Business Context and Reporting Period
Date: June 27, 2023
Registrant: BYTE Acquisition Corp. (BYTS)
Target: Airship AI Holdings, Inc.
Event: Entry into a Material Definitive Agreement (Merger Agreement) for a Business Combination.
BYTE Acquisition Corp., a Cayman Islands exempted company, entered into a merger agreement to acquire Airship AI Holdings, Inc., a Washington corporation. Airship AI operates an AI-driven edge video, sensor, and data management platform for government agencies and enterprises. Upon closing, BYTS will domesticate as a Delaware corporation, rename itself "Airship AI Holdings, Inc.," and Airship AI will become a wholly-owned subsidiary.
Key Financial Metrics and Deal Structure
Aggregate Merger Consideration: Airship AI equityholders will receive 22.5 million Parent Common Shares in exchange for all outstanding equity interests (Common Stock, Options, Earnout Warrants, and SARs).
Earnout Provisions: Up to 5 million additional Parent Common Shares are contingent on performance milestones:
- First Operating Performance Milestone (25% of Earnout): Revenue of at least $39 million OR 100% growth in Federal law enforcement contract awards within the first year post-closing.
- Second Operating Performance Milestone (75% of Earnout): Revenue of at least $100 million within three years post-closing.
- First Share Price Milestone (50% of Earnout): VWAP of Parent Common Shares $\ge$ $12.50 over 20 trading days within a 30-day period within five years.
- Second Share Price Milestone (50% of Earnout): VWAP of Parent Common Shares $\ge$ $15.00 over 20 trading days within a 30-day period within five years.
Liquidity and Cash Requirements: The closing is conditioned on the combined entity having at least $5,000,001 in net tangible assets and a minimum of $7 million in cash remaining in the trust account plus permitted financings.
Financial Statements: The filing does not provide specific revenue, profit, or cash flow figures for Airship AI or BYTS. It notes that Airship AI must provide audited financial statements for the years ended December 31, 2022, and 2021, for inclusion in the future Registration Statement.
Material Changes and Conditions
Corporate Structure Change: BYTS will de-register from the Cayman Islands and domesticate in Delaware. Existing Class A shares, warrants, and units will convert to Parent Common Shares and Domesticated Parent Warrants on a one-for-one basis.
Lock-Up Periods:
- Airship AI equityholders are subject to a 180-day lock-up on shares received as Aggregate Merger Consideration.
- Shares issued upon satisfaction of the First Operating Performance Milestone are subject to a 12-month lock-up.
- Sponsor shares are subject to a 180-day lock-up.
Non-Redemption Commitments: BYTS agreed to enter into non-redemption agreements with certain investors to hold or acquire an aggregate of $7 million of BYTS Class A Ordinary Shares.
Termination Rights: The agreement may be terminated if the closing does not occur by September 25, 2023 (the "Outside Date"), unless extended to December 26, 2023 via a proxy statement filed by September 1, 2023.
Guidance, Outlook, and Risks
Management Commentary: The Board of Directors of BYTS has unanimously approved the transaction. Airship AI's executive management is expected to serve as the executive management of the combined company. The combined board will consist of five members, with the Sponsor designating one independent director.
Risks and Contingencies:
- Closing Conditions: Approval by shareholders of both companies, effectiveness of the Registration Statement, Nasdaq listing approval, and meeting the $7 million cash threshold.
- Redemption Risk: The transaction depends on the amount of cash remaining after shareholder redemptions.
- Forward-Looking Statements: The filing includes standard disclaimers regarding projections of market opportunity, unit economics, and future financial performance, noting these are not guarantees.
Investor Verification Checklist
- Verify the final cash balance in the trust account post-redemptions to ensure the $7 million minimum closing requirement is met.
- Review the upcoming Proxy Statement/Prospectus for Airship AI's audited financial statements for 2021 and 2022.
- Monitor the status of the Non-Redemption Agreements and any potential PIPE Financing to confirm capital sufficiency.
- Confirm the timeline for the shareholder vote and the filing of the Registration Statement (Form S-4).
- Assess the feasibility of the earnout milestones ($39M/$100M revenue targets and $12.50/$15.00 stock price targets) based on Airship AI's historical performance and market conditions.