UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from to
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PYROPHYTE ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
PYROPHYTE ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| June 30 | December 31 | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Due from related party | ||||||||
| Total current assets | ||||||||
| Investments and cash held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION, AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Promissory note – extension loan | ||||||||
| Promissory note - working capital loan | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Deferred underwriting fees payable | ||||||||
| Derivative warrant liabilities | ||||||||
| Deferred legal fees | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Class A ordinary shares subject to possible redemption, $ | ||||||||
| Shareholders’ Deficit | ||||||||
| Preference shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
PYROPHYTE ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For The Three | For The Three | For The Six | For The Six | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| General and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ||||||||||||||
| Gain on investments held in Trust Account | ||||||||||||||||
| Other income | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
PYROPHYTE ACQUISITION CORP.
CONDENSED STATEMENTS OF ORDINARY SHARES SUBJECT
TO POSSIBLE REDEMPTION AND
SHAREHOLDERS’ DEFICIT
For the three and six months ended June 30, 2023
(Unaudited)
| Ordinary Shares Subject to | ||||||||||||||||||||||||||||||||||||
Possible Redemption | Ordinary Shares | Additional | Total | |||||||||||||||||||||||||||||||||
Class A | Class A | Class B | Paid-In | Accumulated | Shareholders’ | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | — | $ | — | $ | $ | — | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | — | $ | — | $ | $ | — | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Redemption of Class A ordinary shares | ( | ) | ( | ) | — | — | ||||||||||||||||||||||||||||||
| Conversion of Class B ordinary shares to Class A ordinary shares | — | ( | ) | ( | ) | — | — | — | ||||||||||||||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
For the three and six months ended June 30, 2022
(Unaudited)
| Ordinary Shares Subject to | ||||||||||||||||||||||||||||
| Possible Redemption | Ordinary Shares | Additional | Total | |||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income (restated) | — | |||||||||||||||||||||||||||
| Balance as of March 31, 2022 (restated) | $ | | $ | $ | — | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance as of June 30, 2022 | — | ( | ) | ( | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
PYROPHYTE ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For The Six Months Ended June 30, 2023 | For The | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Gain on investments held in Trust Account | ( | ) | ( | ) | ||||
| Change in fair value of derivative warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Due from related party | ( | ) | ||||||
| Accounts payable | ||||||||
| Deferred legal fees | ||||||||
| Accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Redemption of Class A ordinary shares | ||||||||
| Deposit into the Trust Account in connection with Convertible promissory note | ( | ) | ||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Redemption of Class A ordinary shares | ( | ) | ||||||
| Proceeds from Promissory note – extension loan | — | |||||||
Proceeds from Promissory note – working capital loan | ||||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Remeasurement of Class A ordinary shares to redemption value | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
PYROPHYTE ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1- Description of Organization, Business Operations, Going Concern and Basis of Presentation
Pyrophyte Acquisition Corp. (the “Company”) is a blank check company incorporated in Cayman Islands on February 12, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of June 30, 2023, the Company had not yet commenced any operations. All activity for the period from February 12, 2021 (inception) through June 30, 2023 relates to the Company’s formation and the preparation of the initial public offering (the “Initial Public Offering”) described below, and since 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 its initial business combination, at the earliest. The Company generates non-operating income in the form of interest income on investments from the proceeds derived from the Initial Public Offering.
The Company’s sponsor
is Pyrophyte Acquisition LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s
Initial Public Offering was declared effective on October 26, 2021. On October 29, 2021, the Company consummated its Initial Public Offering
of
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial
Public Offering and the Private Placement, $
On
April 24, 2023 the Company received shareholder approval to amend its Amended and Restated Memorandum and Articles of Association
(the “Charter”) to extend (the “Extension”) the date by which it must complete an initial business
combination from April 29, 2023 to April 29, 2024 (the “Extended Date”). As a result of the Extension receiving approval
for the Company’s shareholders, the Sponsor agreed to loan the Company an amount equal to the lesser of (i) $
The
shareholders also approved a proposal to amend the Charter to permit the
Company’s board of directors (the “Board”), in its sole discretion, to elect to wind up the Company’s
operations on an earlier date than the Extended Date as determined by the Board and included in a public announcement. The
shareholders also approved a proposal to amend the Charter to
eliminate 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 $
In
connection with the vote to approve the Extension, the holders of
5
The Company’s
management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and sale of
the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating
a Business Combination. The New York Stock Exchange rules provide that the Business Combination must occur with one or more target businesses
that together have an aggregate fair market value equal to at least
The Company will provide
its holders of the outstanding Public Shares (the “Public Shareholders”) with the opportunity to redeem all or a portion of
their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholders meeting called to approve
the Business Combination or (ii) by means of a tender offer. In connection with an initial business combination, the Company may seek
shareholder approval of a Business Combination at a meeting called for such purpose at which public shareholders may seek to redeem their
shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only
if the Company has net tangible assets of at least $
If the Company seeks shareholder
approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended
and Restated Certificate of Incorporation 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 seeking redemption rights with respect to
The Public Shareholders will
be entitled to redeem their shares for a pro rata portion of the amount then in the Trust Account (initially $
If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (the “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 a Business Combination.
The Company’s initial shareholders agreed (a) to vote its Founder Shares (as defined in Note 4) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s amended and restated memorandum and articles of association with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting Public Shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Founder Shares) and Private Placement Warrants (including underlying securities) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the amended and restated memorandum and articles of association relating to shareholders’ rights of pre- Business Combination activity and (d) that the Founder Shares and Private Placement Warrants (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
6
If the Company is unable
to complete a Business Combination by the Extended Date, the Company will (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the 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 on the funds held in the
Trust Account, which interest shall be net of taxes payable and $
The Sponsor agreed that it
will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company,
or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement
or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $
Risk and Uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. Management continues to evaluate the impact of the COVID-19 outbreak on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The credit and financial markets have experienced extreme volatility and disruptions due to the current conflict between Ukraine and Russia. The conflict is expected to have further global economic consequences, including but not limited to the possibility of severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in inflation rates and uncertainty about economic and political stability. In addition, the United States and other countries have imposed sanctions on Russia which increases the risk that Russia, as a retaliatory action, may launch cyberattacks against the United States, its government, infrastructure and businesses. Any of the foregoing consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of our ordinary shares to be adversely affected.
7
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 independent registered public accounting firm 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 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.
Liquidity and Capital Resources and Going Concern
As of June 30, 2023, the
Company had $
As a result of the above, in connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern,” management has determined that the liquidity conditions and the proximity to liquidation date raises 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 April 29, 2024. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires 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 unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates are related to the fair value of the warrants.
Making 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 unaudited condensed 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.
8
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair statement of the financial position, operating results and cash flows for the periods presented and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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. The interim results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods.
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. As of June 30, 2023 and
December 31, 2022, the Company had cash of $
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may
exceed the Federal depository insurance coverage of $
Investments and cash held in Trust Account
As of June 30, 2023 and December 31, 2022, the assets held in the Trust Account were held in money market funds and cash. The Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Interest income is included in interest earned on the marketable securities held in the Trust in the accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Net Income Per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income per ordinary share is computed by dividing net income by the weighted average number of ordinary share outstanding during the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and Private Placements to purchase Class A ordinary shares in the calculation of diluted income per share, since their inclusion is contingent on a future event. As a result, diluted income per share is the same as basic income per share for the periods presented.
The Company historically has two classes of ordinary shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Upon the conversion event in April 2023 to convert Class B Ordinary shares into Class A Ordinary Shares, the Company now has Class A redeemable and non-redeemable Ordinary Shares. Income and losses are shared pro rata between the redeemable and non-redeemable ordinary shares. Net income per share, basic and diluted for redeemable Class A ordinary shares is calculated by dividing the pro rata allocation of net income to redeemable Class A ordinary shares for the three and six months ended June 30, 2023 and for the three and six months ended June 30, 2022 by the weighted average number of redeemable Class A ordinary shares outstanding for the periods. Net income per share basic and diluted for non-redeemable ordinary shares is calculated by dividing the pro rata allocation of net income to non-redeemable ordinary shares or the three and six months ended June 30, 2023 and for the three and six months ended June 30, 2022 by the weighted average number of non-redeemable ordinary shares outstanding for the periods. Remeasurement associated with the redeemable shares of Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
9
A reconciliation of the net income per ordinary share is as follows
| For The Three | For The Three | For The Six | For The Six | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Redeemable Class A Ordinary Shares | ||||||||||||||||
| Numerator: Net Income allocable to Redeemable Class A Ordinary Shares | $ | $ | $ | $ | ||||||||||||
| Denominator: Weighted Average Share Outstanding, Redeemable Class A Ordinary Shares | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Non-Redeemable Ordinary Shares | ||||||||||||||||
| Numerator: Net Income allocable to Non-Redeemable Ordinary Shares | $ | $ | $ | $ | ||||||||||||
| Denominator: Weighted Average Share Outstanding, Non-Redeemable Ordinary Shares | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Class A Ordinary Shares Subject to Possible Redemption
All of the Class A ordinary shares sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation if there is a shareholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
The reconciliation of Class A ordinary shares subject to possible redemption as of June 30, 2023 and December 31, 2022 is as follows:
| Shares | Amount | |||||||
| Class A ordinary shares subject to possible redemption at December 31, 2021 | $ | |||||||
| Remeasurement of Class A ordinary shares to redemption value | ||||||||
| Class A ordinary shares subject to possible redemption at December 31, 2022 | $ | |||||||
| Remeasurement of Class A ordinary shares to redemption value | ||||||||
| Redemption of Class A ordinary shares | ( | ) | ( | ) | ||||
| Class A ordinary shares subject to possible redemption at June 30, 2023 | $ | |||||||
10
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 date. 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 tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 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; and |
| ● | Level 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.
Fair Value of Financial Instruments
As of June 30, 2023 and December 31, 2022, the carrying values of cash, accounts payable, and accrued expenses, which qualify as financial instruments under the FASB ASC 820, “Fair Value Measurements and Disclosures,” approximate the carrying amounts represented in the balance sheets.
The fair value of warrants issued in connection with the Initial Public Offering were initially measured at fair value using a Monte Carlo simulation model for the Public Warrants and Private Placement Warrants. As of June 30, 2023 and December 31, 2022, the fair value of the Public Warrants are now valued based on the listed market price of the Public Warrants since they began trading on December 17, 2021. As of June 30, 2023 and December 31, 2022, the fair value of the Private Placement Warrants were measured by reference to the trading price of the Public Warrants, which is considered to be a Level 2 fair value measurement.
Offering Costs
Offering costs consist of legal, accounting, underwriting and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering. Upon the completion of the Initial Public Offering, the offering costs were allocated using the relative fair values of the company ordinary shares and its warrants. The costs allocated to warrants were recognized in other expenses and those related to the Company’s ordinary shares were charged to temporary equity.
Derivative Instruments
The Company does not use derivative instruments to hedge its exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including issued warrants to purchase its Class A ordinary shares, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Company determined that
the conversion option embedded in its Promissory Note – Extension Loan and the Promissory Note – Working Capital (“Promissory
Notes”) should be bifurcated and accounted for as a derivative in accordance with ASC 815. However, the exercise price of the underlying
warrants was greater than the closing price of the Company’s Class A ordinary shares as of June 30, 2023, and when the Promissory
Notes were drawn on. The Company believes that the likelihood of the Sponsor’s exercise of the option to convert the Promissory
Notes to warrants is de minimis. As a result, the Company recorded liability related to the conversion option on the Promissory Notes.
As of June 30, 2023, $
11
The Company issued
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements 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 recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties for the three and six months ended June 30, 2023 and June 30, 2022. 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. As such, the Company’s tax provision was zero for the periods presented.
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statement.
Note 3 - Initial Public Offering
Pursuant to the Initial Public
Offering, the Company sold
Note 4 – Related Party Transactions
Class B Founder Shares
On February 24, 2021, the
Sponsor paid $
On September 29, 2021, the
Sponsor effected a surrender of
12
Private Placement Warrants
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the Private Placement of
Each warrant is exercisable
to purchase
Promissory Note
The Sponsor agreed to
loan the Company an aggregate of up to $
Convertible Promissory Notes
Promissory Note – Extension Loan
In connection with the
Extension, The Sponsor agreed to loan the Company an amount equal to the lesser of (i) $
In connection with the
first Contribution, on May 4, 2023, the Company issued a convertible promissory note to the Sponsor with a principal amount up to
$
The Company determined that
the conversion option should be bifurcated and accounted for as a derivative in accordance with ASC 815. However, the exercise price of
the underlying warrants was greater than the closing price of the Company’s Class A ordinary shares as of June 30, 2023, and when
the convertible promissory note was drawn on. The Company believes that the likelihood of the Sponsor’s exercise of the option to
convert the convertible promissory note to warrants is de minimis. As a result, the Company recorded zero liability related to the conversion
option. As of June 30, 2023, $
Promissory Note – Working Capital Loan
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”).
If the Company completes an initial business combination, the Company would repay the Working Capital Loans out of the proceeds of the
Trust Account released to the Company. In 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. The Working Capital Loans would either be repaid upon consummation of an initial business combination
or, at the lender’s discretion, up to $
13
Administrative Support Agreement
Commencing on the date of
the Initial Public Offering, the Company has paid the Sponsor $
For the six months ended
June 30, 2023 and June 30, 2022, the Company reimbursed management $
Due from Related Party
As of June 30, 2023 and December
31, 2022, the Company was due $
Note 5 – Commitments & Contingencies
Registration and Shareholder Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans, if any (and any Class A ordinary share issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the working capital loans), will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to the consummation of the Initial Public Offering. These holders will be entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement will provide that we will not be required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock- up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
14
Underwriting Agreement
The Company granted the underwriter
a 45-day option to purchase up to
The underwriter was entitled
to a cash underwriting discount of
Investment Advisory Agreement
On November 5, 2021, the
Company entered into an investment advisory agreement with Clean Energy Associates, LLC (“Clean Energy”, pursuant to which
Clean Energy will serve as an investment advisor in connection with the Company’s initial Business Combination. If the Company enters
into a letter of intent with a potential target that has been introduced to it by Clean Energy, it shall pay Clean Energy a cash success
fee of $
Financial Advisory Agreements
On March 28, 2022 the Company
engaged UBS Securities LLC (“UBS”), the underwriter in the Initial Public Offering, as a financial advisor and capital markets
advisor in connection with a specified de-SPAC transaction. The Company will pay UBS a cash fee for such services upon the consummation
of such transaction in an amount equal to $
On November 8, 2021 the Company
engaged Atrium Partners A/S (“Atrium”), as a financial advisor in relation to the potential acquisition of one or more companies
in a specific industry. The Company will pay Atrium a cash fee for such services upon the consummation of such transaction in an amount
equal to
On September 26, 2022 the
Company reengaged Atrium, as a financial advisor in relation to the potential acquisition of one or more companies in a specific industry
under the term of the new agreement the Company will pay Atrium a weekly retainer for all weeks they are engaged in the acquisition efforts
as well as a success fee for such services upon the consummation of such transaction in an amount equal to
Note 6 — Derivative Warrant Liabilities
The Company accounted for
the
15
Additionally, certain adjustments to the settlement amount of the Private Placement Warrants are based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under ASC 815-40, and thus the Private Placement Warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting.
The accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon issuance of the warrants at the closing of the Initial Public Offering. Accordingly, the Company expects to classify each warrant as a liability at its fair value. The Public Warrants will be allocated a portion of the proceeds from the issuance of the Units equal to its fair value determined with the assistance of a professional independent valuation firm. The warrant liability is subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statements of operations. The Company will reassess the classification of the warrants at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification
Public Warrants may only
be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public
Warrants will trade. The Public Warrants will become exercisable
The warrants have an exercise
price of $
16
The Private Placement Warrants are identical to the Public Warrants, except that, so long as they are held by the Sponsor or its permitted transferees, (i) they will not be redeemable by the Company, (ii) they (including the Class A ordinary share issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the Sponsor until 30 days after the completion of the initial business combination, (iii) they may be exercised by the holders on a cashless basis and (iv) are subject to registration rights.
If a tender offer, exchange
or redemption offer shall have been made to and accepted by the holders of the Class A ordinary share and upon completion of such offer,
the offeror owns beneficially more than
Redemption of warrants
when the price per share of Class A ordinary share equals or exceeds $
| ● | in whole and not in part; |
| ● | at
a price of $ |
| ● | upon a minimum of 30 days’ prior written notice of redemption; and |
| ● | if,
and only if, the last reported sale price (the “closing price”) of Class A ordinary share equals or exceeds $ |
The Company will not redeem the warrants as described above unless an effective registration statement under the Securities Act covering the Class A ordinary share issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A ordinary share is available throughout the 30-day redemption period. Any such exercise would not be on a cashless basis and would require the exercising warrant holder to pay the exercise price for each warrant being exercised.
Redemption of warrants
when the price per share of Class A ordinary share equals or exceeds $
| ● | in whole and not in part; |
| ● | at
a price of $ |
| ● | if,
and only if, the closing price of Class A ordinary share equals or exceeds $ |
| ● | if
the closing price of the Class A ordinary share for any 20 trading days within a 30-trading day period ending on the third trading day
prior to the date on which we send the notice of redemption to the warrant holders is less than $ |
17
In no event will the Company be required to net cash settle any warrant. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Note 7 – Shareholders’ Deficit
Preference shares - The Company
is authorized to issue
Class A ordinary shares -
The Company is authorized to issue
Class B ordinary shares -
The Company is authorized to issue
Holders of the Class A ordinary shares and holders of the Class B ordinary shares will vote together as a single class on all matters submitted to a vote of the Company’s shareholders, except as required by law or stock exchange rule.
18
Note 8 – Fair Value Measurements
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Investments and cash held in trust account | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Public warrants | $ | $ | $ | |||||||||
| Private placement warrants | ||||||||||||
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 by level within the fair value hierarchy:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | ||||||||||||
| Investments and cash held in trust account | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Public warrants | $ | $ | $ | |||||||||
| Private placement warrants | ||||||||||||
The fair value of the Public Warrants issued in connection with the Public Offering and Private Placement Warrants were initially measured at fair value using a Monte Carlo simulation model. The fair value of Public Warrants issued in connection with the Initial Public Offering have been measured based on the listed market price of such warrants, a Level 1 measurement, since December 17, 2021, which was the date the Public Warrants detached from the Units. The close price of the Public Warrants on the New York Stock Exchange was used as the primary input to the fair value of the Public Warrants as of each relevant date subsequent to December 17, 2021. The measurement of the Public Warrants after the detachment of the Public Warrants from the Units is classified as Level 1 due to the use of an observable market quote in an active market. The subsequent measurements of the Private Placement Warrants after the detachment of the Public Warrants from the Units are classified as Level 2 due to the use of an observable market quote for a similar asset in an active market.
There was zero trading volume of the Company’s public warrants on June 30, 2023, a level 2 measurement. The fair value of the Private Placement Warrants has subsequently been measured by reference to the trading price of the Public Warrants, which is considered to be a Level 2 fair value measurement.
Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. For the three months ended June 30, 2023, the public warrants were transferred from level 1 to level 2 due to there being zero trading volume on June 30, 2023. For the six months ended June 30, 2022, the private warrants transferred from level 3 to level 2 as the Company referenced to the price of the public warrant rather than a level 3 input. There were no other transfers to/from any level for the three and six months ended June 30, 2023 and 2022.
Note 9 – Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date the unaudited condensed financial statements were issued. The Company did not identify any other subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements, excluding the item discussed below.
On July 11, 2023, in
connection with the Company extension arrangement, the Sponsor advanced $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Pyrophyte Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Pyrophyte Acquisition LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly 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 includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company annual report for December 31, 2022 on Form 10-K filed with the SEC on April 12, 2023. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of Cayman Islands on February 12, 2021 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. While we may pursue an initial business combination opportunity in any industry or sector, we will seek targets around the world that we believe are market leaders in facilitating energy transition toward decarbonization and sustainable use of energy and natural resources, and are positioned to generate long-term value and growing cash flows. In particular, we will seek to identify companies provide the necessary products, equipment, services and technologies to support the energy transition, without the need to have their business rely solely on a single type of technology. We believe our leadership team’s broad and diverse global network of transaction sources and relationships across a wide spectrum of renewable energy sectors will allow us to effectively and efficiently identify and evaluate potential opportunities for our initial business combination.
We intend to effectuate our business combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, and our capital stock, debt or a combination of cash, stock and debt. Our registration statement for the Initial Public Offering became effective on October 26, 2021. We consummated the Initial Public Offering of 20,125,000 Units on October 29, 2021. Each Unit consisted of one Class A ordinary share and one-half of one redeemable warrant, including the issuance of 2,625,000 Units as a result of the underwriter’s exercise of its over-allotment option in full. Each Unit consists of one Class A ordinary share and one-half of one redeemable warrant, with each public warrant entitling the holder thereof to purchase one Class A ordinary share for $11.50 per share, subject to adjustment. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to the Company of $201,250,000, and incurred $11,068,750 in underwriting fees (inclusive of $8,443,750 in deferred underwriting fees).
20
Simultaneously with the closing of the Initial Public Offering on October 29, 2021, we completed the closing of the Private Placement of an aggregate 10,156,250 Private Placement Warrants at a price of $1.00 per Private Placement Warrant to the Sponsor, generating proceeds of $10,156,250.
Upon the closing of the Initial Public Offering, the over-allotment and the Private Placement, $206,281,250 ($10.25 per unit) of the net proceeds of the sale of the Units in the Initial Public Offering, the over-allotment and the Private Placement were placed in the Trust Account with Continental Stock Transfer & Trust Company acting as trustee and invested in United States government treasury bills with a maturity of 185 days or less or in money market funds investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 under the Investment Company Act, as determined by us, until the earlier of: (i) the completion of a business combination and (ii) the distribution of the Trust Account as described below.
On April 24, 2023 we held an extraordinary general meeting (the “EGM”), pursuant to which its shareholders approved an amendment to our amended and restated articles of incorporation (the “Charter”) to, among other things, extend the date in which we have to consummate a business combination from April 29, 2023 to April 29, 2024 (the “Extension”) and provide for the conversion of Class B ordinary shares of the Company, par value $0.0001 per share (the “Class B Ordinary Shares”) into Class A ordinary shares, par value $0.0001 per share (the “Class A Ordinary Shares”) (the “Founder Share Amendment”). In connection with the vote to approve the Extension, the holders of 11,151,163 Class A ordinary shares exercised their right to redeem their shares for cash at a redemption price of approximately $10.56 per share, for an aggregate redemption amount of approximately $118 million.
Our management and our board of directors have broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering, the over-allotment and the sale of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a business combination.
If we have not completed our initial business combination within the Combination Period, we will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the 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 on the funds held in the Trust Account and not previously released to us to pay our income taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the 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 board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii), to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
On April 28, 2023, in connection with the Founder Share Amendment and pursuant to the Charter, the Sponsor elected to convert 5,031,250 Class B Ordinary Shares held by it into Class A Ordinary Shares on a one-for-one basis for no consideration.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities since February 12, 2021 (inception) have been organizational activities and those necessary to prepare for the IPO. Following the IPO, 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 the investments held in the Trust Account. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. After the IPO, 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. We expect our expenses to increase substantially after the closing of the IPO.
For the six months ended June 30, 2023, we had a net income of $1,988,475, which consists of general and administrative expenses of $1,027,500 and a loss in fair value of derivative warrant liabilities of $481,207, offset by a gain on investments held in Trust Account of $3,497,182.
For the six months ended June 30, 2022, we had a net income of $4,028,877, which consists of general and administrative expenses of $1,779,811, offset by a gain in fair value of derivative warrant liabilities of $5,441,268, a gain on investments held in Trust Account of $367,403, and other income of $17.
Liquidity and Capital Resources
Prior to the consummation of our Public Offering, our only sources of liquidity were an initial purchase of Founder Shares for $25,000 by the Sponsor, and no loans and advances from the Sponsor.
On October 29, 2021, we consummated the Initial Public Offering of 20,125,000 Units at a price of $10.00 per Unit, generating gross proceeds of $201,250,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 10,156,250 Private Placement Warrants to the Sponsor at a price of $1.00 per Private Placement Warrant, generating gross proceeds of $10,156,250.
21
Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $206,281,250 (equal to $10.25 per Unit) was placed in the Trust Account, and we had $1,195,395 of cash held outside of the Trust Account, after payment of costs related the Initial Public Offering, and available for working capital purposes.
For the six months ended June 30, 2023, cash used in operating activities was $84,426. This was made up of a net income of $1,988,475, changes in operating assets and liabilities of $943,074, offset by a change in fair value of derivative warrant liabilities of $481,207 and a $3,497,182 gain on investments held in Trust Account.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, excluding deferred underwriting commissions, to complete our initial business combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete a business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, structure, negotiate and complete a business combination.
Going Concern Considerations
As of June 30, 2023, the Company had $1 in cash and no cash equivalents. Further, the Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. Management’s plans to address this need for capital through the Proposed Public Offering. The Company cannot assure that its plans to consummate an initial Business Combination will be successful. If the Company’s estimates of the costs of identifying a target business, undertaking in-depth due diligence, and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to an initial business combination. The liquidation deadline for the Company is also within the next twelve months if an initial Business Combination is not consummated.
As a result of the above, in connection with the Company’s assessment of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern,” management has determined that the liquidity conditions and the proximity to liquidation date raises 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 April 29, 2024. These unaudited condensed financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements as of June 30, 2023 and December 31, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Commitments and Contractual Obligations
For the six months ended June 30, 2023 and 2022, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of working capital loans) are entitled to registration rights pursuant to a registration rights agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. These holders will be entitled to certain demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements.
22
Underwriting Agreement
We granted the underwriter a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to 2,625,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. On October 29, 2021, the underwriter fully exercised its over-allotment option.
Additionally, the underwriter was entitled to a deferred underwriting discount of 4% of the gross proceeds of the base portion of the Public Offering and a deferred underwriting discount of 5.5% of the gross proceeds per over-allotment unit upon the completion of the Company’s initial business combination.
Administrative Support Agreement
The Company agreed to pay the Sponsor a total of $15,000 per month, commencing on the effective date of the Initial Public Offering, for office space, utilities, secretarial and administrative support services provided to members of the management team, which included payment of $10,000 per month to our former Chief Financial Officer and Executive Vice President of Business Development. Upon completion of the initial business combination or the liquidation, we will cease paying these monthly fees. On July 1, 2022 the Company amended the administrative support agreement with the Sponsor from $15,000 a month to $5,000 a month. The Company had incurred $30,000 and $90,000 for the six months ended June 30, 2023 and, 2022, respectively, in Sponsor administrative fees.
Promissory Note – Extension Loan
In connection with the Extension, The Sponsor agreed to loan the Company an amount equal to the lesser of (i) $0.04 per public share multiplied by the number of public shares then outstanding and (ii) $160,000, for each calendar month beginning on April 30, 2023 until the earlier of (i) the completion of a business combination and (ii) the Company’s liquidation. On April 30, 2023, the Sponsor advanced $160,000 to the Company the first Contribution for the first month of extension.
In connection with the first Contribution, on May 4, 2023, the Company issued the Note for working capital expenses (as discussed in Note 1). The Note bears no interest and is repayable in full upon the earlier of the consummation of the Company’s initial business combination, or the liquidation of the Company. If the Company does not consummate an initial business combination within the Combination Period, the Note will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. Upon maturity, the outstanding principal of the Note may be converted into warrants identical to the Private Placement warrants, at a price of $1.00 per warrant, at the option of the Sponsor. As of June 30, 2023, $160,000 has been drawn on the Note.
Promissory Note – Working Capital Loan
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. If the Company completes an initial business combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. In 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. The Working Capital Loans would either be repaid upon consummation of an initial business combination or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into Private Placement Warrants of the post-initial business combination entity at a price of $1.00 per warrant. Except 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 June 30, 2023 and December 31, 2022, the Company had $71,055 and $0 outstanding under the Working Capital Loans.
Other Commitments
On November 5, 2021 the Company entered into an investment advisory agreement with Clean Energy Associates, LLC (“Clean Energy”, pursuant to which Clean Energy will serve as an investment advisor in connection with the Company’s initial Business Combination. If the Company enters into a letter of intent with a potential target that has been introduced to it by Clean Energy, it shall pay Clean Energy a cash success fee of $40,000. Clean Energy shall also be paid a retainer of up to $40,000. This agreement was subsequently terminated. For the period ended June 30, 2023 and 2022 there were no amounts incurred and accrued for Clean Energy.
On March 28, 2022 the Company engaged UBS, the underwriter in the Initial Public Offering, as a financial advisor and capital markets advisor in connection with a specified de-SPAC transaction. The Company will pay UBS a cash fee for such services upon the consummation of such transaction in an amount equal to $3,000,000. The letter of intent related to this agreement expired on July 1, 2022 and as such rendered this agreement void and no future accrual or expense will be booked. The agreement provided for up to $25,000 in reimbursable fees to UBS and as of the expiration date of the agreement, there are no reimbursable fees incurred by the Company.
On November 8, 2021 the Company engaged Atrium as a financial advisor in relation to the potential acquisition of one or more companies in a specific industry. The Company will pay Atrium a cash fee for such services upon the consummation of such transaction in an amount equal to 1% of the enterprise value of the target company at the time of closing. This agreement was terminated in February 2022. For the six months ended June 30, 2023 and 2022 the Company had incurred and paid $0 and $30,225, respectively, related to the Atrium agreement.
On September 26, 2022 the Company reengaged Atrium as a financial advisor in relation to the potential acquisition of one or more companies in a specific industry under the term of the new agreement the Company will pay Atrium a weekly retainer for all weeks they are engaged in the acquisition efforts as well as a cash fee for such services upon the consummation of such transaction in an amount equal to 1% of the enterprise value of the target company at the time of closing. For the six months ended June 30, 2023 and 2022 there were $0 and $30,225, respectively, of amounts, as well as 0.75% of any additionally raised capital to fund such transaction, incurred for Atrium under the terms of the new agreement. No expenses were incurred in the three months ended June 30, 2023 and 2022.
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Critical Accounting Policies and Estimates
Class A Ordinary Shares Subject to Possible Redemption
All of the Class A ordinary shares sold as part of the Units in the IPO contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation if there is a shareholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
Net Income Per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income per ordinary share is computed by dividing net income by the weighted average number of ordinary share outstanding during the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and Private Placements to purchase Class A ordinary shares in the calculation of diluted income per share, since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted income per share is the same as basic income per share for the period presented.
The Company historically has two classes of ordinary shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Upon the conversion event in April 2023 to convert Class B Ordinary shares into Class A Ordinary Shares, the Company now have Class A redeemable and non-redeemable Ordinary Shares. Income and losses are shared pro rata between the redeemable and non-redeemable ordinary shares. Net income per share, basic and diluted for redeemable Class A ordinary shares is calculated by dividing the pro rata allocation of net income to redeemable Class A ordinary shares for the three and six months ended June 30, 2023 and for the three and six months ended June 30, 2022 by the weighted average number of redeemable Class A ordinary shares outstanding for the periods. Net income per share basic and diluted for non-redeemable ordinary shares is calculated by dividing the pro rata allocation of net income to non-redeemable ordinary shares or the three and six months ended June 30, 2023 and for the three and six months ended June 30, 2022 by the weighted average number of non-redeemable Class A ordinary shares outstanding for the periods. Remeasurement associated with the redeemable shares of Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
Derivative Instruments
The Company does not use derivative instruments to hedge its exposures to cash flow, market, or foreign currency risks. Management evaluates all of the Company’s financial instruments, including issued warrants to purchase its Class A ordinary shares, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Company issued 10,062,500 Public Warrants to purchase Class A ordinary shares to investors in the Company’s Initial Public Offering and simultaneously issued 10,156,250 Private Placement Warrants. All of the Company’s outstanding warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust 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 our statement of operations. The Company initially utilized a Monte Carlo simulation model to value the Public Warrants and Private Placement Warrants at each balance sheet date, with changes in fair value recognized in the statement of operations. Inherent in pricing models are assumptions and inputs used to arrive the fair value of the Public and Private Placement warrants. The subsequent measurements of the Public Warrants after the detachment of the Public Warrants from the Units on December 17, 2021 were classified as Level 1 due to the use of an observable market quote in an active market under the ticker PHYT.WS. There was zero trading volume of the Company’s public warrants on June 30, 2023, a level 2 measurement. The close price of the Public Warrant was used as the fair value of the Public Warrants as of June 30, 2023. The Private Placement Warrants have a make-whole provision in place, which will enable them to have a fair value similar to Public Warrants as of June 30, 2023.
Both the Promissory Note- Extension Loan and Promissory Note- Working Capital (“Promissory Notes”), contain a conversion feature, for which upon maturity, the outstanding principal of the Promissory Notes, at the option of the Sponsor, may be converted into warrants identical to the Private Placement capital warrants. The Company determined that the conversion option should be bifurcated and accounted for as a derivative in accordance with ASC 815. However, the exercise price of the underlying warrants was greater than the closing price of the Company’s Class A ordinary shares as of June 30, 2023, and when the Promissory Notes were drawn on. The Company believes that the likelihood of the Sponsor’s exercise of the option to convert the Promissory Notes to warrants is de minimis. As a result, the Company recorded zero liability related to the conversion option on the Promissory Notes.
Investments and cash held in the Trust Account
Our portfolio of investments held in the Trust Account is money market funds solely comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities, or a combination thereof. The investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in net gain from investments held in Trust Account on the statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
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Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Item 3. 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.
Item 4. Controls and Procedures.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report, as of June 30, 2023, an evaluation was performed under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on such evaluation, our CEO and CFO concluded that, as of June 30, 2023, our disclosure controls and procedures were not effective, due to the material weaknesses in our internal control over financial reporting related to the recording of accruals and the accounting for complex financial instruments, as previously disclosed in our quarterly reports and our Form 10-K. As a result, we performed additional analysis as deemed necessary to ensure that our condensed financial statements were prepared in accordance with GAAP. Accordingly, management believes that the condensed financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 12, 2023. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits.
| * | Filed herewith. |
| ** | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: August 21, 2023 | PYROPHYTE ACQUISITION CORP. | |
| By: | /s/ Bernard J. Duroc-Danner | |
| Name: | Bernard J. Duroc-Danner | |
| Title: |
Chief Executive Officer and Chairman (Principal Executive Officer) | |
| Dated: August 21, 2023 | By: | /s/ Sten Gustafson |
| Name: | Sten Gustafson | |
| Title: |
Chief Financial Officer and Director (Principal Financial Officer) | |
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