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Item 1. Financial Statements

2024-05-15 compared with 2023-11-01 · 718 added, 933 removed, 66 unchanged (96% of the section changed)

FINANCIAL STATEMENTS .

BYTE ACQUISITION CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

AIRSHIP AI HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

As of March 31, 2024 and December 31, 2023

March 31, 2024

12/31/2023 (1)

CURRENT ASSETS:

Prepaid expenses

Cash and cash equivalents

$ 1,725,817 $ 3,124,413

Accounts receivable, net of provision for credit losses of $ 0

1,704,429 1,648,904

Prepaid expenses and other

16,358 18,368

Income tax receivable

Total current assets

Non-current assets:

Cash and investments held in Trust Account

Total non-current assets

3,456,244 4,798,915

Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit:

PROPERTY AND EQUIPMENT, NET

180,432 182,333

Operating lease right of use asset

1,024,513 1,104,804

$ 4,661,189 $ 6,087,913

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:

Accounts payable

Accounts payable - trade

$ 3,356,700 $ 2,908,472

Advances from founders

1,750,000 1,750,000

Accrued expenses

Advance from related party

Non-redemption agreement liability

Non-redemption agreement liability - related party

168,902 200,531

Senior Secured Convertible Promissory Notes

4,204,743 2,825,366

Current portion of operating lease liability

180,875 174,876

Deferred revenue- current portion

3,742,145 4,008,654

Total current liabilities

Redemption payable

Deferred underwriting commissions

Derivative warrant liabilities

13,403,365 11,867,899

NON-CURRENT LIABILITIES:

Operating lease liability, net of current portion

870,492 943,702

Warrant liability

7,515,076 667,985

Earnout liability

26,618,278 5,133,428

Deferred revenue- non-current

4,304,587 4,962,126

Total liabilities

Commitments and Contingencies

Class A ordinary shares subject to possible redemption at $ 10.65 and $ 10.14 per share, $ 0.0001 par value;

1,837,593 and 32,369,251 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Shareholders’ Deficit:

Preference shares, $ 0.0001 par value; 1,000,000 shares authorized; none issued and outstanding

Class A ordinary shares, $ 0.0001 par value;

200,000,000 shares authorized;

9,122,313 and 1,030,000 shares issued and outstanding (excluding 1,837,593 and 32,369,251 shares subject to possible redemption) as of September 30, 2023 and December 31, 2022, respectively

Class B ordinary shares, $ 0.0001 par value;

20,000,000 shares authorized;

1 and 8,092,313 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

52,711,798 23,575,140

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS' DEFICIT:

Preferred stock - no par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Common stock - $ 0.0001 par value, 200,000,000 shares authorized, 23,159,119 and 22,812,048 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Additional paid in capital

1 unchanged sentence

( 49,441,169 ) ( 17,476,700 )

Accumulated other comprehensive loss

( 9,569 ) ( 12,808 )

Total shareholders’ deficit

Total stockholders' deficit

( 48,050,609 ) ( 17,487,227 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$ 4,661,189 $ 6,087,913

Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Stockholders’ Deficit:

(1) Derived from the audited consolidated balance sheet.

The accompanying notes are an integral part of these consolidated financial statements.

AIRSHIP AI HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

For the three months ended March 31, 2024 and 2023

Three Months Ended

March 31, 2024

March 31, 2023

NET REVENUES:

$ 9,398,776 $ 1,699,782

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

BYTE ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

General and administrative expenses

General and administrative expenses - related party

Loss from operations

Post contract support

1,176,239 1,238,815

Change in fair value of derivative warrant liabilities

10,575,015 2,938,597

COST OF NET REVENUES:

Cost of Sales

7,789,409 1,578,166

Interest income – bank

Income from investments held in Trust Account

Net (loss) income

Post contract support

157,479 556,152

7,946,888 2,134,318

Weighted average shares outstanding of Class A ordinary shares subject to possible redemption

Basic and diluted net (loss) income per share, Class A ordinary shares subject to possible redemption

Weighted average shares outstanding of non-redeemable Class A ordinary shares and Class B ordinary share

Basic and diluted net (loss) income per share, non-redeemable Class A ordinary shares and Class B ordinary share

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

BYTE ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGE

IN SHAREHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER

Ordinary Shares

Shareholders’

Balance – December 31, 2022

2,628,127 804,279

RESEARCH AND DEVELOPMENT EXPENSES

695,366 674,080

Conversion of Class B ordinary shares to Class A ordinary shares

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

3,335,294 1,832,370

Shareholder non-redemption agreement (Note 6)

Accretion for Class A ordinary shares to redemption amount

TOTAL OPERATING EXPENSES

4,030,660 2,506,450

OPERATING LOSS

( 1,402,533 ) ( 1,702,171 )

Balance – March 31, 2023

OTHER INCOME (EXPENSE):

Loss from change in fair value of earnout liability

( 21,484,850 ) -

Loss from change in fair value of warrant liability

( 6,847,091 ) -

Issuance of Class B ordinary shares

Loss from change in fair value of convertible debt

( 2,039,377 ) -

Loss on note conversion

( 158,794 ) -

Accretion for Class A ordinary shares to redemption amount

Balance – June 30, 2023

Interest expense

( 31,824 ) ( 5,064 )

Other expense

Total other expense, net

( 30,561,936 ) ( 10,005 )

LOSS BEFORE PROVISON FOR INCOME TAXES

( 31,964,469 ) ( 1,712,176 )

Provision for income taxes

( 31,964,469 ) ( 1,712,176 )

Change in shareholder non-redemption agreement liability

Related party non-redemption agreement liability

Accretion for Class A ordinary shares to redemption amount

Balance – September 30, 2023

OTHER COMPREHENSIVE LOSS

Foreign currency translation gain, net

TOTAL COMPREHENSIVE LOSS

$ ( 31,961,230 ) $ ( 1,712,176 )

Basic and diluted loss per share

$ ( 1.40 ) $ ( 0.08 )

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER

Ordinary Shares

Shareholders’

Balance – December 31, 2021

Weighted average shares of common stock outstanding- basic and diluted

$ 22,898,487 $ 22,812,048

The accompanying notes are an integral part of these consolidated financial statements.

AIRSHIP AI HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the three months ended March 31, 2024 and 2023

Comprehensive

Stockholders'

Income (Loss)

Balance as of January 1, 2023

$ ( 10,314,313 )

Balance – March 31, 2022

$ ( 8,358,411 )

Stock-based compensation

( 1,712,176 )

Remeasurement of redemption value of Class A ordinary shares subject to redemption

Balance – June 30, 2022

( 1,712,176 )

Balance as of March 31, 2023

( 12,026,489 )

Remeasurement of redemption value of Class A ordinary shares subject to redemption

( 9,933,878 )

Balance as of January 1, 2024

( 17,476,700 )

Balance – September 30, 2022

( 17,487,227 )

Stock-based compensation

Issuance of common stock for prior period services

Issuance of common stock for conversion of debt

Issuance of common stock for exercise of warrants

Foreign currency translation gain

( 31,964,469 )

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

BYTE ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30,

Cash Flows from Operating Activities:

Net (loss) income

( 31,964,469 )

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Change in fair value of derivative warrant liabilities

Balance as of March 31, 2024

$ ( 49,441,169 )

Income from investments held in Trust Account

$ ( 48,050,609 )

(1) The shares of the Company’s common stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio of approximately 1.7581 established in the Merger described in Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

AIRSHIP AI HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2024 and 2023

Three Months Ended

March 31, 2024

March 31, 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 31,964,469 )

$ ( 1,712,176 )

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization

Stock-based compensation- stock option grants

Amortization of operating lease right of use asset

Loss from change in fair value of warrant liability

Loss from change in fair value of earnout liability

Loss from change in fair value of convertible note

Loss on note conversions

Changes in operating assets and liabilities:

Prepaid expenses

Accounts payable

Accrued expenses

Accounts receivable

( 1,636,283 )

Prepaid expenses and other

Operating lease liability

Payroll and income tax receivable

Accounts payable - trade and accrued expenses

Deferred revenue

NET CASH USED IN OPERATING ACTIVITIES

( 1,695,084 )

Cash Flows from Investing Activities:

Cash withdrawn from Trust Account in connection with redemption

Net cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Non-redemption agreement liability

Issuance of Class B ordinary share

Advances from related party

Redemption of common stock

( 306,691,945 )

Net cash used in financing activities

( 306,683,375 )

Net change in cash

Proceeds from convertible promissory note

Proceeds from warrant exercise

Repayment of small business loan and line of credit

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET DECREASE IN CASH AND CASH EQUIVALENTS

( 1,401,835 )

Cash - beginning of the period

Cash - end of the period

Supplemental disclosure of noncash investing and financing activities:

Remeasurement on Class A ordinary shares subject to possible redemption

Shareholder non-redemption agreement liability

Related party non-redemption agreement liability

Redemption payable

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Note 1 - Description of Organization and Business

BYTE Acquisition Corp.

a blank check company incorporated as a Cayman Islands exempted company on January 8, 2021.

Byte was formed for the purpose of effecting

a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses

(“initial business combination”).

Byte is an early stage and emerging growth company and, as such, Byte is subject to all

of the risks associated with early stage and emerging growth companies.

Byte has one wholly owned subsidiary, BYTE Merger

Sub, Inc., a Washington corporation, which was formed on June 9, 2023.

Byte and its subsidiary are collectively referred to as “the

On June 27, 2023, the Company entered into a merger

agreement with Airship AI Holdings, Inc., a Washington corporation, for the purpose to consummate a business combination (the “Business

Combination”).

On September 22, 2023, the Company, Airship AI Holdings, Inc., and BYTE Merger Sub, Inc entered into an amendment

to the merger agreement to extend the last date for the Company to consummate an initial business combination from December 26, 2023 to

the latest of (a) September 25, 2023, (b) if the Extension Proposal (as defined in the Merger Agreement) is approved, March 26, 2024 and

(C) if one or more extensions to a date following March 26, 2024 with Airship AI Holdings, Inc.’s approval is obtained at the election

of the Company, with the Company’s shareholder vote, in accordance with the Company’s Amended and Restated Memorandum and

Articles of Association, the last date for the Company to consummate the Business Combination pursuant to such extensions (see Note 6.).

As of September 30, 2023, the Company had not

yet commenced operations.

All activity for the period from January 8, 2021 (inception) through September 30, 2023 relates to the Company’s

formation and the initial public offering (the “Initial Public Offering”) and since the closing of the Initial Public Offering,

the search for a prospective initial business combination.

The Company will not generate any operating revenues until after the completion

of an initial business combination, at the earliest.

The Company generates non-operating income in the form of interest and other income

on investments of the proceeds derived from the Initial Public Offering.

The Company has selected December 31 as its fiscal year end.

The Company’s sponsor is Byte Holdings LP,

a Cayman Islands exempted limited partnership (the “Sponsor”).

The registration statement for the Company’s Initial

Public Offering was declared effective on March 17, 2021.

On March 23, 2021, the Company consummated its Initial Public Offering of 30,000,000

units (the “Units” and, with respect to the Class A ordinary shares included in the Units, the “Public Shares”),

at $ 10.00 per Unit, generating gross proceeds of $ 300.0 million, and incurring underwriting fees and other offering costs of approximately

$ 17.2 million, inclusive of approximately $ 10.5 million in deferred underwriting commissions (see Note 6).

The underwriter was granted

a 45-day option from the date of the final prospectus relating to the Initial Public Offering to purchase up to 4,500,000 additional Units

to cover over-allotments, if any, at $ 10.00 per Unit.

On April 7, 2021, the underwriter exercised the over-allotment option in part and

purchased an additional 2,369,251 Units (the “Over-Allotment Units”), generating gross proceeds of $ 23,692,510 .

Simultaneously with the closing of the Initial

Public Offering, the Company consummated the private placement (“Private Placement”) of 1,030,000 Units (the “Private

Placement Units”) at a price of $ 10.00 per Private Placement Unit, generating total gross proceeds of $ 10.3 million (see Note 4).

Upon the closing of the Initial Public Offering,

sale of the Over-Allotment Units and closing of the Private Placement, $ 323.7 million ($ 10.00 per Unit) of the net proceeds of the Initial

Public Offering, the Over-Allotment Units and certain of the proceeds of the Private Placement was placed in a trust account (“Trust

Account”) with Continental Stock Transfer & Trust Company acting as trustee and invested in United States “government

securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money

market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S.

government treasury obligations, as determined by Byte, until the earlier of:

(i) the completion of an initial business combination and

(ii) the distribution of the Trust Account to Byte’s shareholders.

To mitigate the risk of Byte being deemed to have been operating

as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), on February

10, 2023, Byte instructed Continental Stock Transfer & Trust Company to liquidate the U.S.

government treasury obligations or money

market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in an interest-bearing demand deposit account

until the earlier of:

(i) the completion of an initial business combination and (ii) the distribution of the funds in the Trust Account

to the Company’s shareholders, as described below.

The Company’s management has broad discretion

with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units,

although substantially all of the net proceeds are intended to be applied generally toward completing an initial business combination.

The Company must complete its initial business combination with one or more target businesses that together have a fair market value equal

to at least 80 % of the net assets held in the Trust Account (excluding the amount of any deferred underwriting commissions held in the

Trust Account) at the time of the agreement to enter into an initial business combination.

The Company will only complete an initial business

combination if the post-business combination company owns or acquires 50 % or more of the issued and outstanding voting securities of the

target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment

company under the Investment Company Act.

There is no assurance that the Company will be able to successfully effect an initial business

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

The Company will provide holders of the Public

Shares (the “Public Shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion

of an initial business combination either (i) in connection with a shareholder meeting called to approve the initial business combination

or (ii) by means of a tender offer.

The decision as to whether the Company will seek shareholder approval of an initial business combination

or conduct a tender offer will be made by the Company.

The Public Shareholders will be entitled to redeem their Public Shares for a pro

rata portion of the amount held in the Trust Account (initially anticipated to be $ 10.00 per share), calculated as of two business days

prior to the completion of an initial business combination, including any pro rata interest earned on the funds held in the Trust Account

and not previously released to the Company to pay its tax obligations.

There will be no redemption rights upon the completion of an initial

business combination with respect to the Company’s warrants.

The Class A ordinary shares were recorded at redemption value and classified

as temporary equity in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(“ASC”) Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”).

If the Company seeks shareholder approval, the

Company will complete an initial business combination only if it receives an ordinary resolution under Cayman Islands law approving the

initial business combination, which requires the affirmative vote of a majority of the shareholders who vote at a general meeting of the

If a shareholder vote is not required under applicable law or stock exchange listing requirements and the Company does not decide

to hold a shareholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles

of Association, conduct the redemptions pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”),

and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior

to completing an initial business combination.

If the Company seeks shareholder approval in connection with an initial business combination,

the Sponsor agreed to vote its Founder Shares (as defined in Note 5), the Class A ordinary shares underlying the Private Placement Units

(the “Private Placement Shares”) and any Public Shares purchased in or after the Initial Public Offering in favor of approving

an initial business combination and to waive its redemption rights with respect to any such shares in connection with a shareholder vote

to approve an initial business combination.

Each Public Shareholder may elect to redeem its Public Shares, without voting, and if they

do vote, irrespective of whether they vote for or against a proposed initial business combination.

Notwithstanding the foregoing, if the Company

seeks shareholder approval of an initial business combination and it does not conduct redemptions pursuant to the tender offer rules,

the Company’s Amended and Restated Memorandum and Articles of Association provides that a Public Shareholder, together with any

affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined

under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming

its shares with respect to more than an aggregate of 15 % of the Public Shares without the Company’s prior written consent.

The Sponsor agreed (a) to waive its redemption

rights with respect to any Founder Shares and Public Shares held by it in connection with the completion of an initial business combination

and (b) not to propose an amendment to the Amended and Restated Memorandum and Articles of Association (i) to modify the substance or

timing of the Company’s obligation to redeem 100 % of the Public Shares if the Company does not complete an initial business combination

within the Combination Period (as defined below) or (ii) with respect to any other provision relating to shareholders’ rights or

pre-initial business combination activity, unless the Company provides the Public Shareholders with the opportunity to redeem their Public

Shares in conjunction with any such amendment and (iii) to waive its rights to liquidating distributions from the Trust Account with respect

to the Founder Shares if the Company fails to complete an initial business combination.

However, if the Sponsor acquires Public Shares

in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the

Company fails to complete an initial business combination.

The Company initially had until March 23, 2023

to consummate an initial business combination.

On March 16, 2023, the Company held an extraordinary general meeting (the “March

In the March EGM, the Company’s shareholders approved amendments to the Company’s Amended and Restated Memorandum

and Articles of Association to extend the date by which the Company must complete an initial business combination from March 23, 2023

to September 25, 2023 and to provide for the right of a holder of the Company’s Class B ordinary shares to convert into Class A

ordinary shares on a one-for-one basis prior to the closing of an initial business combination.

In connection with the March EGM, shareholders

holding an aggregate of 30,006,034 of the Company’s Class A ordinary shares exercised their right to redeem their shares for approximately

$ 10.20 per share, or an aggregate total of $ 306,106,987 , of the funds held in the Company’s Trust Account, leaving approximately

$ 24.1 million in the Company’s Trust Account after such redemption.

Subsequently, it was determined that the redemption value per

share was approximately $ 10.22 per share, or an aggregate total of $ 306,691,945 , of the funds held in the Company’s Trust Account

resulting in a secondary distribution to the redeeming shareholders of approximately $ 0.02 per share, or an aggregate total of $ 584,958 .

On September 22, 2023, the Company held an extraordinary

general meeting of shareholders in lieu of annual general meeting (the “September EGM”).

At the September EGM, the Company’s

shareholders approved amendments to the Company’s Amended and Restated Memorandum and Articles of Association to (i) extend the

date by which the Company must complete a merger, share exchange, asset acquisition, share purchase, reorganization or similar business

combination involving the Company and one or more businesses from September 25, 2023 to December 26, 2023 and to allow the Company, without

another shareholder vote, by resolution of the Company’s board of directors, to elect to further extend by three months, until March

25, 2024, unless the closing of a business combination should have occurred prior thereto (ii) eliminate (a) the limitation that the Company

may not redeem public shares in an amount that would cause the Company’s net tangible assets to be less than $ 5,000,001 and (b)

the limitation that the Company shall not consummate an initial business combination unless the Company has net tangible assets of at

least $ 5,000,001 immediately prior to, or upon consummation of, or any greater net tangible asset or cash requirement that may be contained

in the agreement relating to, such initial business combination and (iii) re-elect Louis Lebedin as a Class I director of the Company’s

board of directors until the general meeting of the Company to be held in 2026 or until his successor is appointed and qualified.

In connection

with the September EGM, shareholders holding an aggregate of 525,624 of the Company’s Class A ordinary shares exercised their right

to redeem their shares for approximately $ 10.63 per share of the funds held in the Company’s Trust Account.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

The Company will have until December 26, 2023

to complete an initial business combination or the Company may, without shareholder approval, elect to further extend such deadline by

three months until March 25, 2024 (such period, as it may be extended, “Combination Period”).

If the Company is unable to

complete an initial business combination within the Combination Period, the Company will (i) cease all operations except for the purpose

of winding up, (ii) as promptly as reasonably possible but no more than 10 business days thereafter, redeem 100 % of the outstanding Public

Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest

earned (less taxes payable and up to $ 100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public

Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive

further liquidation distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval

of the remaining shareholders and the Company’s board of directors, dissolve and liquidate, subject in each case to its obligations

under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.

The underwriters agreed to waive their rights

to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company completes the Business Combination

with Airship AI Holdings, Inc.

or in the event the Company does not complete an initial business combination within the Combination Period

and, in either event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption

of the Public Shares.

The Sponsor agreed to indemnify and hold harmless

the Company, if and to the extent any claims by a third party for services rendered or products sold to the Company, or by a prospective

target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or business

combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (1) $ 10.00 per Public Share and (2) the

actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $ 10.00 per

Public Share due to reductions in the value of trust assets, less taxes payable.

This liability will not apply to any claims by a third

party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account nor will it apply

to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including

liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

Moreover, in the event that an executed waiver

is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party

The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors

by endeavoring to have all vendors, service providers (other than the Company’s independent public accountants), prospective target

businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest

or claim of any kind in or to monies held in the Trust Account.

Liquidity, Capital Resources and Going Concern

Consideration

As of September 30, 2023, the Company had approximately

$ 19,000 in its operating bank account and working capital deficit of approximately $ 3.0 million.

The Company’s liquidity needs through the

consummation of the Initial Public Offering were satisfied through the payment of $ 25,000 from the Sponsor to cover certain offering costs

on behalf of the Company in exchange for the issuance of the Founder Shares (as defined below), the loan under the Note from the Sponsor

of approximately $ 149,000 (see Note 5) to the Company, and the net proceeds from the consummation of the Private Placement not held in

the Trust Account.

The Company fully repaid the Note on March 25, 2021.

In addition, in order to finance transaction costs in connection

with an initial business combination, the Company’s officers, directors and initial shareholders may, but are not obligated to,

provide the Company Working Capital Loans (see Note 5).

To date, there were no amounts outstanding under any Working Capital Loans.

In connection with the Company’s assessment

of going concern considerations in accordance with FASB ASC Topic 205-40, “Presentation of Financial Statements - Going Concern,”

management has determined that the liquidity conditions and the mandatory liquidation and subsequent dissolution raise substantial doubt

about the Company’s ability to continue as a going concern.

No adjustments have been made to the carrying amounts of assets or liabilities

should the Company be required to liquidate after the Combination Period.

The condensed consolidated financial statements do not include

any adjustment that might be necessary if the Company is unable to continue as a going concern.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Note 2 - Basis of Presentation and Summary

of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated

financial statements are presented in U.S.

dollars in conformity with accounting principles generally accepted in the United States of

America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X

and pursuant to the rules and regulations of the SEC.

Accordingly, certain disclosures included in the annual financial statements have

been condensed or omitted from these financial statements as they are not required for interim financial statements.

In the opinion of

management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments

necessary for the fair statement of the balances and results for the periods presented.

Operating results for the three and nine months

ended September 30, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023.

The accompanying unaudited condensed consolidated

financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31,

2022, as filed with the SEC on March 31, 2023, which contains the audited financial statements and notes thereto.

The financial information

as of December 31, 2022, is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2022, as filed with the SEC on March 31, 2023.

Principles of Consolidation

The accompanying consolidated financial statements

include the accounts of the Company and its wholly owned subsidiary.

All significant intercompany balances and transactions have been

eliminated in consolidation.

Emerging Growth Company

The Company is an “emerging growth company,”

as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),

and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that

are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements

of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports

and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder

approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts

emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that

is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered

under the Exchange Act) are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that an emerging

growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth

companies but any such an election to opt out is irrevocable.

The Company has elected not to opt out of such extended transition period,

which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,

as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s

condensed consolidated financial statements with another public company that is neither an emerging growth company nor an emerging growth

company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting

standards used.

Use of Estimates

The preparation of financial statements in conformity

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and

liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements.

estimates requires management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of

a condition, situation or set of circumstances that existed at the date of the condensed consolidated financial statements, which management

considered in formulating its estimate, could change in the near term due to one or more future confirming events.

Accordingly, the actual

results could differ significantly from those estimates.

Effect from exchange rate on cash

CASH AND CASH EQUIVALENTS, beginning of period

CASH AND CASH EQUIVALENTS, end of period

Supplemental disclosures of cash flow information:

Interest paid

Noncash investing and financing

Elimination of advances to founders in connection with contribution of Zeppelin by shareholders

Elimination of payables to founders in connection with contribution of Zeppelin by shareholders

Issuance of common stock for debt conversion

The accompanying notes are an integral part of these consolidated financial statements.

AIRSHIP AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On March 7, 2023, Airship AI Holdings, Inc.

changed its name from Super Simple AI, Inc.

Airship AI Holdings, Inc.

(the “Company” or “Airship”) is a holding company 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.).

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 contemplated by 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 to “Airship AI, Inc.” See Note 13 —Reverse Recapitalization for additional information.

Fair Value Transactions

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 14– Fair Value Measurements for more information.

Liability as of

March 31, 2024

Earnout liability

Senior Secured Convertible Promissory Notes

Warrant liability (Public Warrants)- exerciseable at $11.50 per share

Warrant liability (Private Warrants)- exerciseable at $11.50 per share

Total liabilities measured at fair value

Other expense related to instruments recorded at fair value during the three months ended March 31, 2024

Private Placement and Public Warrants

At the merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding.

The warrants are exerciseable at $ 11.50 per share.

See Note 12– Private Placement and Public Warrants for more information.

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.

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 fifty-one employees as of March 31, 2024.

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 March 31, 2024.

The Company has incurred losses from operations the past few years and had an accumulated deficit of $ 49,441,169 as of March 31, 2024.

The accumulated deficit includes noncash charges of $ 30,881,253 and $ 19,626,884 for the three months ended March 31, 2024 and the year ended December 31, 2023, respectively.

The Company also had at March 31, 2024 an adjusted working capital deficit of approximately $ 2,000,233 .

The adjusted net working capital deficit excludes current deferred revenue totaling $ 3,742,145 and convertible debt totaling $ 4,204,723 (which the Company expects to be converted to equity).

The Company has primarily funded its operations from operating cash, proceeds from debt borrowings, advances from founders, and proceeds from the merger.

The Company has received purchase orders from various federal government agency customers totaling over $13 million from which it shipped and started receiving cash in the first quarter of 2024.

Huang, the Company’s CEO, has committed to providing additional temporary funding if it is necessary.

Based on the Company’s actions undertaken during 2023 and 2024 to close customer deals, build sales pipeline, manage operating expenses and opportunities to raise additional capital after the merger, management believes that the Company’s current cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months from the issuance of these consolidated financial statements.

The Company’s assessment of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties.

The Company’s actual results could vary as a result of its near and long-term future capital requirements that will depend on many factors.

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”).

For periods prior to the merger, the reported share and per share amounts have been retroactively converted by the applicable exchange ratio with the exception of the authorized shares and shares reserved for issuance.

See Note 11—Reverse Recapitalization for additional information.

Functional Currency

The Company’s consolidated functional currency is the U.S.

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 considers all short-term investments

with an original maturity of three months or less when purchased to be cash equivalents.

The Company had no cash equivalents held outside

the Trust Account as of September 30, 2023 or December 31, 2022.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Cash and Investments Held in Trust Account

The funds in the Trust Account were, from the

Company’s Initial Public Offering through February 10, 2023, held only in U.S.

government treasury obligations with a maturity of

185 days or less or in money market funds investing solely in U.S.

government treasury obligations and meeting certain conditions under

Rule 2a-7 under the Investment Company Act.

However, to mitigate the risk of the Company being deemed to have been operating as an unregistered

investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), on February 10, 2023, the

Company instructed Continental Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the U.S.

government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account

in an interest-bearing demand deposit account until the earlier of consummation of the Company’s initial business combination or

Concentration of Credit Risk

Financial instruments that potentially subject

the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal

Depository Insurance Coverage of $ 250,000 , and investments held in the Trust Account.

At September 30, 2023, the Company has not experienced

losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Fair Value of Financial Instruments

The fair value of the Company’s assets and

liabilities, which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements,” equal or approximate

the carrying amounts represented in the condensed consolidated balance sheets.

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.

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.

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 three months ended March 31, 2024 and 2023, the Company recognized revenue of $59,361 and $47,104, respectively, related to one-year support contracts.

For the three months ended March 31, 2024 and 2023, the Company recognized revenue of $ 1,116,893 and $ 1,191,711 , 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.

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 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 $ 3,742,145 and $ 4,304,587 as of March 31, 2024.The Company’s short-term and long-term deferred revenue balances totaled $ 4,008,654 and $ 4,962,126 as of December 31, 2023.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized approximately $ 1,176,239 during the three months ended March 31, 2024.

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 adopted Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments — Credit Losses (codified as Accounting Standards Codification (“ASC”) 326) on January 1, 2023.

ASC 326 adds to U.S.

GAAP the current expected credit loss (“CECL”) model, a measurement model based on expected losses rather than incurred losses.

Prior to the adoption of ASC 326, the Company evaluated receivables regularly and adjusted the allowance for doubtful accounts accordingly.

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 ASC 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.

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 March 31, 2024 and December 31, 2023, the Company did not have a reserve for credit losses as all accounts receivable are considered collectible.

Accounts receivable balances as of March 31, 2024 and December 31, 2023 were $ 1,704,429 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 three months ended March 31, 2024, the Company had revenue from 17 customers and one customer represented 78% of total revenue, although such a high level of customer concentration is not typical.

The primary reason for the increase in reliance on a single customer for the three months ended March 31, 2024 was due to one large order received in late 2023 which was fulfilled in the three months ended March 31, 2024.

As of March 31, 2024, two customers represent approximately 52% and 27% 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 three months ended March 31, 2023, two customers represented 56% and 23% of total revenue from 23 customers, although such a high level of customer concentration is not typical.

The primary reason for the increase in reliance on a single customer for the quarter ended March 31, 2023 was due to the lag-time in delivering on a large order received in late 2022 from one division of a customer which was not fulfilled until 2023.

As of December 31, 2023, three customers represent approximately 51%, 26% and 17% of outstanding account receivables.

Due to the nature of the customers and timely payment history, customer concentration and credit risk in account receivables is estimated to be minimal.

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 March 31, 2024 and December 31, 2023, 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 three months ended March 31, 2024 and 2023.

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 $ 695,366 and $ 674,080 for the three months ended March 31, 2024 and 2023, respectively, on development activities.

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 March 31, 2024 and December 31, 2023.

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 costs are charged to selling, general and administrative expenses as incurred.

Advertising and marketing costs for the three months ended March 31, 2024 and 2023 were $ 22,458 and $ 49,828 , 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 defined as the price that would

be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

The hierarchy gives the highest priority to unadjusted

quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs

(Level 3 measurements).

These consist of:

1, defined as observable inputs such as quoted prices for identical instruments in active markets;

2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices

for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;

3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,

such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

In some circumstances, the inputs used to measure

fair value might be categorized within different levels of the fair value hierarchy.

In those instances, the fair value measurement is

categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Derivative Warrant 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 forward purchase agreements, 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 warrants issued as part of the Units sold

in connection with the Company’s Initial Public Offering (the “Public Warrants”) (including sale of the Over-Allotment

Units) and the Private Placement Warrants (as defined in Note 4) are recognized as derivative liabilities in accordance with ASC 815.

Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at

each reporting period.

The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair

value is recognized in the Company’s condensed consolidated statements of operations.

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 from the Public Warrants listed price.

Offering Costs Associated with the Initial

Public Offering

Offering costs consisted of legal, accounting,

underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering.

Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value

basis, compared to total proceeds received.

Offering costs associated with derivative warrant liabilities were expensed as incurred and

presented as non-operating expenses in the condensed consolidated statements of operations.

Offering costs associated with the Class A

ordinary shares issued were charged against the carrying value of Class A ordinary shares subject to possible redemption upon the completion

of the Initial Public Offering.

The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation

is not reasonably expected to require the use of current assets or require the creation of current liabilities.

Class A Ordinary Shares Subject to Possible

The Company accounts for its Class A ordinary

shares subject to possible redemption in accordance with the guidance in ASC 480.

Class A ordinary shares subject to mandatory redemption

(if any) are classified as liability instruments and are measured at fair value.

Conditionally redeemable Class A ordinary shares (including

Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon

the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.

At all other times,

Class A ordinary shares are classified as shareholders’ equity.

The Company’s Public Shares feature certain redemption rights

that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events.

Accordingly, as of September 30, 2023 and December

31, 2022, 1,837,593 and 32,369,251 , respectively, Class A ordinary shares subject to possible redemption are presented at redemption value

as temporary equity, outside of the shareholders’ equity section of the Company’s condensed consolidated balance sheets.

Effective with the closing of the Initial Public

Offering (including sale of the Over-Allotment Units), the Company recognized the accretion from initial book value to redemption amount,

which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.

The Company accounts for income taxes under FASB

ASC Topic 740, “Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s

financial statement and prescribes a recognition threshold and measurement process for financial statement recognition and measurement

of a tax position taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more-likely-than-not

to be sustained upon examination by taxing authorities.

The Company’s management determined that the Cayman Islands is the Company’s

only major tax jurisdiction.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax

There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2023 or December

The Company is currently not aware of any issues under review that could result in significant payments, accruals or material

deviation from its position.

The Company is considered an exempted Cayman Islands

Company and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States.

such, the Company’s tax provision was zero for the period presented.

The Company’s management does not expect that the total

amount of unrecognized tax benefits will materially change over the next twelve months.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Net (Loss) Income Per Ordinary Share

The Company complies with accounting and disclosure

requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as

Class A ordinary shares subject to possible redemption and non-redeemable Class A ordinary shares and Class B ordinary shares.

and losses are shared pro rata between the two classes of shares.

Net (loss) income per ordinary share is calculated by dividing the net

(loss) income by the weighted average of ordinary shares outstanding for the respective period.

The calculation of diluted net (loss) income per

ordinary shares does not consider the effect of the Public Warrants and the Private Placement Warrants to purchase an aggregate of 16,699,626

ordinary shares in the calculation of diluted income per share, because their exercise is contingent upon future events and their inclusion

would be anti-dilutive under the treasury stock method.

As a result, diluted net (loss) income per share is the same as basic net (loss)

income per share for the three and nine months ended September 30, 2023 and 2022.

Remeasurement associated with the redeemable Class A

ordinary shares is excluded from net (loss) income per share as the redemption value approximates fair value.

The following table reflects presents a reconciliation

of the numerator and denominator used to compute basic and diluted net (loss) income per share of ordinary shares:

For The Three Months Ended September 30,

non-redeemable

Basic and diluted net (loss) income per ordinary share:

Allocation of net (loss) income

$ ( 301,755 )

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;

Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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 March 31, 2024 and December 31, 2023 are based upon the short-term nature of the assets and liabilities.

The Company recorded its Senior Secured Convertible Promissory Note, earnout liability, and the warrants that were issued with the Convertible Promissory Note 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 method of determining the fair value of the Senior Secured Convertible Promissory Note and attached warrants is described below.

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).

Accounting for Senior Secured Convertible Promissory Notes at Fair Value

The Company has elected the fair value option to account for the senior secured convertible note that was issued on June 22, 2023 and the convertible notes that were issued in October and November 2023 and record them at fair value with changes in fair value recorded in the Consolidated Statements of Operations and Comprehensive Loss.

As a result of applying the fair value option, direct costs and fees related to the convertible notes are recognized in earnings as incurred and not deferred.

Values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the liability.

Considerable judgment is necessary to interpret market data and determine an estimated fair value.

The use of different market assumptions or valuation methods may have a material effect on the estimated fair values.

As of March 31, 2024, the Company has used 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.

For the three months ended March 31, 2024, the Company recognized an unrealized loss of $ 2,039,377 for the change in fair value of the notes and is included in the Consolidated Statements of Operations and Comprehensive Loss.

The Company believes accounting for the convertible notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility.

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.

At the closing of the merger, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding.

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.

Since the public and private warrants meet the definition of a derivative, the Company recorded the public and private warrants as liabilities on the consolidated balance sheet at fair value upon the merger closing, with subsequent changes in the fair value recognized in the consolidated statements of operations at each reporting date.

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 .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 unvested earnout shares were considered to be equity instruments and valued at approximately $ 2,675,000 .

This amount will be recognized as stock-based compensation going forward over the five-year vesting period.

Derivative warrant and earnout shares liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of significant current assets or require the creation of current liabilities.

Stock-Based Compensation

The Company has share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, stock appreciation rights, incentive stock options, nonqualified stock options, unvested earnout shares and warrants to purchase shares of common stock at the fair market value at the time of grant.

Stock-based compensation cost is measured by the Company at the grant date and the fair value of the award is recognized as an expense, over the requisite service period which is generally the vesting period.

The Company adjusts stock-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience.

The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.

Income taxes 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 Gain (Loss)

Comprehensive gain (loss) is defined as the change in equity of a business during a period from non-owner sources.

There was other comprehensive gain of $ 3,239 and $ 0 related foreign exchange translation for the three months ended March 31, 2024 and 2023, 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.

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.

Net Loss per Share – Under the provisions of ASC 260, “Earnings Per Share,” basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the periods presented.

Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Deemed dividends to preferred shareholders increase the net loss available to common shareholders and impact the net loss per share calculation.

As of March 31, 2024, the Company had 23,159,119 shares of common stock issued and outstanding.

As of March 31, 2024, there were (i) options outstanding for the purchase of 5,114,589 shares of the Company’s common stock;

(ii) SARs for the purchase of 1,758,105 shares of Company’s common stock;

(iii) warrants for the purchase of 19,364,014 shares of the Company’s common stock;

and (iv) 931,794 shares of the Company’s common stock reserved and are issuable upon conversion of convertible debentures .

All of the foregoing shares could potentially dilute future earnings per share but are excluded from the March 31, 2024, calculation of net loss per share because the impact is antidilutive.

As of March 31, 2023, the Company had 22,812,048 shares of common stock issued and outstanding.

As of March 31, 2023, there were (i) options outstanding for the purchase of 4,257,151 shares of the Company’s common stock;

and (ii) SARs for the purchase of 1,758,105 shares of Company’s common stock .

All of the foregoing shares could potentially dilute future earnings per share but are excluded from the March 31, 2023, calculation of net loss per share because the impact is antidilutive.

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.

Management 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 management to be one operating segment and one reportable segment as contained in the Consolidated Statements of Operations and Comprehensive Loss to the consolidated financial statements.

Recent Accounting Pronouncements

All recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Advances due to and from Founders

Prior to 2023, the founders had advanced a net $ 600,000 to the Company.

In the year ended December 31, 2023, Mr.

Huang and Mr.

Xu advanced Airship AI a total of $ 1,350,000 and were repaid a total of $ 200,000 , with $ 1,750,000 recorded as advances from founders as of December 31, 2023.

During 2024, Mr.

Huang advanced Airship AI $ 1,000,000 and was repaid $ 1,000,000 , with $ 1,750,000 recorded as advances from founders as of March 31, 2024.

The advances are non-interest bearing and the Company expects to pay the balance off within a one year period.

Disaggregation of Revenue

The Company’s net revenues for the three months ended March 31, 2024 and 2023 consisted of approximately $ 9.4 million and $ 1.7 million, respectively, of hardware and software bundled systems for which revenue is transferred at a point in time.

The Company’s remaining net revenue of approximately $ 1.2 million and $ 1.2 million 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 March 31, 2024 and December 31, 2023, there are no unbilled receivable balances.

The Company’s short-term and long-term deferred revenue balances totaled $ 3,742,145 and $ 4,304,587 as of March 31, 2024.

The Company’s short-term and long-term deferred revenue balances totaled $ 4,008,654 and $ 4,962,126 as of December 31, 2023.

Of the deferred revenue balance of $ 8,970,780 as of January 1, 2024, the Company recognized approximately $ 1,176,239 during the three months ended March 31, 2024.

Remaining Performance Obligations

As of March 31, 2024, the Company had approximately $ 8.0 million of remaining performance obligations, which were comprised of deferred service contracts not yet delivered.

The Company expects to recognize approximately 36 % of its remaining performance obligations as revenue in fiscal 2024 and the remaining 64 % in fiscal 2025 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.

Notes Payable, Line of Credit and Convertible Notes Payable

On June 22, 2023, the Company issued a $ 2,000,000 senior secured convertible promissory note to Platinum Capital Partner, Inc.

As a condition of funding, the Company paid off three small notes and accounts payable totaling $ 374,000 .

At the option of the holder, the note is convertible into cash, common stock or a combination of cash and stock.

The conversion into the Company’s common stock was $ 6.50 per share as of December 31, 2023.

The repayment amount of the note is 110 % ($ 2,200,000 ) and matures on June 22, 2 024.

Interest on the note is 6 % per annum calculated on 360 days.

In connection with the convertible notes transaction, the Company issued warrants to purchase 53,800 shares of common stock with an exercise price of $ 6.50 upon the conclusion of the BYTS merger.

The value of the warrants totaled $ 15,418 and reduced the fair value of the convertible promissory notes.

On February 2, 2024, the Company issued in a private placement an amended and restated senior secured convertible promissory note to Platinum in the principal amount of $ 2,000,000 .

The Platinum convertible note amends and restates in its entirety the senior secured convertible promissory note issued to Platinum in the principal amount of $ 2,000,000 on June 22, 2023.

The repayment amount of the Platinum convertible note is 110 % of the principal amount ($ 2,200,000 ) and matures in full on June 22, 2024 .

Interest accrues on the Platinum convertible note at the rate of 6 % per annum calculated on the basis of 360 days.

At the option of Platinum, the principal amount of the Platinum convertible note plus any accrued but unpaid interest is convertible into shares of common stock at a conversion price per share equal to the lower of (i) $3.69717, subject to appropriate adjustment as provided in the Platinum convertible note, and (ii) 65% of the VWAP for the common stock for the preceding five trading days immediately prior to any conversion, but in no event below $ 2.27 518, subject to appropriate adjustment as provided in the Platinum convertible note.

The Platinum convertible note contains “weighted average” anti-dilution protection for issuances of shares of common stock or common stock equivalents at a price less than the conversion price then in effect.

In connection with the issuance of the Platinum convertible note, the Company also 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 $ 3.6 9717.

The term of the Platinum warrant expires on June 22, 2028.

The Platinum convertible note may not be converted, and the Platinum warrant may not be exercised, to the extent that after giving effect to such conversion and/or exercise, Platinum (together with its affiliates) would beneficially own in excess of 4.99 % of the common stock outstanding immediately after giving effect to such conversion and/or exercise.

On March 18, 2024, Platinum exercised the Platinum warrant and received 137,367 shares of common stock.

Platinum forfeited 51,967 shares.

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 are convertible into cash, common stock or a combination of cash and stock.

The repayment amount of the notes is 110 % ($ 660,000 ) and mature on September 30, 2024.

Interest on the notes is 6 % per annum calculated on 360 days.

On March 5, 2024, the two private investors converted senior secured convertible promissory notes with a face value of $ 600,000 and interest into 169,204 shares of the Company’s common stock valued at $ 835,610 .

The Company recognized a loss on debt conversion of $ 158,794 during the three months ended March 31, 2024.

The Company accounts for the notes under the fair value method of accounting and as of March 31, 2024 and December 31, 2023, the notes were recorded at $ 4,204,743 and $ 2,825,366 .

During the three months ended March 31, 2024, the Company recorded an increase in the fair value of the convertible notes payable totaling $ 2,039,377 which was recorded as loss from change in fair value of convertible debt on the statement of operations and comprehensive loss.

See Note 13 – Fair Value Measurements for more information.

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.

Details on the common stock, preferred stock and equity incentive plans were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and filed with the SEC on April 1, 2024.

As of March 31, 2024, there were 23,159,119 shares of common stock outstanding.

Three Months Ended March 31, 2024

During the three months ended March 31, 2024, the Company had the following sales of unregistered 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.

2023 Equity Incentive Plan

The Company has adopted the 2023 Equity Incentive 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 aggregate number of shares of common stock initially reserved and available for grant and issuance under the equity incentive plan is 4,080,000 as of March 31, 2024.

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 Company had the following stock option activity during the three months ended March 31, 2024:

On March 5, 2024, the Company granted stock options to purchase an aggregate of 200,000 shares of common stock with an exercise price of $ 1.65 , and which vest over four years and expire on March 31, 2029 .

During the three months ended March 31, 2024, the Company granted stock options to four employees to purchase an aggregate of 250,000 shares of common stock with an exercise price of $ 6.08 and which vest primarily quarterly over four years and expire on March 31, 2034 .

Stock option activity for the three months ended March 31, 2024 was as follows:

Weighted Average

Exercise Price

Outstanding as of December 31, 2023

Outstanding as of March 31, 2024

The following table summarizes information about stock options outstanding and exercisable as of March 31, 2024:

Remaining Life

Exercise Price

In Years - Vested

Exercise Prices

Exercise Price

and Exercisable

There are 5,114,589 options to purchase common stock at an average exercise price of $ 0.86 per share outstanding as of March 31, 2024 under the 2023 Equity Incentive Plan.

The Company recorded $ 135,227 and $ 136,709 of compensation expense, net of related tax effects, relative to stock options for the three months ended March 31, 2024 and 2023, respectively, in accordance with ASC 718.

As of March 31, 2024, there is $ 1,390,715 of total unrecognized costs related to employee granted stock options that are not vested.

These costs are expected to be recognized over a period of approximately 5.33 years.

The significant weighted-average assumptions relating to the valuation of the Company’s stock option grants for the three months ended March 31, 2024 were as follows:

Estimated stock price

$ 1.49 -$ 6.59

Basic and diluted weighted average ordinary shares outstanding

Basic and diluted net (loss) income per ordinary share

For The Nine Months Ended September 30,

non-redeemable

Basic and diluted net (loss) income per ordinary share:

Allocation of net (loss) income

Exercise price

$ 1.49 -$ 6.59

Dividend yield

Expected life

Expected volatility

Risk free interest rate

There were stock incentive plan awards outstanding at March 31, 2024 totaling 5,114,589 shares with an aggregate intrinsic value of $ 29,301,777 .

As of March 31, 2024 and December 31, 2023 there were 1,758,000 SARs outstanding.

There were no SAR grants in the three months ended March 31, 2024 or the year ended December 31, 2023.

Warrants to Purchase Common Stock

See Note 12 for public and private placement warrants assumed after the merger.

The Company had the following warrant activity during the three months ended March 31, 2024:

The term of the Platinum warrant expires on June 22, 2028.

On March 18, 2024, Platinum exercised the Platinum warrant and received 137,367 shares of common stock.

Platinum forfeited 51,967 shares.

A summary of the warrants outstanding as of March 31, 2024 were as follows:

March 31, 2024

Outstanding January 1, 2024

Outstanding at March 31, 2024

Exercisable at March 31, 2024

The following table summarizes information about warrants outstanding and exercisable as of March 31, 2024:

March 31, 2024

Life ( In Years)

The significant weighted average assumptions relating to the valuation of the Company’s warrants issued for the three months ended March 31, 2024 were as follows:

Dividend yield

Expected life

Expected volatility

Risk free interest rate

There were vested warrants of 19,364,014 with an aggregate intrinsic value of $ 12,965,328 .

Earnout Liability

See Note 13 for common stock shares related to earnout liability.

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 the three months ended March 31, 2024, the Company stock-based compensation expense for the vesting of earnout shares was $ 133,762 .

As of March 31, 2024, unrecognized compensation cost related to unvested earnout shares totaled $ 2,541,461 .

The weighted average period over which this remaining compensation cost is expected to be recognized is 4.6 years.

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 $ 50,102 and $ 45,996 of contributions during the three months ended March 31, 2024 and 2023, respectively.

Related Party Transactions

Advances due to Founders

Prior to 2023, the founders had advanced the Company a net $ 600,000 .

In the year ended December 31, 2023, Mr.

Huang and Mr.

Xu advanced Airship AI a total of $ 1,350,000 and were repaid a total of $ 200,000 , with $ 1,750,000 recorded as advances from founders as of December 31, 2023.

During 2024, Mr.

Huang advanced Airship AI $ 1,000,000 and was repaid $ 1,000,000 , with $ 1,750,000 recorded as advances from founders as of March 31, 2024.

The advances are non-interest bearing and the Company expects to pay the balance off within a one year period.

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.

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 adopted ASC 842 effective January 1, 2022 and the adoption did not have any impact on previously reported stockholders’ deficit.

On May 1, 2019, the Company leased 31,765 square feet for its executive offices in Redmond, Washington.

The Company’s net monthly payment was $ 44,440 .

The monthly payment increased approximately 3 % each year and the lease was set to expire on April 30, 2024 .

The Company had two five-year renewal options.

In April 2023, the Company and its landlord entered into an agreement whereby the Company’s office lease was terminated on September 30, 2023.

On July 13, 2023, the Company entered into a new lease in Redmond, WA for 15,567 square feet of office and warehouse space which starts October 1, 2023.

The monthly payment is $ 25,000 per month.

The lease expires October 31, 2027 and the monthly payment increases 3 % on July 31, 2024 and each year thereafter.

There is a one three year option to extend based on the fair market rate on October 31, 2027 .

On January 1, 2021, the Company leased offices located in Moorestown, North Carolina.

The Company leases 3,621 square feet and the net monthly payment was $ 4,828 .

The monthly payment increases approximately 3 %- 6 % annually thereafter.

The lease expired on February 28, 2024 .

On February 29, 2024, the Company extended the lease and the net monthly payment is $ 6,488 .

The lease expires on July 29, 2024 .

The Company has entered into operating leases for office and development facilities for four years and include options to renew.

The Company determines whether an arrangement is or contains a lease based upon the unique facts and circumstances at the inception of the lease.

Operating lease liabilities and their corresponding right-of-use assets are recorded based upon the present value of the lease payments over the expected lease term.

As of March 31, 2024 and December 31, 2023, total operating lease liabilities was approximately $ 1,051,367 and $ 1,118,578 , respectively.

Right of use assets totaled approximately $ 1,024,513 and $ 1,104,804 at March 31, 2024 and December 31, 2023, respectively.

Current lease liabilities were $ 180,875 and $ 174,876 at March 31, 2024 and December 31, 2023, respectively.

In the three months ended March 31, 2024 and 2023, the Company recognized $ 98,943 and $ 162,414 in total lease costs for the leases, respectively.

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 forty three months at March 31, 2024 and the weighted average discount rate was 7 %.

The minimum future lease payments as of March 31, 2024 are as follows:

Years Ended March 31,

Total remaining payments

Less Imputed Interest

Total lease liability

Employment Agreement

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.

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.

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.

The Company recorded a provision for income taxes of $ 0 for the three months ended March 31, 2024 and 2023.

The Company’s effective tax rate was 0 % for the three months ended March 31, 2024 and 2023.

The difference between the effective tax rate and the federal statutory tax rate for the three months ended March 31, 2024 and 2023 primarily relates to the valuation allowance on the Company’s deferred tax assets.

For interim periods, the Company estimates its annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes.

The Company also computes the tax provision or benefit related to items reported separately and recognizes the items net of their related tax effect in the interim periods in which they occur.

The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

As of March 31, 2024 and December 31, 2023, the Company retains a full valuation allowance on its deferred tax assets.

The realization of the Company’s deferred tax assets depends primarily on its ability to generate taxable income in future periods.

The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.

Reverse Recapitalization

On December 21, 2023, the Company completed the merger and received net proceeds of $ 2.8 million, net of transaction costs of $ 6.6 million.

The merger was accounted for as a reverse recapitalization in accordance with GAAP.

Under this method of accounting, BYTS, who was the legal acquirer, was treated as the “acquired” company for accounting purposes and Airship AI was treated as the accounting acquirer.

Accordingly, the merger was treated as the equivalent of Airship AI issuing shares at the closing of the merger for the net assets of BYTS as of the closing date, accompanied by a recapitalization.

The net assets of BYTS was stated at historical cost, with no goodwill or other intangible assets recorded.

Airship AI was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

Airship AI’s stockholders have the majority voting interest in the combined company;

The board of the post-merger company is composed of one (1) director designated by BYTS and four (4) directors designated by Airship AI;

Airship AI’s senior management is the senior management of the post-merger company;

The business of Airship AI comprises the ongoing operations of post-merger company;

Airship AI is the larger entity, in terms of substantive assets.

The table below summarizes the shares of common stock issued immediately after the closing of the merger as well as the impact on the consolidated statement of stockholders’ equity as of December 21, 2023:

Paid in Capital

SPAC Financing

Transaction expenses (1)

( 6,651,674 )

Basic and diluted weighted average ordinary shares outstanding

Basic and diluted net (loss) income per ordinary share

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards

Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments (“ASU 2016-13”).

This update requires financial assets measured at amortized cost basis to be presented at the

net amount expected to be collected.

The measurement of expected credit losses is based on relevant information about past events, including

historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies.

The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early

adoption permitted.

The Company adopted ASU 2016-13 on January 1, 2023.

The adoption of ASU 2016-13 did not have an impact on its financial

Management does not believe that any other recently

issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Note 3 - Initial Public Offering

On March 23, 2021, the Company consummated its

Initial Public Offering of 30,000,000 Units, at $ 10.00 per Unit, generating gross proceeds of $ 300.0 million, and incurring underwriting

fees and other offering costs of approximately $ 17.2 million, inclusive of approximately $ 10.5 million in deferred underwriting commissions.

On April 7, 2021, the underwriters exercised the

over-allotment option in part and purchased the Over-Allotment Units, generating gross proceeds of $ 23,692,510 , and 532,687 Founder Shares

(as defined below) were subsequently forfeited by the Sponsor.

Each Unit consists of one Class A ordinary share

and one-half of one redeemable warrant.

Each whole Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise

price of $ 11.50 per share, subject to adjustment (see Note 9).

Note 4 - Private Placement

Simultaneously with the closing of the Initial

Public Offering, the Company consummated the Private Placement of 1,030,000 Private Placement Units at a price of $ 10.00 per Private Placement

Unit, generating total gross proceeds of $ 10.3 million.

The proceeds from the sale of the Private Placement

Units were added to the net proceeds from the Initial Public Offering held in the Trust Account.

If the Company does not complete an initial

business combination within the Combination Period, the private placement warrants underlying the Private Placement Units (the “Private

Placement Warrants”) will expire worthless.

Note 5 - Related Party Transactions

Founder Shares

On January 22, 2021, the Sponsor paid an aggregate

of $ 25,000 to cover certain offering costs of the Company in consideration for 8,625,000 of the Company’s Class B ordinary shares

(the “Founder Shares”).

The Founder Shares included an aggregate of up to 1,125,000 shares subject to forfeiture by the Sponsor

to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the number of Founder Shares would

collectively represent 20 % of the Company’s issued and outstanding shares upon the completion of the Initial Public Offering (excluding

the Private Placement Shares).

On April 7, 2021, the underwriter exercised its over-allotment option in part, and 532,687 Founder Shares

were subsequently forfeited by the Sponsor.

The Sponsor agreed, subject to limited exceptions,

not to transfer, assign or sell any of its Founder Shares until the earlier to occur of:

(A) one year after the completion of an initial

business combination;

and (B) subsequent to an initial business combination, (x) if the closing price of the Class A ordinary shares equals

or exceeds $ 12.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like)

for any 20 trading days within any 30-trading day period commencing at least 120 days after a initial business combination, or (y) the

date on which the Company completes a liquidation, merger, amalgamation, share exchange, reorganization or other similar transaction that

results in all of the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities or

other property.

Effective as of March 27, 2023, pursuant to the

terms of the Amended and Restated Memorandum and Articles of Association, the Sponsor elected to convert each outstanding Class B ordinary

share held by it on a one-for-one basis into Class A ordinary shares of the Company, with immediate effect.

On June 26, 2023, the Company issued one Class

B ordinary share for no consideration to assist with administrative function.

Promissory Note – Related Party

On January 22, 2021, the Company entered into

a promissory note with the Sponsor, pursuant to which the Company could have borrowed up to an aggregate principal amount of $ 251,000

(the “Note”).

The Note was non-interest bearing and payable upon the completion of the Initial Public Offering.

borrowed approximately $ 149,000 under the Note and fully repaid the Note on March 25, 2021.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Related Party Loans

In order to finance transaction costs in connection

with an initial business combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors

may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).

Such Working Capital Loans

would be evidenced by promissory notes.

The notes may be repaid upon completion of an initial business combination, without interest,

or, at the lender’s discretion, up to $ 1,500,000 of the notes may be converted upon completion of an initial business combination

into private placement-equivalent units at a price of $ 10.00 per unit.

Such units would be identical to the Private Placement Units.

the event that an initial business combination does not close, the Company may use a portion of proceeds held outside the Trust Account

to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.

for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect

to such loans.

As of September 30, 2023 and December 31, 2022, the Company had no borrowings under the Working Capital Loans.

Advances from Related Party

As of September 30, 2023 and December 31, 2022,

the Sponsor advanced $ 140,560 and $0 , respectively, to the Company.

Administrative Services Agreement

The Company entered into an agreement that provides

that, commencing on effective date of the Initial Public Offering, the Company agreed to pay the Sponsor $ 10,000 per month for office

space, utilities, secretarial and administrative support services.

Upon completion of an initial business combination or its liquidation,

the Company will cease paying these monthly fees.

During the three months ended September 30, 2023 and 2022, the Company incurred $ 30,000

of such fees, reported as general and administrative expenses - related party in the accompanying consolidated statements of operations.

During the nine months ended September 30, 2023 and 2022, the Company incurred $ 90,000 of such fees, reported as general and administrative

expenses - related party in the accompanying consolidated statements of operations.

On November 30, 2022, the Sponsor assigned the Administrative

Services Agreement, to Sagara Group, LLC, which is a company controlled by Samuel Gloor, the Company’s Chief Executive Officer and

Chief Financial Officer.

Note 6 - Commitments and Contingencies

Registration and Shareholder Rights

The holders of the Founder Shares, Private Placement

Units (including the underlying securities) and securities that may be issued upon conversion of the Working Capital Loans are entitled

to registration rights pursuant to a registration rights agreement signed upon the effective date of the Initial Public Offering requiring

the Company to register a sale of any of the securities held by them, including any other securities of the Company acquired by them prior

to the consummation of the Company’s initial business combination.

The holders of these securities are entitled to make up to three

demands, excluding short form demands, that the Company register such securities.

In addition, the holders have certain “piggy-back”

registration rights with respect to registration statements filed subsequent to the completion of an initial business combination.

Company will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

The Company granted the underwriters a 45-day

option to purchase up to 4,500,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting

discounts and commissions.

On April 7, 2021, the underwriters exercised the over-allotment option in part and purchased the Over-Allotment

Units, generating gross proceeds of $ 23,692,510 .

The underwriters received a cash underwriting

discount of $ 0.20 per Unit, or $ 6.5 million in the aggregate, paid upon the closing of the Initial Public Offering and sale of Over-Allotment

In addition, the underwriters were entitled to a deferred fee of $ 0.35 per Unit, or $ 11.3 million in the aggregate.

fee was to become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes

an initial business combination, subject to the terms of the underwriting agreement.

On May 30, 2023, the underwriters waived their

entitlement to receive payment of the deferred underwriting commissions of $ 11,329,238 , that was to be paid under the terms of the underwriting

agreement, only in the event of closing of a business combination with Airship AI Holdings, Inc.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Non-Redemption Agreements

On March 8, 2023, the Company entered into two

non-redemption agreements (collectively, the “Non-Redemption Agreements”) with certain of its existing Public Shareholders

(the “Non-Redeeming Shareholders”).

Pursuant to the two Non-Redemption Agreements, each of the Non-Redeeming Shareholders

agreed to (a) not redeem 1,000,000 Public Shares held by each party on the date of the Non-Redemption Agreements in connection with the

vote to amend the Company’s Amended and Restated Memorandum and Articles of Association to extend the date by which the Company

has to consummate an initial business combination from March 23, 2023 to September 25, 2023 and (b) vote their Public Shares in favor

of the Extension presented by the Company for approval by its shareholders.

In connection with the foregoing, the Company agreed to pay

to each Non-Redeeming Shareholder $ 0.033 per Share in cash.

The value of the shareholder Non-Redemption Agreements of $ 396,000 was determined

to be an issuance cost in accordance with Staff Accounting Bulletin Topic 5A and as such recorded to accumulated deficit as of the date

the agreements were executed.

One of the Non-Redeeming Shareholders sold Class A ordinary shares prior to September 25, 2023, resulting

in a $ 20,144 reduction in the shareholder non-redemption agreement liability.

As of September 30, 2023, the total outstanding shareholder

non-redemption agreement liability is $ 250,243 which is included in the condensed consolidated balance sheets.

There was no outstanding

shareholder non-redemption agreement liability as of December 31, 2022.

On September 14, 2023, the Company entered into

an amendment to the Non-Redemption Agreement previously entered into on March 8, 2023 with the Non-Redeeming Shareholder holding 1,000,000

Public Shares.

Pursuant to the amendment to the Non-Redemption Agreement, the Non-Redeeming Shareholder agreed to (a) not redeem any Public

Shares held by it on the date of the Non-Redemption Agreement in connection with the vote to amend the Company’s Amended and Restated

Memorandum and Articles of Association to further extend the date by which the Company has to consummate an initial business combination

from September 25, 2023 to December 26, 2023 (the “Extended Date”) and to allow the Company, without another shareholder vote,

by resolution of the Company’s board of directors, to elect to further extend such date by three months until March 26, 2024 (the

“Extension” and such additional extended date, the “Additional Extended Date”) and (b) vote all of its Public

Shares in favor of the Extension presented by the Company for approval by its shareholders.

In connection with the foregoing, the Company

agreed to extend its obligation to pay to the Non-Redeeming Shareholder $ 0.033 per share in cash per month through the Extended Date and

Additional Extended Date, if applicable.

The value of the amendment to the shareholder Non-Redemption Agreements was $ 6,387 as of September

30, 2023 and was determined to be an issuance cost in accordance with Staff Accounting Bulletin Topic 5A and as such recorded to accumulated

deficit as of the date the agreements were executed.

On August 1, 2023, the Company entered into a

Non-Redemption Agreement with a Non-Redeeming Shareholder holding Class A ordinary shares, pursuant to which the Non-Redeeming Shareholder

agreed not to redeem $ 1 million in aggregate value of Class A ordinary shares held by it on the date of the Non-Redemption Agreement in

connection with the Merger Agreement.

Non-Redemption Agreement – Related

On August 1, 2023, the Company entered into a

non-redemption agreement (“August Non-Redemption Agreement”) with the Sponsor.

Pursuant to the August Non-Redemption Agreement,

Sponsor agreed to acquire from shareholders of the Company $ 6 million in aggregate value of the Company’s Class A ordinary shares,

either in the open market or through privately negotiated transactions, at a price no higher than the redemption price per share payable

to Public Shareholders who exercise redemption rights with respect to their Class A ordinary shares, prior to the closing date of the

Business Combination, to waive its redemption rights and hold the Class A ordinary shares through the closing date of the Business Combination,

and to abstain from voting and not vote the Class A ordinary shares in favor of or against the Business Combination.

As consideration

for the August Non-Redemption Agreement, the Company agreed to pay the Sponsor $ 0.033 per Class A ordinary shares per month, which will

begin accruing on the date that is three days after the date of the August Non-Redemption Agreement and terminate on the earlier of the

closing date of the Business Combination, the termination of the Merger Agreement, or the Outside Closing Date (as defined in the Merger

As a result, the Sponsor acquired an aggregate of 570,555 Class A ordinary shares.

As of September 30, 2023, the total outstanding

shareholder non-redemption agreement liability – related party is $ 37,657 which is included in the condensed consolidated balance

There was no outstanding shareholder non-redemption agreement liability– related party as of December 31, 2022.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Merger Agreement

On June 27, 2023, the Company (which shall de-register

from the Register of Companies in the Cayman Islands by way of continuation out of the Cayman Islands and into the State of Delaware so

as to migrate to and domesticate as a Delaware corporation prior to the Closing Date (as defined below)), entered into a merger agreement,

by and among the Company, BYTE Merger Sub Inc, (“Merger Sub”), and Airship AI Holdings, Inc., a Washington corporation (“Airship

AI”) (as it may be amended and/or restated from time to time, the “Merger Agreement”).

On September 22, 2023, the Company, Airship AI,

and Merger Sub entered into an amendment to the Merger Agreement (the “Amendment”).

The Amendment amends the Merger Agreement

to extend the last date for the Company to consummate the Business Combination (the “Outside Closing Date”) from December

26, 2023 to the latest of (a) September 25, 2023, (b) if the Extension Proposal (as defined in the Merger Agreement) is approved, March

26, 2024 and (C) if one or more extensions to a date following March 26, 2024 with Airship AI Holdings, Inc.’s approval is obtained

at the election of the Company, with the Company’s shareholder vote, in accordance with the Company’s Amended and Restated

Memorandum and Articles of Association, the last date for the Company to the Business Combination pursuant to such extensions.

Parent Support Agreement

In connection with the execution of the Merger

Agreement, Byte entered into a support agreement (the “Parent Support Agreement”) with the Sponsor and Airship AI, pursuant

to which the Sponsor agreed to, among other things, vote all of its shares in favor of the various proposals related to the Business Combination

and the Merger Agreement and any other matters necessary or reasonably requested by Byte for consummation of the Business Combination.

The Sponsor has also agreed (a) to forfeit 1,000,000 Byte Class A ordinary shares owned by the Sponsor on the Closing Date and (b) to

contribute up to 2,600,000 Byte Class A ordinary shares owned by the Sponsor to secure the Non-Redemption Agreements and/or the PIPE financing.

The Parent Support Agreement also provides that the Sponsor Shares will be subject to a lock-up for a period of 180 days following the

Company Support Agreement

In connection with the execution of the Merger

Agreement, Byte entered into a support agreement (the “Company Support Agreement”) with Airship AI and certain shareholders

of Airship AI (the “Company Supporting Shareholders”), pursuant to which the Company Supporting Shareholders agreed to, among

other things, (i) vote to adopt and approve, or to execute a written consent with respect to the approval, within five business days following

the date of the effectiveness of the registration statement on Form S-4, the Merger Agreement and all other documents and transactions

contemplated thereby, (ii) vote against any alternative proposal or alternative transaction or any proposal relating to an alternative

proposal or alternative transaction, (iii) vote against any merger agreement or merger, consolidation, or combination sale of substantial

assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company (other than the Merger Agreement

and the transactions relating to the Business Combination), (iv) vote against any change in the business (to the extent in violation of

the Merger Agreement), management or board of directors of the Company (other than in connection with the Business Combination), and (v)

vote against any proposal that would impede the Business Combination or that would result in a breach with respect to any obligation or

agreement of the Company or the Company Supporting Shareholders under the Merger Agreement or the Company Support Agreement, in each case,

subject to the terms and conditions of the Company Support Agreement

Note 7 - Class A Ordinary Shares Subject to

Possible Redemption

The Company’s Public Shares feature certain

redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.

of September 30, 2023 and December 31, 2022, there were 1,837,593 and 32,369,251 Class A ordinary shares subject to possible redemption

and classified outside of permanent equity in the condensed consolidated balance sheets.

In connection with the extraordinary general meeting

held on March 16, 2023, holders of 30,006,034 of the Company’s Class A ordinary shares exercised their right to redeem for a redemption

value totaling $ 306,691,945 .

In connection with the extraordinary general meeting held on September 22, 2023, holders of 525,624 of the

Company’s Class A ordinary shares exercised their right to redeem for a redemption value totaling $ 5,587,383 , which remains outstanding

and payable as of September 30, 2023.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

The Class A ordinary shares subject to possible

redemption reflected on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 is reconciled on the

following table:

Gross proceeds from Initial Public Offering, including sale of the Over-Allotment Units

Earnout liability

( 4,470,918 )

Fair value of Public Warrants at issuance

( 22,638,859 )

Offering costs allocated to Class A ordinary shares subject to possible redemption

Warrants liability

( 2,009,105 )

Initial accretion on Class A ordinary shares subject to possible redemption amount

Remeasurement on Class A ordinary shares subject to possible redemption amount

Class A ordinary shares subject to possible redemption, December 31, 2022

Redemption of Class A ordinary shares

Reverse capitalization on December 21, 2023 (1)

$ ( 4,816,511 )

Redemption payable

$ ( 23,533,521 )

Accretion on Class A ordinary shares subject to possible redemption amount

Class A ordinary shares subject to possible redemption, September 30, 2023

Note 8 - Shareholders’ Deficit

Preference Shares - The Company

is authorized to issue 1,000,000 preference shares with a par value of $ 0.0001 per share.

The Company’s board of directors is authorized

to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and

any qualifications, limitations and restrictions thereof, applicable to the shares of each series.

The board of directors will be able

to, without shareholder approval, issue preferred shares with voting and other rights that could adversely affect the voting power and

other rights of the holders of the ordinary shares and could have anti-takeover effects.

At September 30, 2023 and December 31, 2022,

there were no preference shares issued or outstanding.

Class A Ordinary Shares - The Company

is authorized to issue 200,000,000 Class A ordinary shares with a par value of $ 0.0001 per share.

Holders of the Company’s Class

A ordinary shares are entitled to one vote for each share.

At September 30, 2023 and December 31, 2022, there were 9,122,313 and 1,030,000

Class A ordinary shares issued or outstanding, excluding 1,837,593 and 32,369,251 Class A ordinary shares subject to possible redemption,

respectively, which have been classified as temporary equity (see Note 7).

Class B Ordinary Shares - The Company

is authorized to issue 20,000,000 Class B ordinary shares with a par value of $ 0.0001 per share.

Holders of the Class B ordinary shares

are entitled to one vote for each share.

As of September 30, 2023 and December 31, 2022, there were 1 and 8,092,313 Class B ordinary shares

issued and outstanding.

Effective as of March 27, 2023, pursuant to the

terms of the Amended and Restated Memorandum and Articles of Association, the Sponsor elected to convert each outstanding Class B ordinary

share held by it on a one-for-one basis into Class A ordinary shares of the Company, with immediate effect.

On June 26, 2023, the Company issued one Class

B ordinary share for no consideration to assist with administrative function.

Note 9 - Warrants

As of September 30, 2023 and December 31, 2022,

the Company had an aggregate of 16,699,626 warrants outstanding, comprised of 16,184,626 Public Warrants and 515,000 Private Placement

Public Warrants may only be exercised for a whole

number of shares.

No fractional warrants will be issued upon separation of the Units and only whole warrants will trade.

The Public Warrants

will become exercisable 30 days after the completion of an initial business combination.

The Public Warrants will expire five years from

the completion of an initial business combination, or earlier upon redemption or liquidation.

The Company will not be obligated to deliver any

Class A ordinary shares pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise

unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then effective

and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration.

will be exercisable and the Company will not be obligated to issue a Class A ordinary share upon exercise of a warrant unless the Class

A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of

the state of residence of the registered holder of the warrants.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

Redemption of warrants when the price per Class

A ordinary share equals or exceeds $18.00:

Once the warrants become exercisable, the Company

may call the outstanding warrants for redemption (except as described with respect to the Private Placement Warrants):

whole and not in part;

a price of $ 0.01 per warrant;

a minimum of 30 days’ prior written notice of redemption to each warrant holder;

and only if, the closing price of the Class A ordinary shares equals or exceeds $ 18.00 per share (as adjusted for share sub-divisions,

share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending

three business days before the Company sends to the notice of redemption to the warrant holders (the “Reference Value”).

If and when the warrants become redeemable by

the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale

under all applicable state securities laws.

Redemption of warrants when the price per Class

A ordinary share equals or exceeds $10.00:

Once the warrants become exercisable, the Company

may redeem the outstanding warrants:

whole and not in part;

a price of $ 0.10 per warrant;

not less than 30 days’ prior written notice of redemption to each warrant holder;

and only if, the Reference Value equals or exceeds $ 10.00 per Public Share (as adjusted) for any 20 trading days within the 30 -trading

day period ending three trading days before the Company sends the notice of redemption to the warrant holders;

the Reference Value is less than $18.00 per share (as adjusted), the Private Placement Warrants must also be concurrently called for

redemption on the same terms as the outstanding Public Warrants, as described above.

If the Company calls the Public Warrants for redemption,

as described above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on

a “cashless basis,” as described in the warrant agreement.

The exercise price and number of ordinary shares issuable upon

exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend

or recapitalization, reorganization, merger or consolidation.

However, except as described below, the Public Warrants will not be adjusted

for issuances of ordinary shares at a price below its exercise price.

Additionally, in no event will the Company be required to net cash

settle the Public Warrants.

If the Company is unable to complete an initial business combination within the Combination Period and the

Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to

their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect

to such Public Warrants.

Accordingly, the Public Warrants may expire worthless.

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

In addition, if (x) the Company issues additional

Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of an initial business

combination at an issue price or effective issue price of less than $ 9.20 per Class A ordinary share (with such issue price or effective

issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor

or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such

issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the

total equity proceeds, and interest thereon, available for the funding of an initial business combination, and (z) the volume weighted

average trading price of the Class A ordinary shares during the 20 trading day period starting on the trading day prior to the day on

which the Company consummates an initial business combination (such price, the “Market Value”) is below $ 9.20 per share, then

the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the

Newly Issued Price, and the $ 18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180 % of the

higher of the Market Value and the Newly Issued Price.

The Private Placement Warrants are identical to

the Public Warrants underlying the Units being sold in the Initial Public Offering, except that (x) the Private Placement Warrants and

the Class A ordinary shares issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until

30 days after the completion of an initial business combination, subject to certain limited exceptions, (y) the Private Placement Warrants

will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees

and (z) the initial purchasers of the Private Placement Warrants and the Class A ordinary shares issuable upon exercise of the Private

Placement Warrants are entitled to registration rights.

If the Private Placement Warrants are held by someone other than the initial purchasers

or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the

same basis as the Public Warrants.

Note 10 - Fair Value Measurements

The following table presents information about

the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and December

31, 2022 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.

As of September 30, 2023

Derivative warrant liabilities - Public warrants

Derivative warrant liabilities – Private placement warrants

BYTE ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

(1) Adjusted for correction of transaction expense discussed below.

Immaterial Revision of Prior Period Financial Information

In connection with the preparation of its consolidated financial statements, the Company identified an immaterial error related to the classification of prepaid expenses and transaction expenses (classified in accumulated deficit as reverse recapitalization).

In accordance with SAB No.

99, “Materiality,” and SAB No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements,” the Company evaluated the error and determined that the impact was not material to its financial statements for the prior annual and current interim period, accordingly the Company revised the prior period financial information for comparative purposes.

The revision does not impact the consolidated statements of operations and comprehensive loss.

A summary of the revision to the Company’s previously reported consolidated balance sheets is included below for comparative purposes:

As of December 31, 2023

Investments held in Trust Account – Money market fund

Prepaid expenses and other

$ ( 894,662 )

Derivative warrant liabilities – Public warrants

Derivative warrant liabilities – Private placement warrants

Transfers to/from Levels 1, 2, and 3 are recognized

at the beginning of the reporting period.

The estimated fair value of the Public Warrants was transferred from a Level 3 measurement to

a Level 1 measurement in May 2021, when the Public Warrants were separately listed and traded in an active market.

The estimated fair

value of the Private Placement Warrants was transferred from a Level 3 measurement to a Level 2 measurement in May 2021, as the key inputs

to the valuation model became directly or indirectly observable from the Public Warrants listed price.

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 level 2 inputs.

For the three months ended September 30, 2023 and 2022, the Company recognized a loss and gain resulting

from changes in the fair value of derivative warrant liabilities of approximately $ 1.0 million and $ 0.3 million, respectively, which is

presented in the accompanying consolidate statements of operations.

For the nine months ended September 30, 2023 and 2022, the Company

recognized a loss and gain resulting from changes in the fair value of derivative warrant liabilities of approximately $ 2.5 million and

$ 7.7 million, respectively, which is presented in the accompanying consolidate statements of operations.

Note 11 - Subsequent Events

The Company has evaluated subsequent events and transactions

that occurred up to the date the unaudited condensed consolidated financial statements were issued.

Based upon this review, other than

as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited

condensed consolidated financial statements.

On November 1, 2023, the Company received an additional

advance of $ 224,500 from a related party.

Total current assets

Accumulated deficit

( 16,582,038 )

( 17,476,700 )

Total stockholders' deficit

( 16,592,565 )

( 17,487,227 )

The revision had no impact to cash provided by operating activities in such period.

Private Placement and Public Warrants

At the merger closing, the Company assumed 515,000 private placement warrants and 16,184,612 public warrants.

As of March 31, 2024, there were 515,000 private placement warrants and 16,159,112 public warrants outstanding.

Details on the warrants 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 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 March 31, 2024:

Number of Shares

Expiration Date

Public Warrants

December 21, 2028

Private Warrants

December 21, 2028

Earnout Liability

Certain of the Company’s stockholders are entitled to receive up to 5,000,000 earnout shares of the Company’s common stock if the following earnout milestones are met.

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 below) is at least $39 million, or (2) the aggregate value of new contract awards (including awards obtained through purchase orders) with federal law enforcement agencies (whether such awards are obtained directly or through intermediaries) 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”);

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 (the “Second Operating Performance Milestone”);

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 (the “First Share Price Performance Milestone”);

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 (the “Second Share Price Performance Milestone”).

Further, the earnout milestones are also considered to be met if the Company undergoes a change of control.

A change of control is defined as (i) any transaction or series of related transactions that results in any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) acquiring equity interests that represent more than 50% of the total voting power of the Company or (ii) a sale or disposition of all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis.

Notwithstanding anything in the Merger Agreement to the contrary, any earnout shares issuable under the Merger Agreement to a 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 a 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.

At the closing of the merger on December 21, 2023, the earnout liability had an initial fair value of $ 27,109,777 , which was recorded as a long-term liability and a reduction to additional paid in capital in the consolidated balance sheet.

As of December 31, 2023, the earnout liability had decreased to $ 5,133,428 as a result of the decline in the Company’s share price since the closing of the merger.

As of March 31, 2024, the estimated fair value of the earnout liability increased to $ 26,618,278 primarily due to the increase in the Company’s share price, which resulted in a loss due to the change in fair value of the earnout liability of $ 21,484,850 and is recorded on the consolidated statements of operations and comprehensive loss.

See Note 14– Fair Value Measurements for more information.

As of March 31, 2024, the earnout shares were not earned as none of the earnout milestones have been met.

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 March 31, 2024:

March 31, 2024

Earnout liability

Senior Secured Convertible Promissory Notes

Warrant liability (Public Warrants)

Warrant liability (Private Warrants)

Total liabilities measured at fair value

December 31, 2023

Earnout liability

Senior Secured Convertible Promissory Notes

Warrant liability (Public Warrants)

Warrant liability (Private Warrants)

Total liabilities measured at fair value

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:

March 31, 2024

December 31, 2023

Risk-free interest rate

Expected term (in years)

Expected volatility

Dividend yield

The assumptions also included the probability of meeting the federal law enforcement agency growth milestone at 100%.

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.

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 following assumptions were used in the simulation:

March 31, 2024

December 31, 2023

Effective discount rate

Expected term (in years)

Expected volatility

Dividend yield

There were no transfers of financial instruments between valuation levels during the three months ended March 31, 2024 and the year ended December 31, 2023.

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 March 31, 2024, there were no material transactions that require disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements