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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-01 · 196 added, 348 removed, 1 unchanged (100% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations.

References to the “Company,” “our,”

“us” or “we” refer to BYTE Acquisition Corp.

The following discussion and analysis of the Company’s financial

condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the

notes thereto contained elsewhere in this report.

Certain information contained in the discussion and analysis set forth below includes

forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking

statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act

of 1934, as amended (the “Exchange Act”).

We have based these forward-looking statements on our current expectations and projections

about future events.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that

may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels

of activity, performance or achievements expressed or implied by such forward-looking statements.

In some cases, you can identify forward-looking

statements by terminology such as “may,” “should,” “could,” “would,” “expect,”

“plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of

such terms or other similar expressions.

Such statements include, but are not limited to, possible business combinations and the financing

thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q.

that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange

Commission (“SEC”) filings.

We are a blank check company incorporated on January

8, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase,

reorganization or similar business combination with one or more businesses or entities (“initial business combination”).

sponsor is Byte Holdings LP, a Cayman Islands exempted limited partnership (our “Sponsor”).

Our registration statement for our initial public

offering was declared effective on March 17, 2021.

On March 23, 2021, we consummated our Initial Public Offering of 30,000,000 units (the

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

at $10.00 per Unit, generating gross proceeds of $300.0 million, and incurring offering costs of approximately $17.2 million, inclusive

of approximately $10.5 million in deferred underwriting commissions.

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 additional gross proceeds of

$23,692,510 (such offering, including the exercise of the over-allotment, the “Initial Public Offering”).

Simultaneously with the closing of the Initial

Public Offering, we 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.

Upon the closing of the Initial Public Offering,

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

in the Initial Public Offering and certain of proceeds of the Private Placement were 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 us, until the earlier of:

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

Account to the shareholders.

However, to mitigate the risk of us 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, we 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 consummation

of an initial business combination or liquidation.

If we are unable to complete an initial business

combination by the Extended Date (as defined below), we 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 holders of the Public Shares (the “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 our 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.

We initially had until March 23, 2023 to consummate

an initial business combination.

On March 16, 2023, we held an extraordinary general meeting (the “March EGM”).

In this meeting

the shareholders approved amendments to our Amended and Restated Memorandum and Articles of Association to extend the date by which we

must complete an initial business combination from March 23, 2023 to September 25, 2023 (the “Extension” and such date, the

“Original Extended Date”) and to provide for the right of a holder of our Class A 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 our Trust Account, leaving approximately $24.1 million in

the 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 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.

Non-Redemption Agreements

On March 8, 2023, we entered into non-redemption

agreements (collectively, the “Extension Non-Redemption Agreements”) with certain of its existing shareholders (the “Non-Redeeming

Shareholders”) holding Class A ordinary shares.

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

agreed to (a) not redeem 1,000,000 Class A ordinary shares held by them on the date of the Extension Non-Redemption Agreements (the “Shares”)

in connection with the vote to amend our Amended and Restated Memorandum and Articles of Association to extend the date by which we have

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

presented by us for approval by its shareholders.

In connection with the foregoing, we agreed to pay to each Non-Redeeming Shareholder

$0.033 per Share in cash per month through the Original Extended Date.

On September 14, 2023, we 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 Class A

ordinary shares.

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

Class A ordinary shares held by them 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 their 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.

On August 1, 2023, we entered into a Non-Redemption

Agreement with one of the Non-Redeeming Shareholders holding Public Shares, pursuant to which the Non-Redeeming Shareholder agreed not

to redeem $1 million in aggregate value of Public Shares held by it on the date of the Non-Redemption Agreement in connection with the

Merger Agreement.

Non-Redemption Agreement – Related Party

On August 1, 2023, we entered into a non-redemption

agreement (“Non-Redemption Agreement”) with our Sponsor.

Pursuant to the Non-Redemption Agreement, our Sponsor agreed to acquire

from our shareholders $6 million in aggregate value of our Public 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 Public Shares, prior to the closing date of the Business Combination (as defined below), to waive its redemption rights and hold

the Public Shares through the closing date of the Business Combination, and to abstain from voting and not vote the Public Shares in favor

of or against the Business Combination.

As consideration for the Non-Redemption Agreement, we agreed to pay the Sponsor $0.033 per Public

Share per month, which will begin accruing on the date that is three days after the date of the 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 Agreement).

Merger Agreement

On June 27, 2023, we entered into a merger agreement,

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

AI”), for the purpose to consummate a business combination (the “Business Combination”) (as it may be amended and/or

restated from time to time, the “Merger Agreement”).

On September 22, 2023, we entered into an

amendment to the Merger Agreement (the “Amendment”), by and among s, Airship AI, and Merger Sub.

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 consummate the Business Combination pursuant to

such extensions.

Parent Support Agreement

In connection with the execution of the Merger

Agreement, we 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 us for consummation of the Business Combination.

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

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

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

Company Support Agreement

In connection with the execution of the Merger

Agreement, we 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.

Class B Conversion

Effective as of March 27, 2023, pursuant to the

terms of the Amended and Restated Memorandum and Articles of Association after the March EGM, 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.

Class B Issuance

On June 26, 2023, the Company issued one Class

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below.

The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report.

The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management.

Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “ Special Note Regarding Forward-Looking Statements.

We are 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.

We solve 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.

We specialize 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 our 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.

Our AI modelling process starts with pre-trained AI models from our technology ecosystem partners which we then customize using proprietary datasets tailored towards our customers unique workflow requirements.

Where customers have pre-existing AI models or engines, we integrate those models or engines into our edge platform allowing customers to leverage proprietary models within the Airship AI software ecosystem.

Our primary offerings include Outpost AI, Acropolis, and Airship Command.

Our 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.

Recent Developments

On June 27, 2023, BYTS entered into the Merger Agreement with Merger Sub and Airship AI.

The Merger Agreement was amended on September 22, 2023.

On December 21, 2023, the merger with BYTS closed.

Airship AI Holdings, Inc.

became the accounting acquiror and the combined entity became the successor SEC registrant under the ticker symbol “AISP”.

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.

Key Performance Indicators

Historically, a majority of our product revenue has consisted primarily of a bundled hardware and software product and to date we have sold or licensed a minimal amount of standalone software.

In the future, we expect to see more delivery of our products using a cloud based software solution which will allow us to create additional subscription revenue.

We have historically evaluated our business solely based on revenue generated from customers and we have not tracked any other customer-related metrics.

As we grow and increase our product offerings and customer base, we intend to modify and develop more advanced performance indicators.

We believe the following key performance indicators apply to us in the future:

Growth within existing government customers .

While we currently have a strong footprint across multiple large U.S.

government agencies, growing our business within these agencies outside of the investigation focused departments is a fundamental area of our projected growth.

Our ability to expand our footprint by implementing AI based solutions that leverage our core existing competencies within the agencies will be a critical indicator of the success of this strategy.

We will measure progress against this objective through the disclosure of awards for new business within these agencies during the affected timeframe, providing tangible evidence of the success of our strategy to both management and investors alike.

Greater penetration into the commercial marketplace .

While we have several existing customers in the commercial marketplace, our ability to build on the solutions we provide those customers and expand that base will be critical to our projected growth objectives.

We will measure progress against this objective through the disclosure of the number of new commercial customers added during the affected timeframe, providing tangible evidence of the success of our strategy to both management and investors alike.

Expansion of our edge AI based solutions .

We began to sell AI based solutions in late 2022.

Our current strategy is highly focused on the transition of data management and analysis workloads to the edge, driving efficiency and cost savings for our customers.

This strategy also includes new models being trained to extract data at the edge which enables real-time intelligent decision making for our customers.

We will measure progress against this objective through the disclosure of the numbers of edge AI hardware devices we are selling as well as the growth of our edge AI analytic capabilities, providing tangible evidence of the success of our strategy to both management and investors alike.

Principal Factors Affecting Our Financial Performance

We believe the following factors and trends may cause previously reported financial information not to be necessarily indicative of future operating results or future financial conditions:

Increase in the sales of lower margin solutions as we expand our operational footprint .

While our current focus remains on expanding our AI driven software application portfolio, opportunities will continue to present themselves to provide those software-based solutions as part of a larger hardware-based turn-key solutions where Airship AI can provide a unique value-add to the customer.

While these solutions will positively affect revenue we anticipate our operating profits in future periods may be adversely affected as compared to previous years due to the lower operating margin for hardware versus software applications.

Challenges due to geo-political driven supply-chain constraints .

While many of the COVID-19 driven supply chain issues have been resolved, challenges to the timely production and delivery of Taiwan based products we utilize for our edge AI platform due to geo-political factors is a concern looking forward.

In the event that our suppliers are unable to provide timely delivery of those supplies it will significantly impact our ability to meet delivery schedules for existing and anticipated edge AI hardware-based solutions.

Near-term impacts due to merger and acquisition activity .

If Airship AI merges with or acquires another company, it is reasonably expected that there will be increased operating expenses and costs associated with the merger that could negatively impact operating profits in the future periods immediately following the M&A event.

The extent and longevity of those impacts is not possible to quantify.

Segment Reporting

The Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, Topic 280, Segment Reporting , requires that an enterprise report selected information about reportable segments in its financial reports issued to its stockholders.

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.

Results of Operations

Our entire activity since inception through September

30, 2023 related to our formation, the preparation for the Initial Public Offering, and since the closing of the Initial Public Offering,

the search for a prospective initial business combination.

We have neither engaged in any operations nor generated any revenues to date.

We will not generate any operating revenues until after completion of our initial business combination.

We will generate non-operating

income in the form of interest income on cash and cash equivalents.

We expect to incur increased expenses as a result of being a public

company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended September 30, 2023,

we had net loss of approximately $1.5 million, which primarily consisted of approximately $800,000 of losses from operations and a noncash

loss of approximately $1.0 million resulting from changes in fair value of derivative warrant liabilities, offset by interest earned from

investments held in the Trust Account of approximately $307,000 and interest income from the bank account of approximately $2,000.

For the three months ended September 30, 2022,

we had net income of approximately $1.5 million, which primarily consisted of a noncash gain of approximately $0.3 million resulting from

changes in fair value of derivative warrant liabilities and income from investments held in the Trust Account of approximately $1.4 million,

partially offset by approximately $268,000 of general and administrative expenses, including $30,000 of general and administrative expenses

to related parties.

For the nine months ended September 30, 2023,

we had net loss of approximately $2.1 million, which primarily consisted of approximately $3.4 million of losses from operations and a

noncash loss of approximately $2.5 million resulting from changes in fair value of derivative warrant liabilities, offset by of interest

earned from investments held in the Trust Account of approximately $3.7 million and interest income from the bank account of approximately

For the nine months ended September 30, 2022,

we had net income of approximately $8.7 million, which primarily consisted of a noncash gain of approximately $7.7 million resulting from

changes in fair value of derivative warrant liabilities and income from investments held in the Trust Account of approximately $1.9 million,

partially offset by approximately $905,000 of general and administrative expenses, including $90,000 of general and administrative expenses

to related parties.

Liquidity, Capital Resources and Going Concern

Consideration

As of September 30, 2023, we had cash of $18,752.

Our liquidity needs prior to the consummation

of the Initial Public Offering were satisfied through a payment of $25,000 from the Sponsor to cover certain expenses on our behalf in

exchange for the issuance of the Founder Shares (as defined below), a loan under a note agreement from our Sponsor of approximately $149,000

(the “Note”), and the net proceeds from the consummation of the Private Placement not held in the Trust Account.

repaid the Note on March 25, 2021.

In addition, in order to finance transaction costs in connection with an initial business combination,

our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors may, but are not obligated to, provide us working

capital loans.

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 the Financial Accounting Standards Board’s (“FASB”) Accounting Standards

Codification (“ASC”) Topic 205-40, “Presentation of Financial Statements – Going Concern,” management has

determined that the liquidity condition and mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s

ability to continue as a going concern.

Management continues to seek to complete an initial business combination within the Combination

No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after

the Extended Date.

The financial statements do not include any adjustment that might be necessary if the Company is unable to continue

as a going concern.

Contractual Obligations

We do not have any long-term debt, capital lease

obligations, operating lease obligations or long-term liabilities, other than, an agreement to pay Sagara Group, LLC, which is a company

controlled by Mr.

Gloor, a monthly fee of $10,000 for office space, utilities and secretarial, and administrative and support services.

We began incurring these fees on March 23, 2021 and will continue to incur these fees monthly until the earlier of the completion of an

initial business combination and our liquidation.

The underwriters are entitled to a deferred

fee of $0.35 per Unit, or $11,329,238 in the aggregate.

The deferred fee will become payable to the underwriters from the amounts

held in the Trust Account solely in the event that we complete 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.

Critical Accounting Policies

The preparation of financial statements and related

disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date

of the financial statements, and income and expenses during the periods reported.

Actual results could materially differ from those estimates.

We have identified the following critical accounting policy:

Derivative Warrant Liabilities

We do not use derivative instruments to hedge

exposures to cash flow, market, or foreign currency risks.

We evaluate all of our financial instruments, including issued stock purchase

warrants and forward purchase agreements, to determine if such instruments are derivatives or contain features that qualify as embedded

derivatives, pursuant to FASB ASC Topic 480 “Distinguishing Liabilities from Equity” (“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 in connection with the Initial

Public Offering and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815.

Accordingly, we

recognize the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period.

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 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.

Class A ordinary shares subject to possible

We account for our 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

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 Class A ordinary shares subject to possible redemption are presented at redemption

value as temporary equity, outside of the shareholders’ equity section of our balance sheet.

Effective with the closing of the Public Offering

(including sale of the Over-Allotment Units), we 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.

Net (Loss) Income per ordinary share

We have 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 warrants issued in connection with the Public Offering (including sale of the Over-Allotment

Units) and the Private Placement to purchase an aggregate of 16,699,626 ordinary shares in the calculation of diluted (loss) 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 period ended September 30, 2023

and December 31, 2022.

Accretion associated with the redeemable Class A ordinary shares is excluded from net (loss) income per share as

the redemption value approximates fair value.

Recent Accounting Standards

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 our financial statements.

Off-Balance Sheet Arrangements and Contractual

As of September 30, 2023, we did not have any

off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

The JOBS Act contains provisions that, among other

things, relax certain reporting requirements for qualifying public companies.

We qualify as an “emerging growth company” and

under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly

traded) companies.

We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with

new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as

of public company effective dates.

Additionally, we are in the process of evaluating

the benefits of relying on the other reduced reporting requirements provided by the JOBS Act.

Subject to certain conditions set forth

in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among

other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to

Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public

companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by

the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about

the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items

such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee

compensation.

These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until

we are no longer an “emerging growth company,” whichever is earlier.

Quantitative and Qualitative Disclosures

About Market Risk

We are a smaller reporting company as defined

by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

The following table sets forth key components of our results of operations during the three months ended March 31, 2024 and 2023.

(dollars in thousands)

Three Months Ended March 31,

Cost of net revenues

Research and development expenses

Selling, general and administrative expenses

Total operating expenses

Operating loss

Other income (expense):

Loss from change in fair value of warrants

Loss from change in fair value of earnout liability

Loss from change in fair value of convertible debt

Loss on note conversion

Interest expense

Other expense

Total other expense, net

Loss before income taxes

Income tax benefit (expense)

Net Revenues — Revenues for the three months ended March 31, 2024 increased $7,636,000 to $10,575,000 as compared to $2,939,000 for the three months ended March 31, 2023, as a result of increased product sales.

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

Cost of Net Revenues — Cost of net revenues primarily consists of product costs and post customer support.

For the three months ended March 31, 2024, cost of sales increased $5,812,000 to $7,947,000 as compared to $2,135,000 for the three months ended March 31, 2023.

The increase was due to higher product sales and product mix with high equipment purchases during the three months ended March 31, 2024.

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

Selling, General and Administrative Expenses — Selling, general and administrative expenses for the three months ended March 31, 2024 increased $1,503,000 to $3,335,000 as compared to $1,832,000 for the three months ended March 31, 2023.

The increase was due to (i) increased insurance costs of $291,000;

(ii) increased professional fees of $582,000, primarily related to the merger and the Nasdaq listing;

and (iii) increased other operating --expenses of $630,000.

Other Expense — Other expense for the three months ended March 31, 2024 was $30,562,000 as compared to other expense of $10,000 for the three months ended March 31, 2023.

Other expense for the three months ended March 31, 2024 consisted of (i) loss from change in fair value of warrant liability of $6,847,000;

(ii) loss from change in fair value of earnout liability of $21,485,000;

(iii) loss from change in fair value of convertible debt of $2,039,000;

(iv) loss on note conversion of $159,000;

and (iv) noncash interest of $32,000.

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

Net Loss — Net loss for the three months ended March 31, 2024 was $31,964,000 as compared to net loss of $1,712,000 for the three months ended March 31, 2023.

The net loss primarily related to noncash charges of $30,881,000.

Noncash charges include (i) depreciation of $2,000;

(ii) stock based compensation of $269,000;

(iii) net amortization of operating lease right of use asset of $81,000;

(iv) loss from change in warrant liability of $6,847,000;

(v) loss from change in earnout liability of $21,485,000;

(vi) loss from change in fair value of convertible note of $2,039,000;

and (vii) loss on note conversions of $159,000.

Liquidity and Capital Resources as of March 31, 2024 and December 31, 2023

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis.

Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

We formally evaluated our liquidity and cash position most recently in May 2024 when preparing our March 31, 2024 unaudited financial statements.

During this process we concluded, based upon existing assets and liabilities, our order backlog and projections, plus the ability to borrow in short term loans from our founder, that we would be able to operate at least for the next twelve months.

We have received purchase orders from various federal government agency customers totaling over $13 million from which we shipped and started receiving cash in the first quarter of 2024.

As of March 31, 2024, we had cash of approximately $1,726,000.

We have incurred losses from operations the past few years and had an accumulated deficit of $49,441,000 as of March 31, 2024.

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

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

The adjusted net working capital deficit excludes current deferred revenue totaling $3,742,000 and convertible debt totaling $4,205,000 (which we expect to be converted to equity).

We have primarily funded its operations from operating cash, proceeds from debt borrowings, advances from founders, and proceeds from the merger.

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2024 was $1,695,000.

This amount was primarily related to (i) net loss of $31,964,000;

and (ii) net working capital reductions of $611,000;

offset by (iii) noncash charges of $30,881,000.

Noncash charges include (iv) depreciation of $2,000;

(v) stock based compensation of $269,000;

(vi) net amortization of operating lease right of use asset of $81,000;

(vii) loss from change in warrant liability of $6,847,000;

(viii) loss from change in earnout liability of $21,485,000;

(ix) loss from change in fair value of convertible note of $2,039,000;

(x) loss on note conversions of $159,000.

Net cash used in operating activities for the three months ended March 31, 2023 was $990,000.

This amount was primarily related to (i) a net loss of $1,712,000;

offset by (ii) net working capital increases of $376,000;

and (iii) noncash charges of $346,000.

Noncash charges include (iii) depreciation of $3,000;

(iv) stock based compensation of $137,000;

and (v) net amortization of operating lease right of use asset of $206,000.

Financing Activities

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

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

Our contractual cash obligations as of March 31, 2024 (excluding debt financing arrangements below) are summarized in the table below:

Contractual Cash Obligations

Operating lease cash payments

Debt Financing Arrangements

On June 22, 2023, we entered into a senior secured convertible promissory note with Platinum Capital Partners Inc.

and received $2,000,000.

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

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

We expect the convertible debt to be converted to equity.

On November 2 2023, we 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.

On March 5, 2024, the two private investors converted the debt to equity.

Huang has committed to providing additional temporary funding if it is necessary.

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

Equity financing, if obtained, could result in dilution to our then-existing stockholders and/or require such stockholders to waive certain rights and preferences.

If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back, or eliminate the development of business opportunities and our operations and financial condition may be materially adversely affected.

Contractual Obligations and Commitments

On July 13, 2023, we entered into a lease in Redmond, WA for 15,567 square feet of office and warehouse space which started 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 February 29, 2024, we extended a lease in Moorestown, North Carolina.

The Company leases 3,621 square feet and the net monthly payment is $6,488.

The lease expires on July 29, 2024.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

We evaluate our estimates and assumptions on an ongoing basis.

Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment.

To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be affected.

We believe that the significant accounting policies described in “ Note 2, Summary of Significant Accounting Policies ” to our audited consolidated financial statements are accurate and complete.

The critical accounting estimates and policies during the three months ended March 31, 2024 have not materially changed to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

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 2. Management’s Discussion and Analysis