Pyrophyte Acquisition (PHYT) - 2022 Q4 - Annual Report

PART I Business Pyrophyte Acquisition Corp. is a Cayman Islands blank check company seeking a business combination within the energy transition ecosystem - The company is a special purpose acquisition company (SPAC) or "shell company" with no current operations, formed for the purpose of a business combination[18] Initial Public Offering and Trust Account Details | Metric | Value | Date | | :--- | :--- | :--- | | IPO Units Sold | 20,125,000 | October 29, 2021 | | Price per Unit | $10.00 | October 29, 2021 | | Gross Proceeds from IPO | $201,250,000 | October 29, 2021 | | Gross Proceeds from Private Placement | $10,156,250 | October 29, 2021 | | Amount Placed in Trust Account | $206,281,250 | October 29, 2021 | | Cash Held Outside Trust (Working Capital) | ~$1,000,000 | October 29, 2021 | | Trust Account Balance | $209,651,193 | December 31, 2022 | - The company's primary target for a business combination is within the energy transition ecosystem, focusing on products and technologies that support decarbonization[27] - The company must complete its initial business combination by April 29, 2023 (18 months from its IPO closing), or it will be required to cease operations and liquidate the trust account[41] - There have been significant recent changes in executive leadership, with Sten L. Gustafson appointed CFO and Bernard J. Duroc-Danner appointed CEO, both effective March 30, 2023[44][45][46] Risk Factors The company faces risks from its blank check status, the uncertainty of a business combination, and potential conflicts of interest Risks Related to Business Combination Search and Consummation The company's lack of operating history, a looming liquidation deadline, and regulatory hurdles pose significant risks to consummating a business combination - The company is a blank check entity with no operating history, making it difficult for investors to evaluate its ability to achieve its business objectives[49] - The requirement to complete a business combination by April 29, 2023, may give target businesses leverage in negotiations and could lead to liquidation if a deal is not consummated[58][69] - The search for a business combination may be adversely affected by the COVID-19 pandemic, geopolitical conditions such as the invasion of Ukraine, and volatile debt and equity markets[60][66] - There is a risk of being deemed an investment company under the Investment Company Act, which could force liquidation and reduce interest income for shareholders[97][99][101] - The company's Sponsor is controlled by a non-U.S. person, which may subject a potential business combination to review by the Committee on Foreign Investment in the United States (CFIUS), potentially delaying or blocking a transaction[132][133][135] Risks Related to the Post-Business Combination Company The post-combination entity faces operational and financial risks, including asset impairment, dependence on key personnel, and increased financial leverage - The post-combination company may be forced to write-down or write-off assets, restructure operations, or incur impairment charges, which could negatively impact its financial condition and share price[137][138] - The company's success is dependent on key personnel, and their loss after the business combination could negatively impact operations[141][142][143] - The company may incur substantial debt to complete a business combination, which could adversely affect its leverage, financial condition, and ability to pay dividends[152][153] - Completing a business combination with a single entity will result in a lack of diversification, making the company's prospects solely dependent on the performance of that one business[155][156] Risks Related to Foreign Operations A business combination with a non-U.S. entity would expose the company to additional risks from currency fluctuations and foreign regulations - Acquiring a non-U.S. company would subject the business to various international risks, including currency fluctuations, tariffs, trade barriers, and unexpected regulatory changes[168][170] - The company's results would be significantly influenced by the economic, political, and legal conditions of the country in which the target business operates[173] - Fluctuations in foreign currency exchange rates could adversely affect the company's financial condition and results of operations if it acquires a non-U.S. target[174] Risks Related to the Management Team The management team faces conflicts of interest, lacks prior SPAC experience, and has received a "going concern" warning from its auditor - None of the Sponsor, officers, or directors have previous experience with a blank check or special purpose acquisition company, which could adversely affect the ability to consummate a business combination[176] - The company's independent registered public accounting firm's report includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a "going concern"[178][179] - Officers and directors have other business commitments, creating conflicts of interest in how they allocate their time, which could negatively impact the search for a business combination[185][186] - The Sponsor, officers, and directors will lose their entire investment in Founder Shares and Private Placement Warrants if a business combination is not completed, creating a conflict of interest[193][195] Risks Related to Securities The company's securities face risks including potential delisting, warrant redemption, and earnings volatility from warrant liability accounting - Public shareholders have no rights or interests in the Trust Account funds except under limited circumstances such as a redemption or liquidation[199][200] - The company's securities may be delisted from the NYSE if it fails to meet continued listing requirements, which would limit trading and liquidity[202][203] - The company may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to holders, potentially making them worthless[218][219] - The company's warrants are accounted for as a warrant liability and are re-measured to fair value each period, which can cause volatility in reported earnings[223] General Risk Factors The company's status as an emerging growth company, its Cayman Islands incorporation, and a new federal excise tax present additional risks - As an "emerging growth company," the company is subject to reduced disclosure and reporting requirements, which could make its securities less attractive to investors[228][229] - The company's incorporation in the Cayman Islands may make it difficult for investors to enforce judgments from U.S. courts or protect their rights[234][235][236] - A new 1% U.S. federal excise tax on stock buybacks could be imposed on redemptions, potentially reducing cash available for a business combination[241][242] Properties The company utilizes office space provided by its Sponsor under an administrative support agreement with a reduced monthly fee - The company does not own any real estate and uses office space provided by its Sponsor under an administrative support agreement[245] - The monthly fee for office space and administrative support was initially $15,000 but was amended to $5,000 per month effective July 1, 2022[245] Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not involved in any material legal proceedings[246] Mine Safety Disclosures This item is not applicable to the company's operations - The company has no mine safety disclosures to report[247] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's securities trade on the NYSE, and it has not paid any cash dividends - The company's securities are traded on the NYSE under the symbols PHYT.U (Units), PHYT (Class A ordinary shares), and PHYT WS (warrants)[249] - The company has never paid cash dividends and has no plans to pay them before a business combination is completed[251] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported net income driven by non-cash gains but faces substantial doubt about its ability to continue as a going concern Results of Operations The company generated no operating revenue, with net income primarily driven by non-cash gains on derivative warrant liabilities Results of Operations Summary | Description | For the Year Ended Dec 31, 2022 | For the Period Feb 12, 2021 to Dec 31, 2021 | | :--- | :--- | :--- | | General and administrative expenses | $(2,699,342) | $(347,872) | | Change in fair value of derivative warrant liabilities | $9,990,487 | $3,293,420 | | Gain on investments held in Trust Account | $3,351,889 | $18,046 | | Net Income | $10,643,117 | $2,484,049 | Liquidity and Going Concern Limited cash and an approaching business combination deadline raise substantial doubt about the company's ability to continue as a going concern Cash Position | Date | Cash Held Outside Trust Account | | :--- | :--- | | December 31, 2022 | $13,372 | | December 31, 2021 | $966,665 | - Management has determined that liquidity conditions raise substantial doubt about the Company's ability to continue as a going concern through the next year[273] Commitments and Contractual Obligations The company has contractual obligations for deferred underwriting fees, administrative support, and contingent financial advisory fees - The underwriter is owed a deferred fee of 4% of the gross proceeds from the IPO, payable upon completion of a business combination[279] - The company pays its Sponsor a monthly fee for administrative support, which was reduced from $15,000 to $5,000 on July 1, 2022[280] - The company engaged financial advisors, including UBS and Atrium Partners A/S, for potential transactions, with fees contingent on closing a deal[283][284][285] Financial Statements and Supplementary Data This section references the company's audited financial statements included in the report - The company's financial statements for the fiscal year ended December 31, 2022, are included in this report[302] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting or financial disclosure matters - The company reports no disagreements with its accountants[303] Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2022[305] - A material weakness in internal control over financial reporting was identified related to the recording of accruals and accounting for complex financial instruments[306] - The company is implementing a remediation plan to address the material weakness, which includes enhancing processes to identify and record potential accruals[312][314] PART III Directors, Executive Officers and Corporate Governance The company details its leadership team, board structure, and recent executive changes effective March 30, 2023 Executive Officers and Directors (as of April 2023) | Name | Position | | :--- | :--- | | Sten L. Gustafson | Chief Financial Officer and Director | | Bernard J. Duroc-Danner | Chief Executive Officer and Chairman | | Bryan Guido Hassin | Director | | Per Hornung Pedersen | Director | | Adam Pierce | Director | - Effective March 30, 2023, Sten L. Gustafson resigned as CEO and was appointed CFO, and Bernard J. Duroc-Danner was appointed CEO[327][328][329] - The board of directors has determined that Messrs. Hassin, Pedersen, and Pierce are independent directors[330] - The board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee[331] Executive Compensation Officers and directors receive no cash compensation, but the Sponsor is paid a monthly administrative fee - No officers or directors have received cash compensation for services rendered[343] - The company pays its Sponsor a monthly fee for administrative services, which was reduced from $15,000 to $5,000 on July 1, 2022[343] - The Sponsor, officers, and directors are reimbursed for out-of-pocket expenses related to identifying potential target businesses[346] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters The Sponsor holds 20% of outstanding ordinary shares, with officers and directors beneficially owning the same amount through the Sponsor Beneficial Ownership as of April 12, 2023 | Holder | Shares Beneficially Owned | Percentage of Outstanding | | :--- | :--- | :--- | | Pyrophyte Acquisition LLC (Sponsor) | 5,031,250 | 20.0% | | All officers and directors as a group | 5,031,250 | 20.0% | | Adage Capital Partners, L.P. | 1,575,000 | 6.3% | | Atlas Diversified Fund, Ltd. | 1,442,387 | 5.7% | - The Sponsor's voting and dispositive decisions require a majority vote of its board of managers, so no single manager is deemed a beneficial owner of the Sponsor's securities[353] Certain Relationships and Related Transactions, and Director Independence The company has multiple related party transactions with its Sponsor, including the sale of Founder Shares and Private Placement Warrants - The Sponsor purchased 5,031,250 Founder (Class B) shares for an aggregate price of $25,000[356] - The Sponsor purchased 10,156,250 Private Placement Warrants at $1.00 per warrant in a private placement concurrent with the IPO[357] - The Sponsor provided a $300,000 non-interest-bearing loan to cover IPO expenses, which was fully repaid in October 2021[361] - The company pays the Sponsor a monthly fee for administrative support, which was reduced from $15,000 to $5,000 in July 2022[363] Principal Accounting Fees and Services The company discloses fees paid to its independent auditor, Marcum LLP, which are pre-approved by the audit committee Fees Paid to Marcum LLP | Fee Category | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Audit Fees | $128,750 | $86,597 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $11,330 | $0 | | All Other Fees | $0 | $0 | - The audit committee pre-approves all audit and non-audit services provided by the independent auditor[369] Exhibit and Financial Statement Schedules This section lists the exhibits filed as part of the Form 10-K report Financial Statements Report of Independent Registered Public Accounting Firm The auditor's report includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern - The auditor's report contains a "going concern" qualification, citing substantial doubt about the company's ability to continue operations due to the need to complete a business combination by April 29, 2023[375] Financial Statements The financial statements show total assets of $210.0 million, primarily in the Trust Account, and net income driven by non-operating items Balance Sheet Summary (as of Dec 31, 2022) | Account | Amount (USD) | | :--- | :--- | | Assets | | | Cash | $13,372 | | Investments and cash held in Trust Account | $209,651,193 | | Total Assets | $210,012,487 | | Liabilities & Equity | | | Total Liabilities (incl. deferred underwriting & warrants) | $11,504,350 | | Class A ordinary shares subject to possible redemption | $209,551,185 | | Total shareholders' deficit | $(11,043,048) | Statement of Operations Summary (Year Ended Dec 31, 2022) | Account | Amount (USD) | | :--- | :--- | | General and administrative expenses | $(2,699,342) | | Change in fair value of derivative warrant liabilities | $9,990,487 | | Gain on investments held in Trust Account | $3,351,889 | | Net Income | $10,643,117 | Notes to Financial Statements The notes detail the company's accounting policies, related party transactions, and the significant risks related to its going concern status Note 1 - Business Operations and Going Concern This note describes the company's status as a SPAC and formally discloses substantial doubt about its ability to continue as a going concern - The company must complete a Business Combination within 18 months from its IPO, by April 29, 2023, or it will be forced to liquidate[402] - Management has determined that liquidity conditions raise substantial doubt about the Company's ability to continue as a going concern[410] Note 2 - Summary of Significant Accounting Policies This note outlines key accounting policies, including the classification of public shares as temporary equity and warrants as derivative liabilities - All Class A ordinary shares sold in the IPO are classified as temporary equity outside of the shareholders' deficit section because they are subject to possible redemption[420] - The company's public and private warrants are treated as derivative liabilities and are re-measured to fair value at each reporting date[427][428] Note 4 - Related Party Transactions This note details transactions with the Sponsor, including the purchase of Founder Shares and Private Placement Warrants at favorable terms - The Sponsor purchased Founder Shares at approximately $0.004 per share[434] - The Sponsor purchased over 10 million Private Placement Warrants at $1.00 each[436] - The Sponsor may provide up to $1,500,000 in working capital loans, which may be convertible into warrants[440] Note 6 - Derivative Warrant Liabilities This note explains the accounting for warrants as liabilities and details their redemption features - The company's 20,218,750 public and private warrants are accounted for as derivative liabilities at fair value, with changes in fair value reported in the statement of operations[453] - The company can redeem outstanding public warrants for $0.01 each if the closing price of Class A shares equals or exceeds $18.00 for 20 of 30 trading days[460] - The company can also redeem outstanding public warrants for $0.10 each if the closing price of Class A shares equals or exceeds $10.00 for 20 of 30 trading days, subject to certain conditions[461]