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 SEPTEMBER 30, 2023
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
PYROPHYTE ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Extension contribution due from Sponsor | ||||||||
| 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 | ||||||||
| Accounts payable | $ | $ | ||||||
| Promissory note – extension loan | ||||||||
| Promissory note – working capital loan | ||||||||
| Due to related party | ||||||||
| 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 A ordinary 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 Months Ended September 30, 2023 | For The Three Months Ended September 30, 2022 | For The Nine Months Ended September 30, 2023 | For The Nine Months Ended September 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 nine months ended September 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 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Extension contribution due from Sponsor | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 (as revised) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Extension contribution due from Sponsor | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
For the three and nine months ended September 30, 2022
(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, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance as of September 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 NINE MONTHS ENDED SEPTEMBER 30, 2023 | FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 | |||||||
| 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 | ( | ) | ||||||
| Other current assets | ||||||||
| Deferred legal fees | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Redemption of Class A ordinary shares | ||||||||
| Extension contribution deposit into the Trust Account | ( | ) | ||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities | ||||||||
| Redemption of Class A ordinary shares | ( | ) | ||||||
| Proceeds from Promissory note – extension loan | ||||||||
| Due to related party | ||||||||
| 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 | $ | $ | ||||||
| Extension contribution due from Sponsor | $ | $ | ||||||
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 September 30, 2023, the Company had not yet commenced any operations. All activity for the period from February 12, 2021 (inception) through September 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 or dividend income on investments from the proceeds derived from the Initial Public Offering.
On November 13, 2023, the Company, Sio Silica Corporation, an Alberta corporation (“Sio”), Sio Silica Incorporated, a newly-formed Alberta corporation formed solely for the purpose of engaging in the Proposed Transactions and that is wholly owned by Feisal Somji, a nominee (“Nominee”) of Sio (“Sio Newco”), and Snowbank NewCo Alberta ULC, an Alberta unlimited liability corporation and wholly-owned subsidiary of the Company (“Pyrophyte Newco”) entered into a Business Combination Agreement (“BCA”), subject to terms and conditions.
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”).
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 $
5
In
connection with the vote to approve the Extension, the holders of
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 memorandum and articles of associationprovides 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 memorandum and articles of association, 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.
6
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.
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 or dividend earned on the funds
held in the Trust Account, which interest or dividend 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
Risk and Uncertainties
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 September 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 nine months ended September 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 September 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 September 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 or dividend income is included in gain on investments held in Trust Account in the accompanying unaudited 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 nine months ended September 30, 2023 and for the three and nine months ended September 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 nine months ended September 30, 2023 and for the three and nine months ended September 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
| For The Three Months | For The Three Months | For The Nine Months | For The Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 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 memorandum and articles of association. 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.
| 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 | ||||||||
| Extension contribution due from Sponsor | — |
|||||||
| Redemption of Class A ordinary shares | ( |
) | ( |
) | ||||
| Class A ordinary shares subject to possible redemption at September 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 September 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 September 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 September 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 September 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
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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 nine months ended September 30, 2023 and September 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.
Revisions To Prior Period Financial Statements
In the third quarter of 2023,
the Company identified an error that resulted from the lack of recognizing contributions for the second and third months of the Extension
period in its calculation of Class A ordinary shares subject to possible redemption as of June 30, 2023. This error led to an understatement
of Class A ordinary shares subject to possible redemption and extension contribution due from Sponsor by $
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| As of June 30, 2023 | ||||||||||||
| Condensed Balance Sheet | As previously reported | Adjustments | As revised | |||||||||
| Extension contribution due from Sponsor | $ | $ | $ | |||||||||
| Total current assets | ||||||||||||
| Total assets | ||||||||||||
| Class A ordinary shares subject to possible redemption | ||||||||||||
| Per share price of Class A ordinary shares subject to possible redemption | ||||||||||||
| Total Liabilities, Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit | ||||||||||||
| As of June 30, 2023 | ||||||||||||
Condensed Statements of Changes in Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | As previously reported | Adjustments | As revised | |||||||||
| Extension contribution due from Sponsor | $ | $ | $ | |||||||||
| Balance as of June 30, 2023 of Class A ordinary shares subject to possible redemption | ||||||||||||
| As of June 30, 2023 | ||||||||||||
| Condensed Statements of Cash Flows | As previously reported | Adjustments | As revised | |||||||||
| Non cash investing and financing activities: | ||||||||||||
| Extension contribution due from Sponsor | $ | $ | $ | |||||||||
| Notes to Condensed Financial Statements | As of June 30, 2023 | |||||||||||
| As previously reported | Adjustments | As revised | ||||||||||
| Note 2 — Summary of Significant Accounting Policies | ||||||||||||
| Class A ordinary shares subject to possible redemption rollforward | ||||||||||||
| Extension contribution due from Sponsor | $ | $ | $ | |||||||||
| Class A ordinary shares subject to possible redemption at June 30, 2023 | ||||||||||||
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 $
13
On September 29, 2021, the
Sponsor effected a surrender of
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 September 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.
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Extension Contribution Due from Sponsor
In connection with the Extension, the Sponsor is obligated to fund
the Trust Account with $
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 $
Administrative Support Agreement
Commencing on the date of the Initial Public Offering, the Company
has paid the Sponsor $
For the nine months ended
September 30, 2023 and September 30, 2022, the Company reimbursed management $
Due from Related Party
As of September 30, 2023
and December 31, 2022, the Company was due $
Due to Related Party
As of September 30, 2023 and December 31, 2022,
the Company has an outstanding of $
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.
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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 the 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
In June 2023, the Company
re-engaged UBS as its exclusive capital markets advisor for potential business combination. In October 2023, an amended agreement was
executed between the Company and UBS such that the Company will pay UBS a cash 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
16
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 $
17
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 $ |
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| ● | 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 $ |
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.
19
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 September 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 period. The public warrants were transferred from level 1 to level 2 for the period ended June 30, 2023 due to zero trading volume on June 30, 2023. For the nine months ended September 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 nine months ended September 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 items discussed below.
On October 26, 2023,
the Company and UBS executed an amendment to its engagement letter in its capacity as exclusive capital markets advisor in
connection with the Sio Business Combination to update fees payable to UBS in connection therewith to $
On November 13, 2023, the Company, Sio Silica Corporation, an Alberta corporation (“Sio”), Sio Silica Incorporated, a newly-formed Alberta corporation formed solely for the purpose of engaging in the Proposed Transactions and that is wholly owned by Feisal Somji, a nominee (“Nominee”) of Sio (“Sio Newco”), and Snowbank NewCo Alberta ULC, an Alberta unlimited liability corporation and wholly-owned subsidiary of the Company (“Pyrophyte Newco”), entered into a Business Combination Agreement (the “Business Combination Agreement”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operation--Recent Developments--Proposed Business Combination” for more information.
On November 20, 2023, in connection with the Company extension arrangement,
the Sponsor advanced $
20
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,” the “Company” or “Pyrophyte” 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).
21
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 memorandum and articles of association (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 or dividend 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 or dividend 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.
22
For the three months ended September 30, 2023, we had a net income of $1,362,105, which consists of general and administrative expenses of $547,392 and a loss in fair value of derivative warrant liabilities of $683,395, offset by a gain on investments held in Trust Account of $1,226,102.
For the nine months ended September 30, 2023, we had a net income of $3,350,580, which consists of general and administrative expenses of $1,574,892 and a loss in fair value of derivative warrant liabilities of $202,188, offset by a gain on investments held in Trust Account of $4,723,284.
For the three months ended September 30, 2022, we had a net income of $3,599,837, which consists of general and administrative expenses of $254,584, offset by a loss in fair value of derivative warrant liabilities of $2,830,625 and a gain on investments held in Trust Account of $1,023,730 and other income of $66.
For the nine months ended September 30, 2022, we had a net income of $7,628,714, which consists of general and administrative expenses of $2,034,395, offset by a gain in fair value of derivative warrant liabilities of $8,271,893 and a gain on investments held in Trust Account of $1,391,133 and other income of $83.
Liquidity and Capital Resources
For the nine months ended September 30, 2023, cash used in operating activities was $203,494. This was made up of a net income of $3,350,580, changes in operating assets and liabilities of $1,371,398, offset by a change in fair value of derivative warrant liabilities of $202,188 and a $4,723,284 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 or dividend earned on the Trust Account, excluding deferred underwriting commissions, to complete our initial business combination. We may withdraw interest or dividend 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 September 30, 2023, the Company had $1,933 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 September 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.
23
Commitments and Contractual Obligations
For the nine months ended September 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.
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 incurred $45,000 and $105,000 for the nine months ended September 30, 2023 and September 30, 2022, respectively, in Sponsor administrative fees. For the three months ended September 30, 2023 and 2022, the Company incurred $15,000 and $30,000, respectively.
Due to Related Party
As of September 30, 2023 and December 31, 2022, the Company has an outstanding of $15,000 and $0 respectively due to the Sponsor for administrative support services.
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. As of September 30, 2023, there were Trust Account deposits in connection with the extension loan, totaling $480,000.
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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 September 30, 2023, $480,000 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 September 30, 2023 and December 31, 2022, the Company had $171,055 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 September 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 nine months ended September 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. On November 6, 2022, the agreement was terminated and the Company has no further obligation under such agreement. For the nine months ended September 30, 2023 and 2022 there were $0 and $15,000, 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 September 30, 2023 and 2022.
In June 2023, the Company re-engaged UBS as its exclusive capital markets advisor for potential business combination. In October 2023, an amended agreement was executed between the Company and UBS such that The Company will pay UBS a cash fee for such services upon the consummation of such transaction in an amount equal to $5,000,000. The exclusivity agreement will lapse six months from the effective date of the agreement unless terminated earlier pursuant to the agreement.
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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 memorandum and articles of association. 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 nine months ended September 30, 2023 and for the three and nine months ended September 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 nine months ended September 30, 2023 and for the three and nine months ended September 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 September 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 September 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 September 30, 2023.
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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 September 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 gain on investments held in Trust Account on the unaudited condensed statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
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.
Recent Developments
Proposed Business Combination
On November 13, 2023, Pyrophyte entered into a business combination agreement (the “Business Combination Agreement” and the transactions contemplated thereby, the “Sio Business Combination”) with Pyrophyte (“Pyrophyte Newco”), pursuant to which, among other things and subject to the terms and conditions contained therein, (i) the Company will transfer by way of continuation from the Cayman Islands to Alberta in accordance with the Cayman Islands Companies Act (as revised) (the “Companies Act”) and continue as an Alberta corporation in accordance with the applicable provisions of the Business Corporations Act (Alberta) (the “ABCA”) (such continuation, the “Domestication”), (ii) following the Domestication, Pyrophyte will amalgamate with Sio Newco (the “SPAC Amalgamation”), with Sio Newco surviving the SPAC Amalgamation (“Pubco”) in accordance with the terms of a Plan of Arrangement (the “Plan of Arrangement”), and (iii) Sio and Pyrophyte Newco will amalgamate (the “Sio Amalgamation” and together with the SPAC Amalgamation, the “Amalgamations”), with Sio surviving the Sio Amalgamation as a wholly-owned subsidiary of Pubco and such entity will continue the business operations currently undertaken by Sio. Pyrophyte’s board of directors has unanimously approved and declared advisable the Business Combination and all the transaction documents therein and resolved to recommend approval of the Sio Business Combination Agreement and related matters by Pyrophyte’s shareholders.
Conversion of Securities
Domestication
Pursuant to the Domestication, Pyrophyte will transfer by way of continuation from the Cayman Islands to Alberta in accordance with the Companies Act and continue as an Alberta corporation in accordance with the applicable provisions of the ABCA. In connection with the Domestication, each then-issued and outstanding Class A Ordinary Share will convert automatically, on a one-for-one basis, into one Class A common share of Pyrophyte (after the Domestication) (the “SPAC Class A Common Shares”) and each of the then-issued and outstanding warrant of Pyrophyte will automatically become a warrant to acquire one SPAC Class A Common Share.
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SPAC Amalgamation
Pursuant to the SPAC Amalgamation, which will take place not later than one business day prior to the closing (the “Closing”) of the Sio Business Combination (the “Closing Date”), but after the Domestication, (i) each then-issued and outstanding SPAC Class A Common Share will be exchanged, on a one-for-one basis, for a Class A common share in the authorized share capital of Pubco (the “Pubco Class A Common Shares”), (ii) each then-issued and outstanding warrant of Pyrophyte will become a warrant to acquire one Pubco Class A Common Share (the “Pubco Warrants”), (iii) each then-issued and outstanding unit of Pyrophyte will be exchanged for a unit of Pubco representing one Pubco Class A Common Share and one-half of one Pubco Warrant (the “Pubco Units”) (each of which will be separated into its component parts in connection with the Closing), (iv) each common share of Sio Newco will be exchanged for one Pubco Class A Common Share, and (v) immediately thereafter, the Pubco Class A Common Share will be purchased by Sio Newco for cash at the price initially paid by such shareholder and immediately cancelled, in each case upon and subject to the terms and conditions set forth in the Business Combination Agreement, the Plan of Arrangement and in accordance with the provisions of applicable law.
As a result of the SPAC Amalgamation, all holders of then-issued and outstanding SPAC Class A Common Shares will become holders of Pubco Class A Common Shares.
Sio Amalgamation
Pursuant to the Sio Amalgamation, on the Closing Date and following the exercise on a cashless basis of all then-issued and outstanding warrants (the “Sio Warrants”) and options of Sio for common shares in the authorized share capital of Sio (the “Sio Common Shares”) in accordance with the Plan of Arrangement (the “Sio Warrant and Option Settlement”), (i) each then-issued and outstanding Sio Common Share (other than any Sio Common Shares issued by Sio to certain investors during the interim period (the “Sio Interim Common Shares”)) will be exchanged for (x) a number of Pubco Class A Common Shares equal to the Sio Common Share Exchange Ratio (as defined below) and (y) a number of Sio Earnout Shares (as defined below) equal to the Sio Earnout Exchange Ratio (as defined below), (ii) each then-issued and outstanding share award to purchase Sio Common Shares (each, a “Sio RSU”) will become exercisable for a number of Pubco Class A Common Shares (rounded down to the nearest whole share) equal to (a) the number of Sio Common Shares subject to the applicable Sio RSU multiplied by (b) the Sio Common Share Exchange Ratio, (iii) any Sio Warrant that is not exercised pursuant to the Sio Warrant and Option Settlement will remain outstanding and will automatically in accordance with its terms become a warrant to acquire Pubco Class A Common Shares, and (iv) each then-issued and outstanding Sio Interim Common Share will be exchanged for a number of Pubco Class A Common Shares equal to (a) the number of then-issued and outstanding Sio Interim Common Shares multiplied by (b) the Sio Common Share Exchange Ratio, in each case upon and subject to the other terms and conditions set forth in the Business Combination Agreement, the Plan of Arrangement and in accordance with the provisions of applicable law.
As a result of the Amalgamations, Sio will become a wholly-owned subsidiary of Pubco and will continue the business operations currently undertaken by it. Upon the Closing, the Pubco Class A Common Shares and the Pubco Warrants are expected to trade on the New York Stock Exchange under the symbols “SIOS” and “SIOS WS,” respectively.
“Sio Common Share Exchange Ratio” means the quotient obtained by (A) dividing (i) Sio’s valuation of $675,000,000 by (ii) $10.25, and then (B) by further dividing the resulting number of Pubco Class A Common Shares established in (A) above by the sum of (x) the number of Sio Common Shares that are issuable upon the exercise of Sio RSUs that are unexpired, issued and outstanding as of immediately prior to the effective of the Sio Amalgamation (the “Sio Amalgamation Effective Time”), (y) the number of Sio Common Shares issued and outstanding immediately prior to the Sio Amalgamation Effective Time, which shall (1) include any Sio Common Shares issued in connection with the Sio Warrant and Option Settlement and (2) exclude any Sio Interim Common Shares, and (z) the number of Sio Common Shares that are issuable upon the exercise of any issued and outstanding warrants to purchase Sio Common Shares that is not exercised pursuant to the Company Warrant and Option Settlement (“Unexercised Company Warrants”) issued and outstanding as of immediately prior to the Sio Amalgamation Effective Time minus a number of Sio Common Shares with a fair market value equal to the aggregate exercise price (determined with reference to the US dollar to the Canadian dollar exchange rate reported by the Bank of Canada at the close of business on the date that is two (2) business days prior to the Closing) of all such Unexercised Company Warrants if they were so exercised (such sum, the “Fully-Diluted Sio Common Shares”).
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“Sio Earnout Exchange Ratio” means the quotient obtained by dividing (i) 6,585,366 by (ii) the Fully-Diluted Sio Common Shares.
“Sio Earnout Shares” means the pro rata portion of an aggregate of 6,585,366 Pubco Class A Common Shares (without duplication) issued to each shareholder of Sio (other than holders of any Sio Interim Common Shares) pursuant to the Sio Amalgamation and the Business Combination Agreement (the “Earnout”), valued at the deemed issue price of the Pubco Class A Common Shares in connection with the Earnout, which is $10.25 per Pubco Class A Common Share, which Sio Earnout shares are subject to forfeiture in accordance with the terms of the Business Combination Agreement.
A copy of the Business Combination Agreement is filed with this Quarterly Report on Form 10-Q as Exhibit 2.1 and is incorporated herein by reference. The foregoing description of the Business Combination Agreement and the Sio Business Combination does not purport to be complete and is qualified in its entirety by reference to the full text of the Business Combination Agreement filed with this Quarterly Report on Form 10-Q. The Business Combination Agreement is included to provide security holders with information regarding its terms. It is not intended to provide any other factual information about Sio, Pyrophyte Newco, Pyrophyte or Sio Newco. In particular, the assertions embodied in representations and warranties by Sio, Pyrophyte Newco, Pyrophyte and Sio Newco contained in the Business Combination Agreement are subject to important qualifications and limitations agreed to by the parties in connection with negotiating such agreement, including being qualified by confidential information in the disclosure schedules provided by the parties in connection with the execution of the Business Combination Agreement, and are subject to standards of materiality applicable to the contracting parties that may differ from those applicable to security holders. The confidential disclosures contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Business Combination Agreement. Moreover, certain representations and warranties in the Business Combination Agreement were used for the purpose of allocating risk between the parties, rather than establishing matters as facts. Accordingly, security holders should not rely on the representations and warranties in the Business Combination Agreement as characterizations of the actual state of facts about Sio, Pyrophyte Newco, Pyrophyte or Sio Newco. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Business Combination Agreement, which subsequent information may or may not be fully reflected in Pyrophyte’s public disclosures.
Subscription Agreements
Concurrently with the execution of the Business Combination Agreement, Pyrophyte, Sio and Sio Newco entered into subscription agreements with (i) a certain accredited investor (the “Non-Insider PIPE Investor”) and (ii) certain other accredited investors who are existing shareholders of Sio or Pyrophyte (the “Insider PIPE Investors” and, together with the Non-Insider PIPE Investor, the “PIPE Investors”), pursuant to which, among other things, Sio Newco agreed to issue and sell, in a private placement to close concurrently with and conditioned upon the effectiveness of the consummation of the Business Combination, an aggregate of 3,114,258 Pubco Class A Common Shares (the “PIPE Investment”) to the PIPE Investors for an aggregate purchase price equal to $20,122,474.
The foregoing description of the PIPE Investment does not purport to be complete and is qualified in its entirety by the terms and conditions of (i) the form of subscription agreement entered into with the Non-Insider PIPE Investors (the “Non-Insider Subscription Agreement”) and (ii) the form of subscription agreement entered into with the Insider PIPE Investors (the “Insider Subscription Agreement” and, together with the Non-Insider Subscription Agreement, the “Subscription Agreements”), as applicable, copies of which are filed as Exhibits 10.1 and 10.2, respectively, hereto and are incorporated by reference herein.
Non-Redemption Agreement
Concurrently with the execution of the Business Combination Agreement, Pyrophyte and Sio Newco entered into a non-redemption agreement (the “Non-Redemption Agreement”) with a Pyrophyte shareholder with respect to 100,000 SPAC Class A Ordinary Shares held by such shareholder (the “Non-Redemption SPAC Shares”), pursuant to which, among other things, Pyrophyte agreed to issue 58,570 Class A Ordinary Shares to such shareholder in consideration of such shareholder’s commitment not to redeem the Non-Redemption SPAC Shares held by it in connection with the approval of the Business Combination by Pyrophyte’s shareholders (the “Non-Redemption Transaction”).
The foregoing description of the Non-Redemption Transaction and the Non-Redemption Agreement does not purport to be complete and is qualified in its entirety by the full text of the Non-Redemption Agreement, a copy of which is filed as Exhibit 10.3 hereto and is incorporated by reference herein.
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Sponsor Support Agreement
Concurrently with the execution of the Business Combination Agreement, the Sponsor, entered into a letter agreement (the “Sponsor Support Agreement”) with Sio, Sio Newco, Pyrophyte and the directors and officers (or otherwise a part of the management team) of Pyrophyte, solely for purposes of amending certain of the terms of the letter agreement signed by them in connection with Pyrophyte’s initial public offering, pursuant to which, among other things, the Sponsor agreed to (i) appear at the extraordinary general meeting of Pyrophyte’s shareholders called to approve the Business Combination (the “Pyrophyte Shareholders Meeting”) or otherwise cause the Covered Shares (as defined below) to be counted as present thereat for the purposes of establishing a quorum, (ii) vote all Class A Ordinary Shares, or any securities convertible into, exercisable or exchangeable for Class A Ordinary Shares, held by it or acquired after the date of the Sponsor Support Agreement (the “Covered Shares”) at the Pyrophyte Shareholders Meeting (or execute and deliver a written consent, if applicable, causing to be voted) (v) in favor of any circumstances upon which a consent or other approval is required under the organizational documents of Pyrophyte or otherwise sought in furtherance of the Business Combination, (w) in favor of the adoption and approval of the Business Combination and each other proposal related to the Business Combination necessary or reasonably requested by Pyrophyte for the consummation of the Business Combination, (x) against any alternative transactions or actions reasonably expected to impede, interfere with, delay, postpone or adversely impact the Business Combination or result in a breach of any covenant, representation or warranty of Pyrophyte under the Business Combination Agreement or result in any of the closing conditions of the Business Combination Agreement not being fulfilled, (y) against any change in the dividend policy or capitalization of, including the voting rights of, any class of shares of Pyrophyte, and (z) against any change in business, management or the board of directors of the Pyrophyte, in each of clause (y) and (z) other than in connection with the Business Combination, (iii) not transfer the Class A Ordinary Shares until the earlier of (a) termination of the Business Combination Agreement and (b) termination of the Sponsor Support Agreement upon mutual written agreement of the parties thereto, (iv) not redeem any Covered Shares owned by it in connection with approval of the Business Combination by Pyrophyte’s shareholders, (v) not transfer any Covered Shares (other than Pubco Class A Common Shares issued upon exercise of any private placement warrants held by the Sponsor) until the earlier of (A) one year after the Closing, (B) the first day the last sale price of Pubco Class A Common Shares equals or exceeds $12.00 per share for any 20 trading days within a 30-day trading period commencing at least 150 days after the Closing or (C) after the Closing, the date on which Pubco completes a liquidation, amalgamation, share exchange or similar transaction resulting in the shareholders of Pubco having the right to exchange their shares for consideration, and (vi) not transfer any private placement warrants (or Pubco Class A Common Shares issued or issuable upon exercise of such warrants) held by it until 30 days after the Closing.
In addition, the Sponsor has agreed to subject a number of Class A Ordinary Shares held by it on the date of execution of the Sponsor Support Agreement (“Restricted Owned Shares”) to certain restrictions, to the extent such shares are used to obtain any additional PIPE Financing or other financing arrangements in connection with consummation of the Business Combination; provided that in no event shall the aggregate number of Restricted Owned Shares equal more than 4,025,000 Class A Ordinary Shares (the “Maximum Restricted Owned Shares”). If, prior to the Closing, the sum of all Available Closing Cash raised from the PIPE Investment, any non-redemption agreements (including the Non-Redemption Agreement) and any other cash and cash equivalents of Pyrophyte (including the proceeds of any securities funded in connection with the Closing but excluding, for the avoidance of doubt, (I) the Royalty Agreement Proceeds (as defined in the Business Combination Agreement), (II) proceeds received from any flow-through common shares (other than to the extent that any incentive equity interests are issued in connection with such issuance) and (III) any Indebtedness (as defined in the Business Combination Agreement) funded in connection with the Closing) (collectively, the “SPAC Proceeds”) is less than $70,000,000, then (i) the number of Restricted Owned Shares shall be equal to the actual number of SPAC Class A Ordinary Shares that were used to secure such SPAC Proceeds, up to (but not exceeding) an amount equal to the Maximum Restricted Owned Shares (the “Incentive Owned Shares”), and (ii) a number of SPAC Class A Ordinary Shares owned by Sponsor equal to (x) 4,025,000 minus (y) the number of Incentive Owned Shares shall be automatically forfeited and deemed transferred to Pyrophyte for cancellation for no consideration. If, prior to Closing, the sum of the Available Closing Cash raised from the SPAC Proceeds is equal to or greater than $70,000,000, then the number of Restricted Owned Shares shall be equal to the Incentive Owned Shares.
In connection with the Closing, each Restricted Owned Share will be exchanged on a one-for-one basis for Pubco Class A Common Shares pursuant to the Business Combination and the Plan of Arrangement and such shares will be subject to forfeiture or release as follows: (i) half of the Restricted Owned Shares will be released to the Sponsor on the first day that the Trading Price (as defined in the Business Combination Agreement) is at least $12.50, (ii) the other half of the Restricted Owned Shares will be released from forfeiture on the first day that the Trading Price is at least $15.00, in each case during the period commencing on the Closing Date and ending on the date that is three (3) years after the Closing Date (the “End Date”), and (iii) after the End Date, any Restricted Owned Shares that have not been released to the Sponsor pursuant to clauses (i) or (ii) above will be automatically forfeited for no consideration.
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The foregoing description of the Sponsor Support Agreement is qualified in its entirety by reference to the full text of the Sponsor Support Agreement, a copy of which is included as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Sio Securityholder Support Agreements
In connection with the execution of the Business Combination Agreement, on November 13, 2023, Pyrophyte, Sio, and certain securityholders of Sio entered into support agreements (the “Sio Securityholder Support Agreements”), pursuant to which, among other things, such shareholders agreed to vote (or cause to be voted) all of their Sio shares and other voting securities of Sio (“Subject Securities”) in favor of the special resolution of Sio shareholders in respect of the Plan of Arrangement, to be considered at Sio’s shareholders meeting to approve the Business Combination. Additionally, such shareholders have agreed, among other things, not to, prior to the Closing, (a) transfer any of their Subject Securities (or enter into any agreement, arrangement or understanding in connection therewith other than pursuant to the Plan of Arrangement), subject to certain customary exceptions, or (b) enter into any voting arrangement that is inconsistent with the Sio Securityholder Support Agreements. Sio covenants in the Business Combination Agreement that it will use commercially reasonable efforts to obtain Sio Securityholder Support Agreements from at least 66 ⅔% of its shareholders as promptly as possible, but in any event, within five days of the execution date of the Business Combination Agreement.
The foregoing description of the Sio Securityholder Support Agreements is qualified in its entirety by reference to the full text of the form of Sio Securityholder Support Agreements Support Agreement, a copy of which is included as Exhibit 10.5 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Trust Account Deposit
On November 20, 2023, in connection with the Company extension arrangement, the Sponsor deposited $160,000 into the Trust Account, representing a contribution for the fourth month of extension. The Sponsor intends to make contributions into the Trust Account for the subsequent months of extension by the end of the month of November.
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 September 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 September 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 September 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: November 20, 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: November 20, 2023 | By: | /s/ Sten Gustafson |
| Name: | Sten Gustafson | |
| Title: |
Chief Financial Officer and Director (Principal Financial Officer) | |
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