000 Accrued expenses 27,966 51,649 Current portion of operating lease liability 438,635 305,178 Deferred revenue- current portion 4,668,105 3,238,483 Total current liabilities 6,284,517 5,654,790 NON-CURRENT LIABILITIES: Operating lease liability, net of current portion 425,109 638,525 Warrant liability 13,328,006 34,180,618 Earnout liability 2,620,933 23,304,808 Deferred revenue- non-current 3,966,407 2,951,850 Total liabilities 26,624,972 66,730,591 COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' DEFICIT: Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2025 and 2024 - - Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 34,368,162 and 30,588,413 shares issued and outstanding as of December 31, 2025 and 2024 3,434 3,056 Additional paid in capital 38,478,030 21,918,867 Accumulated deficit ( 45,620,227 ) ( 74,941,590 ) Accumulated other comprehensive loss ( 10,879 ) ( 3,470 ) Total stockholders' deficit ( 7,149,642 ) ( 53,023,137 ) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 19,475,330 $ 13,707,454 The accompanying notes are an integral part of these consolidated financial statements. F-2 Table of Contents AIRSHIP AI HOLDINGS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the years ended December 31, 2025 and 2024 Year Ended Year Ended December 31, 2025 December 31, 2024 NET REVENUES: Product $ 10,135,562 $ 18,716,196 Post contract support 5,099,756 4,334,017 Other services 86,031 - 15,321,349 23,050,213 COST OF NET REVENUES: Cost of Sales 6,178,868 10,843,766 Post contract support 1,372,604 1,679,692 Other services 72,111 - 7,623,583 12,523,458 GROSS PROFIT 7,697,766 10,526,755 RESEARCH AND DEVELOPMENT EXPENSES 3,076,466 2,804,894 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,837,086 11,226,974 TOTAL OPERATING EXPENSES 14,913,552 14,031,868 OPERATING LOSS ( 7,215,786 ) ( 3,505,113 ) OTHER INCOME (EXPENSE) : Gain (loss) from change in fair value of earnout liability 15,401,751 ( 18,171,380 ) Gain (loss) from change in fair value of warrant liability 20,852,612 ( 33,512,633 ) Loss from change in fair value of convertible debt - ( 141,636 ) Loss on note conversion - ( 1,144,676 ) Interest income (expense), net 282,786 ( 1,003,096 ) Other income - 13,644 Total other income (expense), net 36,537,149 ( 53,959,777 ) INCOME (LOSS) BEFORE PROVISON FOR INCOME TAXES 29,321,363 ( 57,464,890 ) Provision for income taxes - - NET INCOME (LOSS) 29,321,363 ( 57,464,890 ) OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency (loss) income, net ( 7,409 ) 9,338 TOTAL COMPREHENSIVE INCOME (LOSS) $ 29,313,954 $ ( 57,455,552 ) NET INCOME (LOSS) PER SHARE: Basic $ 0.90 $ ( 2.34 ) Diluted $ 0.76 $ ( 2.34 ) Weighted average shares of common stock outstanding Basic 32,413,133 24,585,955 Diluted 38,681,401 24,585,955 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents AIRSHIP AI HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENT OFCHANGES IN STOCKHOLDERS' DEFICIT For the years ended December 31, 2025 and 2024 Common Additional Other Total Common Stock Paid in Accumulated Comprehensive Stockholders' Stock $ Capital Deficit (Loss) Gain Deficit Balance as of January 1, 2024 22,812,048 $ 2,281 $ - $ ( 17,476,700 ) $ ( 12,808 ) $ ( 17,487,227 ) Stock-based compensation - - 1,078,344 - - 1,078,344 Stock based compensation- warrants - - 284,478 - - 284,478 Issuance of common stock for services 65,000 5 198,495 - - 198,500 Issuance of common stock for conversion of debt 1,134,452 112 4,114,719 - - 4,114,831 Issuance of common stock for exercise of warrants, net 3,046,452 305 7,704,235 - - 7,704,540 Issuance of common stock for stock options exercise 415,218 42 240,465 - - 240,507 Issuance of common stock for debt interest payment 232,360 23 1,008,419 - - 1,008,442 Issuance of common stock and warrants for offering, net 2,882,883 288 7,289,712 - - 7,290,000 Foreign currency translation gain - - - - 9,338 9,338 Net loss - - - ( 57,464,890 ) - ( 57,464,890 ) Balance as of December 31, 2024 30,588,413 3,056 21,918,867 ( 74,941,590 ) ( 3,470 ) ( 53,023,137 ) Balance as of January 1, 2025 30,588,413 .00 3,056 21,918,867 ( 74,941,590 ) ( 3,470 ) ( 53,023,137 ) Stock-based compensation - - 1,629,992 - - 1,629,992 Issuance of common stock for exercise of warrants, net 2,175,664 217 9,497,919 - - 9,498,136 Issuance of common stock for stock options exercise 443,179 44 149,244 - - 149,288 Issuance of common stock for earnout shares 1,160,906 117 5,282,008 - - 5,282,125 Foreign currency translation loss - - - - ( 7,409 ) ( 7,409 ) Net income - - - 29,321,363 - 29,321,363 Balance as of December 31, 2025 34,368,162 $ 3,434 $ 38,478,030 $ ( 45,620,227 ) $ ( 10,879 ) $ ( 7,149,642 ) The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents AIRSHIP AI HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2025 and 2024 Year Ended Year Ended December 31, 2025 December 31, 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 29,321,363 $ ( 57,464,890 ) Adjustments to reconcile net income (loss) to net cash used in operating activities Depreciation and amortization - 1,861 Stock-based compensation 1,629,992 1,362,822 Amortization of operating lease right of use asset 378,448 222,780 Issuance of common stock for services - 198,500 Noncash interest expense - 1,008,419 (Gain) loss from change in fair value of warrant liability ( 20,852,612 ) 33,512,633 (Gain) loss from change in fair value of earnout liability ( 15,401,751 ) 18,171,380 Loss from change in fair value of convertible note - 141,636 Loss on note conversion - 1,144,676 Changes in operating assets and liabilities: Accounts receivable ( 5,235,918 ) 422,147 Prepaid expenses and other ( 276,308 ) 485 Other assets 5,432 16,373 Operating lease liability ( 384,298 ) ( 174,875 ) Payroll and income tax receivable - 7,230 Accounts payable - trade and accrued expenses 366,649 ( 2,294,698 ) Deferred revenue 2,444,179 ( 2,780,447 ) NET CASH USED IN OPERATING ACTIVITIES ( 8,004,824 ) ( 6,503,968 ) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock and warrants for offering, net - 7,290,000 Proceeds from warrant exercise, net 9,498,136 7,704,540 Repayment of advances from founders ( 1,300,000 ) - Advances from founders - ( 450,000 ) Proceeds from stock option exercises 149,288 240,507 NET CASH PROVIDED BY FINANCING ACTIVITIES 8,347,424 14,785,047 NET INCREASE IN CASH AND CASH EQUIVALENTS 342,600 8,281,079 Effect from exchange rate on cash ( 7,409 ) 9,338 CASH AND CASH EQUIVALENTS, beginning of period 11,414,830 3,124,413 CASH AND CASH EQUIVALENTS, end of period $ 11,750,021 $ 11,414,830 Supplemental disclosures of cash flow information: Interest paid $ - $ 11,913 Taxes paid $ - $ 2,410 Noncash investing and financing Issuance of common stock for debt interest payment $ - $ 1,008,442 Issuance of common stock for debt conversion $ - $ 4,114,831 Issuance of common stock for earnout shares $ 5,282,125 $ - Recognition of operating right-of-use asset $ 304,339 $ - Recognition of operating lease liability $ 304,339 $ - The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents AIRSHIP AI HOLDINGS, INC. NOTES TO 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 13– Fair Value Measurements for more information. Liability as of Liability as of December 31, 2025 December 31, 2024 Earnout liability $ 2,620,933 $ 23,304,808 Warrant liability (Public Warrants) 12,916,006 33,124,868 Warrant liability (Private Warrants) 412,000 1,055,750 Total liabilities measured at fair value $ 15,948,939 $ 57,485,426 Other income (expense) related to instruments recorded at fair value during the years ended December 31, 2025 and 2024 $ 36,254,363 $ ( 51,825,649 ) Business The Company is a robust AI-driven data management platform that solves complex data challenges for large institutions operating in dynamic and mission-critical environments with rapidly increasing volumes of data being ingested from a similarly rapidly growing number of data sources. The Company solves these challenges by structuring “dark” or unstructured data at the edge, the location at which the data is generated and collected, and leveraging purpose-built AI models. Unstructured, or “dark” data, which is typically categorized as qualitative data, cannot be processed and analyzed via conventional data tools and methods. Conversely, structured data, typically categorized as quantitative data, is highly organized and easily decipherable by machine learning algorithms. Structuring and then analyzing data using AI models at the edge, versus transmitting the data from the edge back to a central processing location for structuring and analysis, enables real-time decision making and data-driven operational efficiency. The Company specializes in ingesting all available metadata from edge-based sensors used by government and law enforcement agencies around the world, including surveillance cameras (video), audio, telemetry, acoustic, seismic, and autonomous devices, along with large commercial corporations with fundamentally similar capabilities and requirements. F-6 Table of Contents Data generated by these edge-based sensors, including video, can then be run through the Company’s trained AI models to detect objects present within the video frame. Once an object is detected, for example an automobile, additional identifying characteristics of the object can be extracted from the image including the license plate characters and the make, model, and color of the automobile. This process of analyzing, logging and categorizing ingested data is referred to as “structuring” the data. Airship AI’s software allows customers to view structured data both in real-time as well as to conduct searches on the structured data at a later point in time. Real-time structured data use includes, for example, alarms on a specific license plate or a specific make, model or color of automobile. Non-real-time structured data use includes, for example, searching a database of video data that has been previously ingested and stored to find instances of a particular license plate being visible, along with other logged vehicle characteristics such as make, model and color of an automobile. Additional edge deployed AI models enable similar object detection and recognition of common and custom trained objects, such as an aircraft, boat, person, animal, bag, or weapon. Airship AI’s models provide similar data points for these object types allowing analysts the ability to be notified in real-time of the detection of a specified object and similarly search for historically detected objects. Examples include detecting aircrafts and boats along with their respective tail numbers and hull registration numbers. The Company’s AI modelling process starts with pre-trained AI models from its technology ecosystem partners which the Company then customizes using proprietary datasets tailored towards its customers’ unique workflow requirements. Where customers have pre-existing AI models or engines, the Company integrates those models or engines into its edge platform allowing customers to leverage proprietary models within the Airship AI software ecosystem. The Company’s primary offerings include Outpost AI, Acropolis, and Airship Command. Its offerings allow customers to manage their data across the full data lifecycle, when and where they need it, using a highly secure permissioned based architecture. The Company employed sixty three employees as of December 31, 2025. The employees are headquartered in Redmond, WA and are supported by a growing team at its Customer Center of Excellence located in Charlotte, NC. The Company employed eight research and development personnel in Taiwan as of December 31, 2025. 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated. The preparation of these consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Functional Currency The Company’s reporting currency is the U.S. Dollar. The Company’s functional currency for U.S. operations is the U.S. Dollar. The operations of Zeppelin Worldwide, Inc. and its subsidiary, Zeppelin Taiwan, Ltd. (together “Zeppelin”) use the Taiwan Dollar as its functional currency. At each period end, Zeppelin’s balance sheet is translated into U.S. Dollars based upon the period end exchange rate, while their statements of operations and comprehensive loss and statements of cash flows are translated into U.S. Dollars based upon an average exchange rate during the period. Cash and Cash Equivalents The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to $ 250,000 . The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit. F-7 Table of Contents Revenue Recognition and Deferred Revenue The Company primarily generates revenue from sales of systems and products and the related post contract support to customers. The Company’s primary systems and products include Outpost AI, Acropolis and Airship Command. To date, the majority of the Company’s product revenue that has been recognized consists primarily of a bundled offering of hardware and software which delivers on premise solutions to its customers. Separate limited software subscription services have been delivered to customers including those customers that are able to operate in a cloud-based environment. The transaction price recognized as revenue represents the amount the Company expects to be entitled to and is primarily comprised of product revenue, net of returns and variable consideration, including sales incentives provided to customers. Payment is typically due within 30 to 90 calendar days of the invoice date. The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price, and (5) recognize revenue when or as the Company satisfies a performance obligation, as further described below. The Company generally provides a warranty to its customers for its software products and services. In the event that there is a failure of warranties in such agreements, the Company is generally obligated to correct the product or service to conform to the warranty provision as set forth in the applicable agreement, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). For the years ended December 31, 2025 and 2024, the Company did not incur any significant warranty expenses and as such a warranty reserve was not considered necessary as of December 31, 2025 and 2024. Product Revenue Product revenue is derived primarily from sales of the Company’s system offerings, Outpost AI, Acropolis and Airship Command. The Company recognizes product revenue at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. Post Contract Support Revenue Post Contract Support (“PCS”) revenue is derived primarily from the Company’s support and software maintenance agreements (“SMA”). The Company’s PCS includes the right to receive, on a when and if available basis, future unspecified firmware upgrades and features as well as bug fixes, and email and telephone support. The Company allocates a portion of the transaction price to the PCS performance obligation based on a cost-plus methodology and recognizes the associated revenue on a straight-line basis over the estimated term of the support period. The Company’s support contracts are typically one to five years with an average of four years, payment is due within 30 to 90 calendars days of the invoice date and may include options to renew. For the years ended December 31, 2025 and 2024, the Company recognized revenue of $2,461,217 and $339,947, respectively, related to one-year support contracts. For the years ended December 31, 2025 and 2024, the Company recognized revenue of $ 2,638,539 and $ 3,994,070 respectively, related to multi-year support contracts. Other Services The Company earns other service revenues from installation services, training and licensing which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided. For the years ended December 31, 2025 and 2024, the Company recognized revenue of $ 86,031 and $ 0 , respectively, related to other services. F-8 Table of Contents Contracts with Multiple Performance Obligations The Company’s contracts with customers often contain multiple performance obligations that can include three separate obligations: (i) a hardware component (which may be bundled with hardware accessories) and the embedded firmware essential to the functionality of the hardware component delivered at the time of sale; (ii) the right to the Company’s downloadable free application and software solutions, and (iii) the right for the customer to receive post contract support (“PCS”) after the initial sale. The Company’s products and PCS offerings have significant standalone functionalities and capabilities. Accordingly, the products are distinct from the Company’s PCS services as customers can benefit from the products without the PCS services and such PCS services are separately identifiable within the contracts. The Company accounts for multiple agreements with a single customer as a single contract if the contractual terms and/or substance of those agreements indicate that they may be so closely related that they are, in effect, parts of a single contract. The amount of consideration the Company expects to receive in exchange for delivering on the contract is allocated to each performance obligation based on its relative standalone selling price. The Company establishes the standalone selling price using the prices charged for a deliverable when sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price based on its pricing model and offering type (products or PCS services). The Company has elected the practical expedient to not assess whether a contract has a significant financing component as the Company’s standard payment terms are less than one year. The Company sells its products primarily through a direct sales force. The Company considers revenue to be earned when all of the following criteria are met: ☐ The Company has a contract with a customer that creates enforceable rights and obligations, ☐ Promised performance obligations are identified, ☐ The transaction price, or the amount the Company expects to receive, is determinable ☐ The transaction price is allocated to multiple performance obligations, and ☐ The Company has satisfied the performance obligations to the customer. Transfer of control is evidenced upon passage of title and risk of loss to the customer unless the Company is required to provide additional services. The Company’s short-term and long-term deferred revenue balances totaled $ 4,668,105 and $ 3,966,407 as of December 31, 2025. The Company’s short-term and long-term deferred revenue balances totaled $ 3,238,483 and $ 2,951,850 as of December 31, 2024. Of the deferred revenue balance of $ 6,190,333 and $ 8,970,780 as of January 1, 2025 and 2024, the Company recognized approximately $ 3,238,483 and $ 4,008,654 during the years ended December 31, 2025 and 2024, respectively. Accounts Receivable and Provision for Credit Losses The Company generally sells its products to large governmental entities and large corporations in the United States. Accounts receivable are recorded at invoiced amounts and are non-interest bearing. The Company determined estimates of uncollectible accounts receivable based primarily on actual historical bad debt and sales return trends, customers financial condition and general economic conditions. Under the application of Accounting Standards Codification 326, 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. F-9 Table of Contents Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders. As of December 31, 2025 and 2024, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible. Accounts receivable balances as of December 31, 2025 and 2024 and January 1, 2024 were $ 6,462,675 , $ 1,226,757 and $ 1,648,904 , respectively. Concentration of Credit and Sales Risk The Company sells its product to commercial and government customers under agreements that are normally paid within 30 days of contract completion. For the year ended December 31, 2025, the Company had revenue from ninety two customers and four customers represented 87 % of total revenue. The primary reason for the high level of customer concentration for the year ended December 31, 2025 was due to reliance on these four customers for the year ended December 31, 2025. As of December 31, 2025, three customers represent approximately 84 % of outstanding account receivables. Due to the nature of the customers and timely payment history, customer concentration and credit risk in account receivables is estimated to be minimal. For the year ended December 31, 2024, the Company had revenue from seventy-four customers and one customer represented 57 % of total revenue, although such a high level of customer concentration is not typical. The primary reason for the high level of customer concentration for the year ended December 31, 2024 was due to one large order received in late 2023 which was fulfilled in the year ended December 31, 2024. As of December 31, 2024, four customers represent approximately 92 % of outstanding account receivables. Due to the nature and concentration of the customers and timely payment history, credit risk in account receivables is estimated to be minimal. Inventory The Company’s purchase of inventory, primarily computer servers, is undertaken to match purchase orders received from customers. Upon receipt of inventory, the Company generally configures the servers and loads proprietary software onto the servers before shipping out. The Company holds inventory for a short period of time and as of December 31, 2025 and 2024, it had no inventory in stock. Inventory value is primarily material costs and is valued at the lower of cost (first in, first out method) or net realizable value. Long-Lived Assets The Company reviews its long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results. The Company recorded impairment losses of $ 0 for the years ended December 31, 2025 and 2024. 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 has 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 $ 3,076,466 and $ 2,804,894 for the years ended December 31, 2025 and 2024, respectively, on development activities. F-10 Table of Contents 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 December 31, 2025 and 2024. 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 Advertising costs are charged to selling, general and administrative expenses as incurred. Advertising and marketing costs for the years ended December 31, 2025 and 2024 were $ 360,982 and $ 182,346 , respectively. Shipping and Handling of Products Amounts billed to customers for shipping and handling of products are included in net revenues. Costs incurred related to shipping and handling of products are included in cost of revenues. Fair Value Measurements Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels: Level 1 — Quoted prices in active markets for identical assets and liabilities; Level 2 — Inputs other than level one inputs that are either directly or indirectly observable; and Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company initially recorded its senior secured convertible promissory notes, earnout liability (unvested earnout shares), and the warrants that were issued with the notes at fair value, remeasured on a recurring basis and considered them as Level 3 instruments. The public and private warrants were considered Level 1 and 2 instruments, respectively. The senior secured convertible promissory notes were converted to equity during the year ended December 31, 2024. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2025 and 2024 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). F-11 Table of Contents Derivative Liabilities and Earnout Liabilities The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued share purchase warrants and earnout shares to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company classifies as liabilities any contracts that (i) require net-cash settlement (including a requirement to net- cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). At the Merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants. As of December 31, 2025, there were 515,000 private placement warrants and 16,145,008 public warrants outstanding. Upon consummation of the Merger, the Company evaluated the warrants and concluded that they did not meet the criteria to be classified within the stockholders’ deficit. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The initial estimated fair value of the warrants was measured using a Monte Carlo simulation. The subsequent estimated fair value of the public warrants is based on the listed price in an active market for such warrants while the fair value of the private placement warrants continues to be measured using a Monte Carlo simulation with the key inputs being directly or indirectly observable public warrants listed price. At the closing of the Merger, the Airship AI securityholders that hold shares of common stock of Airship AI, Airship AI options, Airship AI earnout warrants or Airship AI SARs had the contingent right to receive up to 5.0 million additional shares of common stock, subject to certain contingencies. These earnout shares have been categorized into two components: (i) the vested shares that are associated with stockholders with vested equity at the closing of the Merger that will be earned upon achievement of the earnout milestones and (ii) the unvested shares associated with stockholders with unvested equity at the closing of the Merger that will be earned over the remaining service period with the Company on their unvested equity shares and upon achievement of the earnout milestones. The earnout shares associated with vested shares are recognized as derivative liabilities in accordance with ASC 815-40, as the events that determine the number of earnout shares required to be released or issued, as the case may be, include events that were not solely indexed to the fair value of common stock of the Company. The earnout shares were measured at the Merger closing and subsequently measured at each reporting date until settled or when they met the criteria for equity classification. Accordingly, the Company recognizes the earnout shares as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The earnout shares were valued using a Monte Carlo analysis. At the closing of the Merger, the earnout shares associated with unvested underlying shares were considered to be equity instruments and valued at approximately $ 2,675,000 . During the years ended December 31, 2025 and 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 535,044 . As of December 31, 2025, unrecognized compensation cost related to unvested earnout shares totaled $ 1,605,136 . The weighted average period over which this remaining compensation cost is expected to be recognized is 3 years. Derivative warrant and earnout shares liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of significant current assets or require the creation of current liabilities. 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. F-12 Table of Contents 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 statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The Company’s ability to realize deferred tax assets depends upon future taxable income, as well as the limitations discussed below. For financial reporting purposes, a deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized prior to expiration. The Company considers historical and future taxable income, future reversals of existing taxable temporary differences, taxable income in prior carryback years, and ongoing tax planning strategies in assessing the need for valuation. Comprehensive (Loss) Gain Comprehensive (loss) gain is defined as the change in equity of a business during a period from non-owner sources. There was other comprehensive loss of $ 7,409 and gain of $ 9,338 related to foreign exchange translation for the years ended December 31, 2025 and 2024, respectively. Going Concern Assessment The Company applies Accounting Standards Codification 205-40 (“ASC 205-40”), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , which the Financial Accounting Standards Board (“FASB”) issued to provide guidance on determining when and how reporting companies must disclose going concern uncertainties in their consolidated financial statements. ASC 205-40 requires management to perform assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s consolidated financial statements (or within one year after the date on which the consolidated financial statements are available to be issued, when applicable). Further, a company must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern” and management plans to alleviate the going concern. In February 2026, the Company analyzed its cash requirements and operations at least through February 2027 and has determined that, based upon the Company’s current available cash and operations, the Company has no substantial doubt about its ability to continue as a going concern. Use of Estimates In preparing these consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s consolidated financial statements relate to the calculation of revenue recognition, stock-based compensation, valuation of common stock, valuation of senior secured convertible notes, 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 (Loss) Per Share Basic income (loss) per share is based upon the net income (loss) for the years ended December 31, 2025 and 2024 divided by the weighted average shares of common stock outstanding. Diluted net income per share is determined using the weighted average number of common shares and potential common shares (representing the dilutive effect of stock options, warrants and stock appreciation rights) outstanding during the period using the treasury stock method. Common stock equivalents for the year ended December 31, 2024 are not included in the calculation of diluted earnings (loss) per share given the Company incurred a loss and they are anti-dilutive. See Note 14—Earnings per share. F-13 Table of Contents 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 In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires public entities, on an annual basis, to provide: a tabular rate reconciliation (using both percentages and reporting currency amounts) of (1) the reported income tax expense (or benefit) from continuing operations, to (2) the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal (national) income tax rate of the jurisdiction (country) of domicile using specific categories, and separate disclosure for any reconciling items within certain categories that are equal to or greater than a specified quantitative threshold. For each annual period presented, ASU 2023-09 also requires all reporting entities to disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign. It also requires additional disaggregated information on income taxes paid (net of refunds received) to an individual jurisdiction equal to or greater than 5% of total income taxes paid (net of refunds received). ASU 2023-09 is effective for public entities for fiscal years beginning after December 15, 2024. ASU 2023-09 is to be applied on a prospective basis with the option to apply the standard retrospectively. The Company adopted this standard and disclosed the impact from this standard in Note 10 – Income Taxes. All other 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. Recent Legislation On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. Key provisions of the OBBBA include permanent extension of once-temporary provisions of the Tax Cuts and Jobs Act of 2017, along with the introduction of other significant changes that may impact the Company. The legislation has multiple effective dates, with certain provisions effective in the Company’s fiscal year 2025 and others implemented through the Company’s fiscal year 2028. The Company continues to evaluate the impact of the OBBBA and has included the impact of changes in the law that were effective during its fiscal year 2025 in the results of its consolidated financial statements 3. Advances due to Founders As of January 1, 2024, advances due to founders totaled $ 1,750,000 . During 2024, Mr. Huang and Mr. Xu advanced Airship AI $ 2,100,000 and were repaid $ 2,550,000 , with $ 1,300,000 recorded as advances from founders as of December 31, 2024. During 2025, Mr. Huang and Mr. Xu were repaid $ 650,000 each, with $ 0 recorded as advances from founders as of December 31, 2025. F-14 Table of Contents 4. Revenues Disaggregation of Revenue The Company’s net revenues for the years ended December 31, 2025 and 2024 consisted of approximately $ 10.1 million and $ 18.7 million, respectively, of hardware and software bundled systems for which revenue is transferred at a point in time. The Company’s remaining net revenue for the years ended December 31, 2025 and 2024 of approximately $ 5.2 million and $ 4.3 million, respectively, relates to PCS revenue and other services which are transferred over time. Within each product category, contract terms, conditions and economic factors affecting the nature, amount, timing, and uncertainty around revenue recognition and cash flow are substantially similar. Contract Balances A receivable is recognized in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. The Company usually does not record contract assets because the Company has an unconditional right to payment upon satisfaction of the performance obligation, and therefore, a receivable is more commonly recorded than a contract asset. Receivables are generally paid within thirty days and there is no financing element to the customer contracts. As of December 31, 2025 and 2024, there are no unbilled receivable balances. The Company’s short-term and long-term deferred revenue balances totaled $ 4,668,105 and $ 3,966,407 as of December 31, 2025. The Company’s short-term and long-term deferred revenue balances totaled $ 3,238,483 and $ 2,951,850 as of December 31, 2024. Of the deferred revenue balance of $ 6,190,333 and $ 8,970,780 as of January 1, 2025 and 2024, the Company recognized approximately $ 3,238,483 and $ 4,008,654 during the years ended December 31, 2025 and 2024, respectively. Remaining Performance Obligations As of December 31, 2025, the Company had approximately $ 8.6 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered. The Company expects to recognize approximately 54 % of its remaining performance obligations as revenue in fiscal 2026 and the remaining 46 % in fiscal 2027 and years thereafter. 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. 5. Notes Payable and Convertible Notes Payable On June 22, 2023, the Company issued a $ 2,000,000 senior secured convertible promissory note to Platinum Capital Partners, Inc. During the year ended December 31, 2024, the Company issued 879,051 shares of common stock related to the conversion of $ 2,000,000 of the senior secured convertible promissory note. On October 3, 2023, the Company issued senior secured convertible promissory notes for $ 600,000 to two private investors. At the option of the holders, the notes were convertible into cash, common stock or a combination of cash and stock. On March 5, 2024, the two private investors converted the notes with a face value of $ 600,000 and interest into 169,204 shares of the Company’s common stock valued at $ 835,610 . On September 13, 2024, the Company issued an additional 86,198 shares of common stock related to the conversion of notes at $ 2.65 per share. During the year ended December 31, 2024, the Company recorded an unrealized loss due to the increase in the fair value of the convertible notes payable totaling $ 141,636 and a loss of $ 1,144,676 for the conversion of these convertible notes. F-15 Table of Contents 6. Stockholders’ Deficit Authorized and Outstanding Stock The Company is a Delaware company and its affairs are governed by its certificate of incorporation, its bylaws and the Delaware General Corporation Law and the common law of the State of Delaware. The Company’s charter authorizes the issuance of 205,000,000 shares, consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock, par value $ 0.0001 per share. Preferred Stock As of December 31, 2025 and 2024, there were no shares of preferred stock outstanding. Common Stock As of December 31, 2025 and 2024, there were 34,368,162 and 30,588,413 shares of common stock outstanding, respectively. Year Ended December 31, 2025 During the year ended December 31, 2025, the Company had the following issuances of equity securities: As of September 30, 2024, the Company determined the First Operating Performance Milestone of the earnout shares was achieved resulting in the vesting of 1,250,000 shares, of which 1,160,906 shares of the Company’s common stock were issued to applicable personnel on January 7, 2025. During the year ended December 31, 2025, investors exercised public warrants for 13,502 shares of the Company’s common stock at $ 4.50 per share, and the Company received proceeds of $ 60,759 . On October 8, 2025, the Company entered into warrant exercise inducement offer letter with the holder of its existing common stock warrants and issued 2,162,162 shares of its common stock to exercise its existing 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 from the exercise of the existing warrants were approximately $ 9,729,729 , before deducting financial advisory fees of $ 231,593 . During the year ended December 31, 2025, the Company issued an aggregate of 443,179 shares of common stock and received $ 149,288 upon the exercise of stock options at a weighted average exercise price of $ 0.34 per share. Year Ended December 31, 2024 During the year ended December 31, 2024, the Company had the following sales of equity securities: On March 5, 2024, a private investor converted a senior secured convertible promissory note for $ 250,000 and interest into 70,502 shares of the Company’s common stock. On March 5, 2024, a private investor converted a senior secured convertible promissory note for $ 350,000 and interest into 98,702 shares of the Company’s common stock. On March 21, 2024, the Company issued 15,000 shares of common stock for services performed as of December 31, 2023 to MZHCI, LLC related to an investor relations consulting agreement. On May 16, 2024, the Company issued 50,000 shares of common stock to Pamria LLC for consulting and investor relations services. On June 22, 2024, the Company entered into an extension agreement with Platinum Capital Partners Inc. to extend the maturity date of the Platinum convertible note to June 22, 2025. In consideration for entering into the extension agreement, the Company issued to Platinum 232,360 shares of common stock in payment of all interest and extension fees through June 22, 2025. F-16 Table of Contents On September 3, 2024, the Company issued 2,882,883 shares of common stock at a combined price of $ 2.775 per share related to the closing of a public offering. On September 13, 2024, the Company issued an additional 86,198 shares of common stock related to the conversion of notes at $ 2.65 per share. During the year ended December 31, 2024, the Company issued 879,051 shares of common stock related to the conversion of $ 2,000,000 of the Platinum senior secured convertible promissory note at $ 2.275 per share. During the year ended December 31, 2024, the Company issued an aggregate of 415,218 shares of common stock upon the exercise of stock options at $ 0.58 weighted average price per share. During the year ended December 31, 2024, the Company issued an aggregate of 163,669 shares of common stock upon the exercise of various warrants at $ 4.92 weighted average price per share. On December 24, 2024, the Company issued 2,882,883 shares of common stock upon the exercise of warrants at an exercise price of $ 2.65 per share related to a warrant inducement agreement. 2023 Equity Incentive Plan The Company has adopted the 2023 Equity Incentive Plan (the “2023 Plan”), which plan was approved by stockholders at the extraordinary general meeting held in December 2023. Details on the equity incentive plan were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and filed with the SEC on April 1, 2024. The 2022 Combined Incentive and Non-Qualified Stock Option Plan (the “2022 Plan”) is no longer 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. On December 11, 2025, the Company’s shareholders approved the Airship AI Holdings, Inc. 2023 Amended and Restated Equity Incentive Plan and increased the number of shares of the Company’s common stock authorized for issuance pursuant to awards granted under the plan by 2,000,000 shares. The aggregate number of shares of common stock initially reserved and available for grant and issuance under the 2023 Plan is 4,000,000 . Such aggregate number of shares of stock will automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2024 and ending on January 1, 2033, in an amount equal to 2.0 % of the total number of shares of common stock outstanding on December 31 of the preceding year. The aggregate number of shares of common stock reserved for grant and issuance under the 2023 Plan is 4,768,585 as of December 31, 2025. The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period which an employee is required to provide service in exchange for the award-the requisite service period. The Company had the following stock option activity during the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 During the year ended December 31, 2025, the Company granted stock options to employees to purchase an aggregate of 1,816,000 shares of common stock with a weighted average exercise price of $ 3.39 per share, which vest primarily quarterly over four years and expire by December 2035. During the year ended December 31, 2025, two employees forfeited stock options to purchase an aggregate of 107,500 shares of common stock with a weighted average exercise price of $ 2.95 per share. During the year ended December 31, 2025, the Company issued an aggregate of 443,179 shares of common stock and received $ 149,288 upon the exercise of stock options at a weighted average exercise price of $ 0.34 per share. F-17 Table of Contents Year Ended December 31, 2024 During the year ended December 31, 2024, the Company granted stock options to employees to purchase an aggregate of 1,590,000 shares of common stock with a weighted average exercise price of $ 3.47 per share and which vest primarily quarterly over four years and expire March to August 2034. During the year ended December 31, 2024, five employees voluntarily cancelled stock options to purchase an aggregate of 300,000 shares of common stock with a weighted average exercise price of $ 6.85 per share. Another employee forfeited 11,812 stock options with an exercise price of $ 1.64 per share. During the year ended December 31, 2024, the Company issued an aggregate of 415,218 shares of common stock and received $ 240,567 upon the exercise of stock options at a weighted average exercise prices of $ 0.58 per share. Stock option activity for the years ended December 31, 2025 and 2024 were as follows: Options Weighted Average Shares Exercise Price Outstanding as of January 1, 2024 4,664,589 $ 0.54 Granted 1,590,000 3.47 Exercised ( 415,218 ) ( 0.58 ) Forfeited ( 311,812 ) ( 6.65 ) Outstanding as of January 1, 2025 5,527,559 1.04 Granted 1,816,000 3.39 Exercised ( 443,179 ) ( 0.34 ) Forfeited ( 107,500 ) ( 2.95 ) Outstanding as of December 31, 2025 6,792,880 $ 1.68 The following table summarizes information about stock options outstanding and exercisable as of December 31, 2025: Weighted Weighted Weighted Average Average Weighted Average Remaining Life Range of Number Remaining Life Average Number Exercise Price In Years - Vested Exercise Prices Outstanding In Years Exercise Price Exerciseable Exerciseable and Exercisable $ 0.12 2,067,033 2.04 $ 0.12 2,067,033 $ 0.12 2.04 0.57 879,011 1.29 0.57 879,011 0.57 1.29 1.49-1.65 1,086,086 6.53 1.64 739,376 1.64 6.78 2.86-3.06 1,789,750 9.36 2.98 377,070 2.93 9.05 3.27-4.47 971,000 9.51 3.68 242,560 3.48 9.31 6,792,880 5.66 $ 1.68 4,305,050 $ 0.91 3.73 There were 6,792,880 options to purchase common stock at a weighted average exercise price of $ 1.68 per share outstanding as of December 31, 2025 under the 2023 Plan and the 2022 Plan. The Company recorded $ 1,103,325 and $ 570,614 of compensation expense, net of related tax effects, relative to stock options for the years ended December 31, 2025 and 2024, respectively, in accordance with ASC 718. As of December 31, 2025, there was $ 3,824,252 of total unrecognized costs related to employee granted stock options that were not vested. These costs are expected to be recognized over a period of approximately 3 years. In August 2024, the Company cancelled out-of-the money options to exercise 300,000 shares held by current employees and replaced them with 525,000 options at lower exercise prices. The new options were subject to the same service-based vesting schedule as the original options . The Company accounted for the replacement options as a modification of the terms of the cancelled option awards and in accordance with ASC 718-20-35-2A, the Company will recognize additional $ 205,879 stock compensation expense over the remaining vesting period as the incremental cost measured as the excess of the fair value of the replaced options on the grant date using the Black-Scholes-Merton option pricing model over the fair value of the cancelled option award at the cancellation date. F-18 Table of Contents The significant weighted-average assumptions relating to the valuation of the Company’s stock option grants were as follows for the years ended December 31, 2025 and 2024: Assumptions 12/31/2025 12/31/2024 Exercise price $ 3.06 - 3.28 $ 1.49 - 7.61 Dividend yield 0 % 0 % Expected life 4 years 4 years Expected volatility 57.1 %- 61.2 % 57.1 %- 69.3 % Risk free interest rate 3.605 %- 3.635 % 4.16 %- 4.31 % There were stock incentive plan awards outstanding at December 31, 2025 totaling 6,792,880 shares with an aggregate intrinsic value of $ 9,124,344 . Stock Appreciation Rights Plan Related to the Share Exchange Agreement with Super Simple AI, Inc., on February 17, 2022, the Company’s Board of Directors approved the 2022 Stock Appreciation Rights Plan (the “SAR Plan”) to issue a maximum of 1,500,000 stock appreciation rights (“SARs”), which was later adjusted to 2,637,150 SARs after the Merger . As of December 31, 2025 and 2024, there were 1,758,000 SARs outstanding with a base value of $ 0.12 and January 2028 expiration. There were no SAR grants during the years ended December 31, 2025 and 2024. Warrants to Purchase Common Stock See Note 11 for public and private placement warrants assumed after the Merger. The summary table below of outstanding warrants as of December 31, 2024 and 2023 include public and private placement warrants in Note 11. Year Ended December 31, 2025 The Company had the following warrant activity during the year ended December 31, 2025: During the year ended December 31, 2025, investors exercised public warrants for 13,502 shares of the Company’s common stock at $ 4.50 per share, and the Company received proceeds of $60,759. On October 8, 2025, the Company entered into warrant exercise inducement offer letter with the holder of its existing common stock warrants and issued 2,162,162 shares of its common stock to exercise its existing warrants at the existing exercise price of $ 4.50 per share, in exchange for our agreement to issue new common stock warrants (“Inducement Warrants”) to purchase 2,702,702 shares of common stock at an exercise price per share of $ 6.20 . The aggregate gross proceeds from the exercise of the existing warrants were approximately $ 9,729,729 , before deducting financial advisory fees. The Inducement Warrants are immediately exercisable and will be exercisable for five years from the date of issuance. In accordance with ASC Topic 815 guidance on equity classified warrant modifications, the modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the warrants to cash exercise their warrants, which raised equity capital and generated gross proceeds of approximately $ 9.7 million. As the existing warrants and the Inducement Warrants issued on October 8, 2025 were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $ 6.2 million (fair value of Inducement Warrants) as an equity issuance cost. The Company determined the fair value using the Black-Scholes-Morton pricing model with the following assumptions: stock price $ 5.14 , volatility of 61.2 %, risk-free interest rate of 3.74 % and expected term of four years. F-19 Table of Contents Year Ended December 31, 2024 The Company had the following warrant activity during the year ended December 31, 2024: In connection with the issuance of the Platinum convertible note, the Company issued to Platinum an amended and restated common stock purchase warrant dated February 2, 2024 to purchase 189,334 shares of common stock at an exercise price per share of $ 3.69717 . On March 18, 2024, Platinum exercised the Platinum warrant and received 137,367 shares of common stock. Platinum forfeited 51,967 shares. On September 3, 2024 the Company issued warrants to purchase up to 2,882,883 shares of its common stock. The warrants have an exercise price of $ 2.65 per share, are exercisable immediately upon issuance and will expire five years following the date of issuance. On December 24, 2024, the 2,882,883 warrants were exercised. On September 3, 2024 the Company issued warrants to purchase up to 216,216 shares of its common stock. The warrants have an exercise price of $ 3.47 per share, are exercisable immediately upon issuance and will expire five years following the date of issuance. On September 27, 2024, the Company issued warrants to purchase up to 220,000 shares of common stock. The warrants have an exercise price of $ 2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance. On December 24, 2024, the Company entered into a warrant exercise inducement agreement with a holder of existing common stock warrants exercisable for an aggregate of 2,882,883 shares of common stock at the existing exercise price of $ 2.65 per share, in exchange for the issuance of new common stock warrants to purchase 2,162,162 shares of common stock at an exercise price per share of $ 4.50 . The investor agreed to exercise the existing 2,882,883 for cash resulting in aggregate gross proceeds of approximately $ 7.6 million with approximately $ 7.4 million in net proceeds after deducting advisory fees. The Inducement Warrants are immediately exercisable and will be exercisable for five years from the date of issuance. In accordance with ASC Topic 815 guidance on equity classified warrant modifications, the modification is consistent with the equity issuance classification under that guidance as the reason for the modification was to induce the holders of the September 3, 2024 existing warrants to cash exercise their warrants, which raised equity capital and generated net proceeds of approximately $ 7.4 million. As the warrants issued on September 3, 2024 and December 24, 2024 were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the modification of approximately $ 6.5 million (fair value of Inducement Warrants) as an equity issuance cost. The Company determined the fair value using the Black-Scholes-Morton pricing model with the following assumptions: stock price $ 5.54 , volatility of 69 %, risk-free interest rate of 4.36 % and expected term of three years. During the year ended December 31, 2024, various investors exercised warrants for 3,046,552 shares of the Company’s common stock at a weighted average exercise price of $ 2.77 per share, and the Company received net proceeds of $ 7,704,540 . F-20 Table of Contents Warrant activity for the years ended December 31, 2025 and 2024 was as follows: Weighted Average Exercise Warrants Price Outstanding January 1, 2024 19,443,314 $ 4.15 Issued 5,616,795 3.41 Exercised ( 3,046,552 ) ( 2.77 ) Forfeited ( 51,867 ) ( 3.70 ) Outstanding January 1, 2025 21,961,690 4.13 Issued 2,702,702 6.20 Exercised ( 2,175,564 ) ( 4.50 ) Forfeited - - Outstanding at December 31, 2025 22,488,828 $ 4.35 A summary of the warrants outstanding as of December 31, 2025 were as follows: December 31, 2025 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life (In Years) Price Exercisable Price 2,689,902 2.45 $ 1.77 2,689,902 $ 1.77 220,000 3.75 2.36 220,000 2.36 216,216 3.62 3.47 216,216 3.47 16,660,008 2.98 4.50 16,660,008 4.50 2,702,702 4.63 6.20 2,702,702 6.20 22,488,828 3.25 $ 4.35 22,488,828 $ 4.35 The significant weighted average assumptions relating to the valuation of the Company’s warrants issued for the years ended December 31, 2025 and 2024 were as follows: 12/31/2025 12/31/2024 Dividend yield 0 % 0 % Exercise price $ 6.20 2.36 - 4.50 Expected life 4 years 4 - 5 years Expected volatility 61.2 % 69 % Risk free interest rate 3.74 % 3.77 % - 4.36 % There were warrants outstanding and exercisable at December 31, 2025 totaling 22,488,828 shares with an aggregate intrinsic value of $ 3,129,290 . Earnout Liability See Note 13 for common stock shares related to earnout liability. 7. Employee 401(k) Plan The Company has a 401(k) plan for its employees. The plan provides for a 3.5% match on up to 6% of deferred salary . The Company expensed $ 191,440 and $ 198,500 of contributions during the years ended December 31, 2025 and 2024, respectively. F-21 Table of Contents 8. Related Party Transactions Advances due to Founders As of January 1, 2024, advances due to founders totaled $ 1,750,000 . During 2024, Mr. Huang and Mr. Xu advanced Airship AI $ 2,100,000 and were repaid $ 2,550,000 , with $ 1,300,000 recorded as advances from founders as of December 31, 2024. During 2025, Mr. Huang and Mr. Xu were repaid $ 650,000 each, with $ 0 recorded as advances from founders as of December 31, 2025. Master Loan Agreement with Victor Huang On September 27, 2024, we entered into a master loan agreement with Mr. Huang, whereby he may provide additional funding of up to $ 1,500,000 under certain terms and conditions. The agreement provides for interest of 6 %. We agreed to pay interest for the 2024 advances of $ 11,913 and issued warrants to purchase up to 220,000 shares of common stock. The warrants have an exercise price of $ 2.36 per share, are exercisable immediately upon issuance and will expire in five years following the date of issuance. The $ 284,478 fair value of the warrant is recorded in permanent equity in the consolidated balance sheets and was fully expensed on the date of grant. There are no outstanding advances under the master loan agreement as of December 31, 2024. The master loan agreement was terminated September 2, 2025. 9. 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 proceeding that is not ordinary routine litigation incidental to its business. Employment Agreements On March 1, 2024, the Company entered into an employment agreement with Mark E. Scott, the Company’s Chief Financial Officer, which provides for a base salary of $ 250,000 annually. Mr. Scott is also eligible to participate in annual performance-based bonus programs established by the Board or Compensation Committee, subject to the achievement of applicable performance criteria established by the Board or Compensation Committee, which shall be determined in good faith by the Board or Compensation Committee. Mr. Scott was also granted options to purchase up to twenty-five thousand (25,000) shares of Common Stock with an exercise price equal to $ 1.49 , which options vested in full on the date of issuance. On March 4, 2025, the Company entered into an employment agreement with Paul Allen to serve as its President, which provides for a base salary of $ 350,000 . The term of the employment agreement is for a period of three years, which will be automatically extended for additional one-year periods unless either party gives the other party written notice of such party’s decision not to renew the term at least 90 days prior to the end of the initial three-year term or any renewal term Mr. Allen is also eligible to participate in annual performance-based bonus programs established from time to time by the Board, subject to the achievement by Mr. Allen and the Company of the applicable performance criteria set forth in the employment agreement and established for Mr. Allen by the Board. The employment agreement is terminable by either party at any time. In the event of termination by us without cause or by Mr. Allen for good reason, as those terms are defined in the employment agreement, he is entitled to three months’ severance. In connection with entering into the employment agreement, Mr. Allen was granted ten-year options under our 2023 Equity Incentive Plan to purchase 100,000 shares of our common stock, which options vest immediately, at an exercise price equal to $3.27, being the fair market value on the date of grant . Mr. Allen was also granted ten-year options under the Plan to purchase 300,000 shares of our common stock, which options vest quarterly over four years, at an exercise price equal to $3.27, being the fair market value on the date of grant. F-22 Table of Contents Properties and Operating Leases-Right of Use Asset and Lease Liability Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases . Right of use lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The incremental borrowing taking into consideration the Company’s credit quality and borrowing rate for similar assets is used in determining the present value of future payments. Lease expense is recorded as general and administrative expenses on the Company’s consolidated statements of operations. The Company elected the package of transitional practical expedients, under which (1) the Company did not reassess whether any expired or existing contracts are or contain leases, (2) the Company did not reassess the lease classification for any expired or existing leases and (3) the Company did not reassess initial direct costs for any existing leases. Additionally, the Company elected the short-term lease recognition exemption for all leases that qualify, meaning it does not recognize right-of use assets or lease liabilities for those leases. The Company also elected the practical expedient to not separate lease and non-lease components for all asset classes. The Company has entered into operating leases for office and development facilities for four years and include options to renew. The Company determines whether an arrangement is or contains a lease based upon the unique facts and circumstances at the inception of the lease. Operating lease liabilities and their corresponding right-of-use asses are recorded based upon the present value of the lease payments over the expected lease term. As of December 31, 2025 and 2024, total operating lease liabilities were approximately $ 863,744 and $ 943,703 , respectively. Right of use assets totaled approximately $ 807,915 and $ 882,024 at December 31, 2025 and 2024, respectively. All of the lease current lease liabilities were $ 438,635 and $ 305,178 at December 31, 2025 and 2024, respectively. In the years ended December 31, 2025 and 2024, the Company recognized $ 449,644 and $ 430,084 in total lease costs for the leases, respectively. Cash paid for amounts included in the measurement of lease liabilities were $ 455,495 and $ 328,002 , respectively, for the years ended December 31, 2025 and 2024. Because the rate implicit in each lease is not readily determinable, the Company uses its estimated incremental borrowing rate to determine the present value of the lease payments. The weighted average remaining lease term for the operating leases was thirty-two months at December 31, 2025 and the weighted average discount rate was 7 % as of December 31, 2025 and 2024. The minimum future lease payments as of December 31, 2025 are as follows: Years Ended December 31, 2026 $ 482,492 2027 432,285 2028 14,136 Total remaining payments 928,913 Less imputed interest ( 65,169 ) Total lease liability $ 863,744 On September 7, 2023, the Company entered into a lease in Redmond, WA for 15,567 square feet of office and warehouse space which started August 1, 2024. The monthly payment is currently approximately $ 29,600 per month. The lease expires October 31, 2027 and the monthly payment increases 3 % on August 1, 2025 and each year thereafter. There is a one three year option to extend the lease based on the fair market rate on October 31, 2027. We do not believe that is reasonably certain that the lease will be extended. On December 6, 2024, the Company entered into two separate office leases in Mooresville, North Carolina, the terms of which commenced on February 1, 2025. The Company leases an aggregate of 5,240 square feet and the net monthly payment is approximately $ 9,105 . The leases expire January 31, 2028 and the monthly payment increases 3 % on February 1, 2026 and each year thereafter. There is no option to extend the lease. 10. Income Taxes For each of the years ended December 31, 2025 and 2024, the Company’s income tax expense was $0 and the effective tax rate was 0%. F-23 Table of Contents The sources of income (loss) before income taxes are as follows for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 United States $ 30,045,637 $ ( 56,798,677 ) International ( 724,274 ) ( 666,213 ) Income (loss) before income taxes $ 29,321,363 $ ( 57,464,890 ) The components of the provision for income taxes for the years ended December 31, 2025 and 2024 consisted of the following: Years Ended December 31, 2025 2024 Current: Federal $ - $ - State - - Total current provision - - Deferred: Federal - - State - - Total deferred income taxes - - Total provision for income taxes $ - $ - Upon adoption of ASU 2023-09, Improvements to Income Tax Disclosures , as described in Note 2, the reconciliation of taxes at the federal statutory rate to the provision for income taxes for the year ended December 31, 2025 was as follows: Years Ended December 31, 2025 Amount Percentage U. S. Federal Statutory Tax Rate $ 6,157,486 21.0 % Change in valuation allowance 986,027 3.4 % Non-taxable and non-deductible items Share-based payment awards 310,948 1.0 % Change in fair value of earnout shares liability ( 3,234,368 ) ( 11.0 )% Change in warrants liability ( 4,379,049 ) ( 14.9 )% Other 158,956 0.5 % Total $ - 0.0 % For the year ended December 31, 2025, the Company’s effective tax rate differs from the federal statutory rate principally due to non-taxable revaluation of fair value of earnout shares and warrants liabilities, change in valuation allowance and other permanent differences being excluded from the determination of taxable loss As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differed from the statutory federal income tax rate as follows: Years Ended December 31, 2024 2023 Federal statutory tax rate 21.0 % 21.0 % Change in valuation allowance ( 1 )% 6.0 % Share-based compensation 0.0 % 5.0 % Non-taxable change in fair value of earnout shares liability ( 7 )% ( 29.0 )% Non-taxable change in fair value of warrants liability ( 12 )% ( 3.0 )% Other permanent differences ( 1 )% 0.0 % Effective tax rate 0.0 % 0.0 % F-24 Table of Contents The components of net deferred tax assets as of December 31, 2025 and 2024 consisted of the following: Years Ended December 31, 2025 2024 Deferred tax assets: Tax credit carryforward $ 1,286,195 $ 1,286,195 Deferred revenue 619,888 1,042,047 Capitalized research and development costs 835,820 1,147,053 Net operating loss carry-forward 2,374,090 691,481 Capital loss carry-forward 50,460 52,560 Operating lease liability 181,386 198,178 Property and equipment and other - 2,999 5,347,839 4,420,513 Valuation allowance ( 5,178,177 ) ( 4,235,288 ) Net deferred tax assets $ 169,662 $ 185,225 Deferred tax liabilities: Right-of-use-assets ( 169,662 ) ( 185,225 ) Total net deferred tax assets $ - $ - As of December 31, 2025 and 2024, the Company has a federal net operating loss carryforward totaling approximately $ 11,305,000 and $ 2,939,000 . The federal net operating loss carryforward generated from the years ended after December 31, 2017 may be carried forward indefinitely. As of December 31, 2025 and 2024, R&D tax credit carryforwards total approximately $ 1,513,000 each year and begin to expire in 2036. Realization of the carryforwards is dependent on the Company generating sufficient taxable income and may also be subject to usage limitations to the extent there are changes in the Company’s ownership. Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, the Company first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which the Company operates, its financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, the Company considered both its near-term and long-term financial outlook. After considering all available evidence (both positive and negative), the Company concluded that recognition of a valuation allowance for all of its deferred tax assets was required at December 31, 2025 and 2024. The valuation allowance increased by approximately $ 943,000 and $ 30,000 in 2025 and 2024, respectively. The increase during the current year is primarily related to net operating losses. Pursuant to Sections 382 and 383 of the Internal Revenue Code, or IRC, annual use of the Company's net operating losses and tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The amount of annual limitation is determined based on the value of the Company immediately prior to the ownership changes. The Company is in process of performing an assessment of whether a change in ownership has occurred or whether there have been multiple changes in ownership, within the meaning of Section 382. The Company evaluates uncertain tax positions using the “more likely than not” threshold (i.e., a likelihood of occurrence greater than fifty percent). The recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are classified as a gross unrecognized tax benefit until they meet the more likely than not standard or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. As of December 31, 2025 and 2024, the unrecognized tax benefit totals approximately $ 227,000 in each year. F-25 Table of Contents The gross unrecognized tax benefits, if recognized, would not affect the effective tax rate as these unrecognized tax benefits would increase deferred tax assets that would be subject to a full valuation allowance. No material changes in the gross unrecognized tax benefits are expected over the next twelve months. Interest and penalties related to unrecognized tax benefits, if any, will be recognized as a component of income tax expense. The Company did not have any cash paid amount for income taxes, net of refunds for the year ended December 31, 2025. The Company is subject to possible tax examination for the years 2014 through 2025.The Company is also subject to examination with respect to federal net operating loss carryforwards generated and carried forward from those years. There are currently no federal or state income tax audits in process. 11. Warrant Liability At the Merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants. On June 3, 2024, the Company permanently reduced the exercise price of such warrants from $ 11.50 per share to an exercise price of $ 7.80 per share. On November 20, 2024, the Company further reduced the exercise price of the outstanding public warrants and private warrants to an exercise price of $ 4.50 per share. The purpose of this reduced exercise price was to potentially raise proceeds received from the exercise of such warrants, if any, for working capital and general corporate purposes. As of December 31, 2025, there were 515,000 private placement warrants and 16,145,008 public warrants outstanding. The public warrants will expire on December 21, 2028 . 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 December 31, 2025 and 2024: December 31, 2025 Number of Exercise Shares Price Expiration Date Fair Value Public Warrants 16,145,008 $ 4.50 December 21, 2028 $ 12,916,006 Private Warrants 515,000 $ 4.50 December 21, 2028 $ 412,000 December 31, 2024 Number of Exercise Shares Price Expiration Date Fair Value Public Warrants 16,158,410 $ 4.50 December 21, 2028 $ 33,124,868 Private Warrants 515,000 $ 4.50 December 21, 2028 $ 1,055,750 The Company has reviewed the terms of the Public and Private Warrants to determine whether warrants should be classified as liabilities or stockholders’ equity in its consolidated balance sheet. In order for a warrant to be classified in stockholders’ equity, the warrant must be (a) indexed to the Company’s equity and (b) meet the conditions for equity classification in ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Equity. If a warrant does not meet the conditions for equity classification, it is carried on the consolidated balance sheet as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in the statement of operations as change in fair value of warrants. The Company determined that all warrants are required to be carried as a liability in the consolidated balance sheet at fair value, with changes in fair value recorded in the consolidated statement of operations. At the closing of the Merger on December 21, 2023, the warrants had an initial fair value of $ 2,009,105 , which was recorded as liability and a reduction to additional paid in capital in the consolidated balance sheet. As of December 31, 2025 and 2024, the Private and Public Warrants had an aggregate fair value of $ 13,328,006 and $ 34,180,618 . The Company recorded a gain of $ 20,852,612 and a loss of $ 33,512,633 due to change in the fair value of the warrant liability during the years ended December 31, 2025 and 2024, respectively. See Note 13 – Fair Value Measurements for more information. F-26 Table of Contents 12. Earnout Liability At the closing of the Merger, the Airship AI securityholders that hold shares of common stock of Airship AI, Airship AI options, Airship AI earnout warrants or Airship AI SARs have the contingent right to receive up to 5,000,000 earnout shares of the Company’s common stock if the following earnout milestones are met. (A) 25% of the earnout shares if, for the period starting on the closing date and ending on the last day of the full calendar quarter immediately following the first anniversary of the closing date, (1) company revenue (as defined in the Merger Agreement) is at least $39 million, or (2) the aggregate value of new contract awards with federal law enforcement agencies has grown by at least 100% as compared to the year-over-year amount for the twelve-month period ending on the date of the Merger Agreement (the “First Operating Performance Milestone”) ; (B) 75% of the earnout shares if, for the period starting on the closing date and ending on the last day of the full calendar quarter immediately following the third anniversary of the closing date, company revenue is at least $100 million ; (C) 50% of the earnout shares if, at any time during the period starting on the closing date and ending on the fifth anniversary of the closing date, over any twenty (20) trading days within any thirty (30) trading day period the volume weighted average price (“VWAP”) of the common stock is greater than or equal to $12.50 per share; and (D) 50% of the earnout shares if, at any time during the period starting on the closing date and ending on the fifth anniversary of the closing date, over any twenty (20) trading days within any thirty (30) trading day period the VWAP of the common stock is greater than or equal to $15.00 per share . Any earnout shares issuable under the Merger Agreement to an Airship AI securityholder in respect of each Airship AI option or Airship AI SAR held by such holder as of immediately prior to the effective time of the Merger shall be earned by such holder on the later of (i) the occurrence of the applicable earnout milestone, and (ii) the date on which the option in respect of such Airship AI option or SAR in respect of such Airship AI SAR, as applicable, becomes vested pursuant to its applicable vesting schedule, but only if such holder continues to provide services (whether as an employee, director or individual independent contractor) to the Company or one of its subsidiaries through such date. Notwithstanding the foregoing, any earnout shares that are not earned by Airship AI securityholder in respect of its options or SARs on or before the fifth anniversary of the closing date of the Merger shall be forfeited without any consideration. Any earnout shares that are forfeited pursuant to the Merger Agreement shall be reallocated to the other Airship AI securityholders who remain entitled to receive earnout shares in accordance with their respective earnout pro rata shares. These earnout shares have been categorized into two components: (i) the “Vested Shares” - those associated with earnout holders with vested equity at the closing of the Merger that will be earned upon achievement of the earnout milestones and (ii) the “Unvested Shares” - those associated with earnout holders with unvested equity at the closing of the Merger that will be earned over the remaining service period with the Company on their unvested equity shares and upon achievement of the earnout milestones. The Vested Shares, which represent 95% of the total earnout shares are classified as liabilities in the consolidated balance sheet at fair value with changes in fair value recognized in the consolidated statements of operations due to the variability in the number of earnout shares at settlement which could change upon a change of control event. The earnout arrangement contains a settlement provision that violates the indexation guidance under ASC 815-40. The Unvested Shares are equity-classified share-based compensation to be recognized over time under ASC 718 due to the service component. As of September 30, 2024, the Company determined the first operating performance milestone was achieved resulting in the vesting of 1,250,000 earnout shares, of which 1,160,906 shares of the Company’s common stock were issued to applicable personnel on January 7, 2025. The fair value of the 1,160,906 vested shares on the issuance date of $ 5,282,008 was determined using the Company’s closing trading price on January 7, 2025 and was reclassified from earnout liability to equity as additional paid in capital on the consolidated balance sheet. The remaining 89,094 shares that vested as of September 30, 2024 will continue to be valued on a recurring basis as a Level 1 instrument until issued. The remaining unvested earnout shares continue to be accounted for as liabilities until their respective triggering event occurs. As of December 31, 2024, the estimated fair value of the earnout liability was $ 23,304,808 and decreased to $ 2,620,933 as of December 31, 2025 primarily due to the common stock issued to settle approximately $ 5.3 million of earnout liability on January 7, 2025, the decrease in the Company’s share price and a decline in revenue, which resulted in a gain due to the change in fair value of the earnout liability during the year ended December 31, 2025 of approximately $ 15.4 million. During the year ended December 31, 2024, the Company recorded a loss from the change in fair value of the earnout liability of approximately $ 18.2 million. The Company records the gain and losses from the change in fair value of the earnout liability on the consolidated statements of operations and comprehensive loss. See Note 13– Fair Value Measurements for more information. F-27 Table of Contents In addition, a portion of the earnout shares may be issued to individuals with unvested equity awards. While the payout of these shares requires the achievement of the earnout milestones, the individuals must complete the remaining service period associated with these unvested equity awards to be eligible to receive the earnout shares. As a result, these unvested earn-out shares are equity-classified awards and have an aggregated grant date fair value of $ 2,675,223 (or $5.96 per share). During each of the years ended December 31, 2025 and 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 535,044 , respectively. As of December 31, 2025, unrecognized compensation cost related to unvested earnout shares totaled $ 1,605,136 . The weighted average period over which this remaining compensation cost is expected to be recognized is 3 years. 13. 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 December 31, 2025 and 2024: December 31, 2025 Level 1 Level 2 Level 3 Total Liabilities- Earnout liability $ 257,481 $ - $ 2,363,452 $ 2,620,933 Warrant liability (Public Warrants) 12,916,006 - - 12,916,006 Warrant liability (Private Warrants) - 412,000 - 412,000 Total liabilities measured at fair value $ 13,173,487 $ 412,000 $ 2,363,452 $ 15,948,939 December 31, 2024 Level 1 Level 2 Level 3 Total Liabilities- Earnout liability $ 7,825,000 $ - $ 15,479,808 $ 23,304,808 Warrant liability (Public Warrants) 33,124,868 - - 33,124,868 Warrant liability (Private Warrants) - 1,055,750 - 1,055,750 Total liabilities measured at fair value $ 40,949,868 $ 1,055,750 $ 15,479,808 $ 57,485,426 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 stock price 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: December 31, 2025 December 31, 2024 Stock price $ 2.89 $ 6.26 Risk-free interest rate 3.55 % 4.33 % Expected term (in years) 3 4 Expected volatility 55.8 % 57.1 % Dividend yield 0 % 0 % The fair value of the 1,250,000 vested shares as of December 31, 2024 of $ 7,825,000 was determined using the Company’s closing trading price on December 31, 2024. On January 7, 2025, 1,160,906 shares were issued with a fair value of $ 5,282,125 to applicable personnel and were reclassified to equity as additional paid in capital. The fair value of the remaining 89,094 shares that vested as of September 30, 2024 was determined using the Company’s closing stock price on December 31, 2025. 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. F-28 Table of Contents The estimated fair value of the senior secured convertible promissory notes was measured using a Monte Carlo simulation pricing model that factors in potential outcomes being consummated, such as the convertible notes being repaid in cash and the convertible notes being converted to common stock. All of these scenarios take into consideration the terms and conditions of the underlying convertible notes plus potential changes in the underlying value of the common stock. The senior secured convertible promissory notes were fully converted to equity as of December 31, 2024. On September 13, 2024, the vested earnout shares were transferred from Level 3 to Level 1 upon the Board approval of the achievement of the First Operating Performance Milestone (A,2). The fair value on the day of transfer was $ 3,400,000 . There were no transfers of financial instruments between valuation levels during the year ended December 31, 2025. The changes in Level 3 liabilities measured at fair value for the years ended December 31, 2025 and 2024 were as follows: Level 3 Beginning Balance Unrealized and Conversions / Transfers out Ending Balance as of January 1, 2025 Realized Gain Settlements (a) of Level 3 December 31, 2025 Liabilities- $ 15,479,808 $ ( 13,116,356 ) $ - $ - $ 2,363,452 $ 15,479,808 $ ( 13,116,356 ) $ - $ - $ 2,363,452 Level 3 Beginning Balance Unrealized and Conversions / Transfers out Ending Balance as of January 1, 2024 Realized Gain Settlements (a) of Level 3 December 31, 2024 Liabilities- Earnout liability $ 5,133,428 $ 13,746,380 $ - $ ( 3,400,000 ) $ 15,479,808 Senior Secured Convertible Promissory Notes 2,825,366 141,636 ( 2,967,002 ) - - $ 7,958,794 $ 13,888,016 $ ( 2,967,002 ) $ ( 3,400,000 ) $ 15,479,808 (a) The conversions and settlements represent the fair value of the Senior Secured Convertible Promissory Notes at the dates of conversion. 14. Earnings per Share The following table sets forth the computation of basic and diluted net income (loss) per share attributable to common stockholders: Years Ended, December 31, 2025 December 31, 2024 Net income (loss) $ 29,321,363 $ ( 57,464,890 ) Weighted average shares outstanding- Basic 32,413,133 24,585,955 Add: dilutive effect of stock options, SARs and warrants 6,268,268 - Diluted 38,681,401 24,585,955 Income (loss) per share- Basic $ 0.90 $ ( 2.34 ) Diluted $ 0.76 $ ( 2.34 ) F-29 Table of Contents 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 December 31, 2025 December 31, 2024 Public Warrants 16,145,008 16,158,410 Private Warrants 515,000 515,000 Warrants 2,918,918 5,288,280 Outstanding stock options 2,235,750 5,527,559 Earnout shares - 1,250,000 SARs - 1,758,105 21,814,676 30,497,354 The 3,750,000 -remaining unvested earnout shares as of December 31, 2025 and 2024 are excluded from basic and diluted net loss per share as such shares are contingently issuable until the Company exceeds certain milestone thresholds that have not been achieved. The 1,250,000 vested earnout shares are included as anti-dilutive shares for the year ended December 31, 2024 of which 1,160,906 were issued to applicable personnel on January 7, 2025. 15. 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 December 31, 2025, there were no items that require recognition or disclosure in the financial statements. F-30 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: February 17, 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) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Victor Huang Chief Executive Officer and Director (principal executive officer) February 17, 2026 Victor Huang /s/ Mark E. Scott Chief Financial Officer (principal financial and accounting officer) February 17, 2026 Mark E. Scott /s/ Derek Xu Chief Operating Officer and Director February 17, 2026 Derek Xu /s/ Peeyush Ranjan Director February 17, 2026 Peeyush Ranjan /s/ Louis Lebedin Director February 17, 2026 Louis Lebedin /s/ Amit Mital Director February 17, 2026 Amit Mital 81