FOCUS IMPACT BH3 ACQUISITION COMPANY The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors"," "Business" and the audited consolidated financial statements, including the related notes, appearing elsewhere in this Form 10-K. All references to years, unless otherwise noted, refer to our fiscal years, which end onDecember 31 . As used in this Form 10-K, unless the context suggests otherwise, "we," "us," "our," or "the Company" refer toCrixus BH3 Acquisition Company . Overview We are a newly organized blank check company incorporated onFebruary 23, 2021 as aDelaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We were initially incorporated under the nameBH3 Acquisition Corp. and subsequently changed our name toCrixus BH3 Acquisition Company onJuly 21, 2021 . We intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the private placement of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt. Our units began trading onOctober 5, 2021 on the Nasdaq Global Market (the "Nasdaq") under the symbol "BHACU." Commencing onNovember 26, 2021 , the shares of Class A common stock and warrants comprising the units began separate trading on the Nasdaq under the symbols "BHAC" and "BHACW," respectively. Those units not separated continue to trade on the Nasdaq under the symbol "BHACU."
Transaction costs of the initial public offering amounted to approximately
Our management has broad discretion with respect to the specific application of the net proceeds of the initial public offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a business combination. OnDecember 7, 2022 (following approval by our stockholders at the special meeting), we effected the charter amendment and the trust amendment, the effect of which was to change our termination date fromApril 7, 2023 to the new termination date (August 7, 2023 , unless further extended in accordance with our amended and restated certificate of incorporation by our sponsor (or its affiliates or designees) providing to us the requisite notice and the deposit amount). In connection with the charter amendment, 17,987,408 public shares were tendered for redemption. After giving effect to the early redemptions, we had approximately$51.2 million remaining in the trust account. If we are unable to consummate an initial business combination on or before the new termination date, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest earned on the funds held in the trust account and not previously released to us to pay our taxes (less up to$100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders' rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law and as further described herein, and then seek to dissolve and liquidate. We expect the pro rata redemption price to be approximately$10.22 per share of common stock if we don't extend the period of time to consummate a business combination, and an additional$0.035 per share of common stock for each month thereafter if we extend the period of time to consummate a business combination (in each case, regardless of whether or not the underwriters exercise their over-allotment option), without taking into account any interest earned on such funds. However, we cannot assure you that we will in fact be able to distribute such amounts as a result of claims of creditors which may take priority over the claims of our public stockholders. 54
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Liquidity and Capital Resources
Our liquidity needs from the period ofFebruary 23, 2021 (date of inception) throughOctober 7, 2021 (date of the initial public offering) had been satisfied through the cash receipt of$25,000 from our initial stockholders to purchase the Founder Shares, and a loan of$300,000 pursuant to a note issued to our Sponsor (the "Note"). The Note balance was paid in full as of the date of the initial public offering. Subsequent to the consummation of the initial public offering, our liquidity needs have been satisfied with the net proceeds from the consummation of the Private Placement not held in the Trust Account. In addition, in order to finance transaction costs in connection with a business combination, our Sponsor or its affiliates may, but are not obligated to, continue providing us with working capital loans ("Working Capital Loans"). As ofDecember 31, 2022 , Working Capital Loans in the amount of$300,000 had been loaned and remained outstanding As ofDecember 31, 2022 , the Company had approximately$14,000 in cash outside of the trust account available for working capital needs and$51.3 million of cash and investment in liquid securities held in trust, which is not available for working capital needs. Based on the foregoing, our management believes that we will not be able to sustain operations for the next twelve months without additional financing. These conditions raise a substantial doubt about our ability to continue as a going concern for the next twelve months from the issuance of these financial statements. Based on our plan and ability to request working capital loans of up to$1.5 million from our sponsor (see Note 4), we believe that we have alleviated the substantial doubt about our ability to continue as a going concern, and we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination. Our management continues to evaluate the impact of the COVID-19 pandemic andRussia -Ukraine geopolitical conflict and has concluded that the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Results of Operations Our entire activity from inception up toOctober 7, 2021 was in preparation for our initial public offering and, since the consummation of our initial public offering, the search for a prospective target business. We will not generate any operating revenues until the closing and completion of our initial Business Combination, at the earliest. For the year endedDecember 31, 2022 , we had net income of approximately$7.7 million , which consisted of gain of$6.8 million from change in fair market valuation of derivative warrant liability and interest income of$3.0 million , offset by$2.1 million in general and administrative expenses and$0.1 million in income tax expense. For the period fromFebruary 23, 2021 (date of inception) throughDecember 31, 2021 , we had net income of approximately$12.4 million , which consisted of gain of$14.4 million from change in fair market valuation of derivative warrant liability, offset by$0.6 million in general and administrative expenses,$1.4 million in offering costs related to the public warrants, and loss from investment in the Trust Account of approximately$15,230 .
Founder Shares
InMarch 2021 , our initial stockholders purchased 5,750,000 shares of our Class B common stock, par value$0.0001 per share (the "Founder Shares"), for an aggregate price of$25,000 (1,450,758 of which were subsequently sold to our anchor investors at cost). Our Sponsor agreed to forfeit up to 750,000 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters. The underwriters exercised their over-allotment option in full onOctober 7, 2021 . As a result, these shares were no longer subject to forfeiture. Holders of our Founder Shares (including the anchor investors) have agreed not to transfer, assign or sell any of their founder shares and any shares of our Class A common stock issuable upon conversion thereof until the earlier to occur of: (i) one year after the completion of our initial business combination; and (ii) subsequent to our initial business combination, (x) if the last reported sale price of our Class A common stock equals or exceeds$12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination, or (y) the date on which we complete a liquidation, merger, capital stock exchange or other similar transaction that results in all of our public stockholders having the right to exchange their shares of common stock for cash, securities or other property (except to certain permitted transferees). Any permitted transferees will be subject to the same restrictions and other agreements of our initial stockholders with respect to any founder shares (except that our anchor investors will be permitted to abstain from voting founder shares). 55
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Private Placement Warrants
Simultaneously with the closing of the initial public offering, onOctober 7, 2021 , we consummated the Private Placement of 6,400,000 Private Placement Warrants in the aggregate at a price of$1.50 per Private Placement Warrant to our Sponsor, generating proceeds of$9,600,000 . Each whole Private Placement Warrant is exercisable for one whole share of Class A common stock at a price of$11.50 per share. A portion of the proceeds from the sale of the Private Placement Warrants to our Sponsor was added to the proceeds from the initial public offering held in the Trust Account. If we do not complete a Business Combination by the new termination date, the Private Placement Warrants will expire worthless. The Private Placement Warrants will be non-redeemable for cash and exercisable on a cashless basis so long as they are held by our Sponsor or permitted transferees.
The Sponsor and our officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination.
Related Party Loans
OnMarch 12, 2021 , the Sponsor and the Company executed an unsecured promissory note pursuant to which the Company had the ability to borrow up to$300,000 in the aggregate to cover expenses in connection with the Initial Public Offering (the "Promissory Note"). The Promissory Note was non-interest bearing and payable on the earlier ofDecember 31, 2021 or the completion of the Initial Public Offering. The Company borrowed$145,000 under the Promissory Note and the full amount was repaid onOctober 7, 2021 . No subsequent draws were made against the Promissory Note following repayment onOctober 7, 2021 and the outstanding balance remained at$0 as ofDecember 31, 2021 . In order to finance transaction costs in connection with a 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 a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a 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. 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. The Working Capital Loans would either be repaid upon consummation of a Business Combination or, at the lender's discretion, up to$1.5 million of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of$1.50 per warrant. The warrants would be identical to the Private Placement Warrants. In November andDecember 2022 , a total of$0.3 million was drawn by the Company. The note has an outstanding balance of$0.3 million and$0 as ofDecember 31, 2022 and 2021, respectively. The Sponsor, officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company's behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company's audit committee will review on a quarterly basis all payments that were made to the Sponsor, officers or directors, or their affiliates. 56
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Table of Contents Contractual Obligations Registration Rights The holders of the founder shares, private placement warrants and warrants that may be issued upon conversion of working capital loans (and any Class A common stock issuable upon the exercise of the private placement warrants and warrants that may be issued upon conversion of working capital loans) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the initial public offering. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain "piggy-back" registration rights with respect to registration statements filed subsequent to our completion of our initial business combination. However, the registration rights agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lockup period, which occurs (i) in the case of the founder shares, as described in the following paragraph, and (ii) in the case of the private placement warrants and the respective shares of our Class A common stock underlying such warrants, 30 days after the completion of our initial business combination. We will bear the expenses incurred in connection with the filing of any such registration statements. Except as described in this Annual Report, the holders of the founder shares (including the anchor investors) have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of (a) one year after the completion of our initial business combination, or (b) subsequent to our initial business combination, (x) if the last reported sale price of our Class A common stock equals or exceeds$12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination, or (y) the date on which we complete a liquidation, merger, capital stock exchange or other similar transaction that results in all of our public stockholders having the right to exchange their shares of common stock for cash, securities or other property. Any permitted transferees will be subject to the same restrictions and other agreements of our sponsor with respect to any founder shares. We refer to such transfer restrictions throughout this Annual Report as the lock-up. In addition, pursuant to the registration rights agreement, our sponsor, upon completion of an initial business combination, will be entitled to nominate up to three individuals for election to our board of directors, as long as the sponsor holds any securities covered by the registration rights agreement.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of$0.20 per Unit, or$4,600,000 in the aggregate, paid upon the closing of the initial public offering and Over-Allotment. In addition, the underwriters will be entitled to a deferred fee of$0.35 per Unit, or$8,050,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Warrant Liabilities
The Company evaluated the Public Warrants and Private Placement Warrants (collectively, "Warrant Securities ") in accordance with ASC 815-40, "Derivatives and Hedging - Contracts in Entity's Own Equity," and concluded that theWarrant Securities could not be accounted for as components of equity. As theWarrant Securities meet the definition of a derivative in accordance with ASC 815-40, theWarrant Securities are recorded as derivative liabilities on the balance sheets and measured at fair value at issuance and remeasured at each reporting date in accordance with ASC 820, "Fair Value Measurement", with changes in fair value recognized in the Statements of Operations in the period of change.
Investments Held in the Trust Account
Our portfolio of investments held in the Trust Account is comprised ofU.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 inU.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 is included in gain on marketable securities, dividends and interest held in Trust Account in the accompanying statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information. 57
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Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity." Shares of Class A common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Shares of conditionally redeemable Class A common stock (including Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, shares of Class A common stock are classified as stockholders' equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, atDecember 31, 2022 and 2021, 5,012,592 and 23,000,000 shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders' equity section of the accompanying balance sheets, respectively.
Net Income (Loss) Per Common Share
We had two classes of shares outstanding, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of common stock. Basic net income (loss) per share of common stock is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For the purposes of the diluted net income (loss) per share calculation the warrants to purchase common stock are considered to be potentially dilutive securities pursuant to the treasury stock method. In order to determine the net income (loss) attributable to both the Class A common stock and Class B common stock, we first considered the total income (loss) allocable to both sets of shares. This is calculated using the total net income (loss) less any dividends paid. For purposes of calculating net income (loss) per share, any changes to the redemption value of the Class A common stock is treated as a deemed dividend for the purposes of the numerator in the earnings per share calculation, as the redemption value approximates fair value. Subsequent to calculating the total income (loss) allocable to both sets of shares, we calculate the amount to be allocated pro rata between Class A common stock and Class B common stock for each of the periods presented.
The following table reflects the calculation of basic and diluted net income per common share (in dollars, except per share amounts):
For the period
from February
23, 2021 (date
of inception)
through
December 31, December 31,
2022 2021
Net income, as reported $ 7,665,862 $ 12,427,342
Reconciliation items:
Deemed dividend to Class A stockholders (3,969,976 ) (37,127,388 )
Allocation of net income (loss), as adjusted$ 3,695,886 $ (24,700,046 ) For the period from For the year ended December 31, February 23, 2021 (date of inception) 2022 through December 31, 2021 Class A Class B Class A Class B Basic and diluted net income (loss) per share Numerator: Allocation of net income (loss) attributable to common stockholders, as adjusted$ 6,894,971 $ 770,891 $ 23,668,539 $ (11,241,197 ) Denominator: Weighted average common stock outstanding, basic and diluted 21,817,266 5,750,000 6,884,354 5,750,000 Basic and diluted income (loss) per share of common stock $ 0.32$ 0.13 $ 3.44 $ (1.95 ) As ofDecember 31, 2022 and 2021, warrants to purchase 17,900,000 shares of Class A common stock were excluded from the computation of diluted net income (loss) per share of common stock for the periods presented as the exercise price is greater than the average market price (out of the money) and their inclusion would be anti-dilutive under the treasury stock method. As a result, basic and diluted income (loss) per share is the same for the periods presented.
Recent Accounting Pronouncements
Our management does not believe that there are any recently issued, but not yet
effective, accounting pronouncements, if currently adopted, that would have a
material effect on our financial statements.
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Off-Balance Sheet Arrangements
As of
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an "emerging growth company" and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an "emerging growth company," we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an "emerging growth company," whichever is earlier.
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