References to the "Company," "us," "our" or "we" refer Crixus BH3 Acquisition
Company. The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our audited financial
statements and related notes included herein.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Such statements include, but are not limited
to, possible business combinations and the financing thereof, and related
matters, as well as all other statements other than statements of historical
fact included in this Form 10-Q. Factors that might cause or contribute to such
a discrepancy include, but are not limited to, those described in our other
Securities and Exchange Commission ("SEC") filings.
Overview
We are a newly organized blank check company incorporated on February 23, 2021
as a Delaware 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 name BH3 Acquisition Corp. and subsequently changed our
name to Crixus BH3 Acquisition Company on July 21, 2021. We intend to effectuate
our initial business combination using cash from the proceeds of the public
offering and the private placements warrants, our capital stock, debt or a
combination of cash, stock and debt.
Our units began trading on October 5, 2021 on the Nasdaq Global Market (the
"Nasdaq") under the symbol "BHACU." Commencing on November 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 $22,407,388,
consisting of $12,650,000 of underwriters' fees and discounts, $9,276,147 for
the excess fair value of founder shares attributable to the anchor investors,
and $481,242 of other offering costs. In addition, the underwriters agreed to
defer $8,050,000 in underwriting discounts and commissions.
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.
If we are unable to consummate an initial business combination within 18 months
from the closing of the initial public offering (or 21 months or 24 months, as
applicable), 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, less up to $100,000 of interest to pay dissolution expenses and
net of interest that may be used by us to pay our franchise and income taxes
payable, 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 $10.20 per share of common stock if we extend the period of time
to consummate a business combination once, and approximately $10.30 per share of
common stock if we extend the period of time to consummate a business
combination twice, 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.
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Results of Operations
Our only activities from inception through September 30, 2022 were
organizational activities, those necessary to prepare for our Initial Public
Offering, described below, and after our Initial Public Offering, identifying a
target company for a Business Combination. We will not generate any operating
revenues until the closing and completion of our initial Business Combination,
at the earliest. We generate non-operating income in the form of interest income
on marketable securities held after the Initial Public Offering and the change
in fair value of warrant liabilities. We are incurring expenses as a result of
being a public company for legal, financial reporting, accounting and auditing
compliance, as well as for due diligence expenses in connection with searching
for a Business Combination.
For the three months ended September 30, 2022, we had net income of $.1 million,
which consists of interest income of $.2 million and income from the change in
fair value of warrant liability of $0.4 million, offset by general and
administrative expense of $0.4 million.
For the nine months ended September 30, 2022, we had net income of $5.4 million,
which consists of interest income of $.5 million and income from the change in
fair value of warrant liability of $6.3 million, offset by general and
administrative expense of $1.4 million.
For the three months ended September 30, 2021, we had no income or loss.
For the period from February 23, 2021 (date of inception) through September 30,
2021, we had net loss of $30,548, which consisted of general and administrative
expenses.
Our management continues to evaluate the impact of the COVID-19 pandemic and the
Russia-Ukraine war and has concluded that the specific impact is not readily
determinable as of the date of the unaudited condensed financial statements. The
unaudited condensed financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Liquidity and Capital Resources
Sources of Liquidity
Our liquidity needs from the period of February 23, 2021 (date of inception)
through October 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 was non-interest bearing and payable on the
earlier of December 31, 2021 or the completion of the Initial Public Offering.
We borrowed $145,000 under the Promissory Note and the full amount was repaid on
October 7, 2021. 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,
provide us working capital loans ("Working Capital 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. To date, there are no amounts outstanding under any Working Capital
Loans.
As of September 30, 2022, we had approximately $0.4 million in cash outside of
the trust account available for working capital needs and $233.7 million of cash
and liquid marketable securities held in trust, which is not available for
working capital needs.
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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 our behalf such as identifying potential target businesses and
performing due diligence on suitable Business Combinations. Our audit committee
will review on a quarterly basis all payments that were made to the Sponsor,
officers or directors, or their affiliates.
We have incurred and expect to continue to incur additional costs in pursuit of
our acquisition plans. We have determined that we will not be able to sustain
operations for the next twelve months without obtaining 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 condensed
consolidated financial statements. Based on our plan to request Working Capital
Loans of up to $1.5 million from our Sponsor, our management believes 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.
Founder Shares
In March 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
on October 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).
Private Placement Warrants
Simultaneously with the closing of the initial public offering, on October 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 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 April 7, 2023 (or by July 7, 2023 or
October 7, 2023, as applicable, if we extend the period of time to consummate a
Business Combination), 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.
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Contractual Obligations
At September 30, 2022, we did not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities, other than an
agreement to pay an affiliate of the Sponsor a monthly fee of $15,000 for office
space, utilities and administrative support. For the three and nine months ended
September 30, 2022, we incurred and paid $45,000 and $135,000, respectively. For
the three months ended September 30, 2021 and for the period from February 23,
2021 (date of inception) to September 30, 2021, we did not incur any
administrative services.
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 we complete a Business Combination, subject to
the terms of the underwriting agreement.
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 Quarterly 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.
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.
Off-Balance Sheet Financing Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with U.S. GAAP 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. On an ongoing basis, we evaluate our estimates and
assumptions. Actual results could materially differ from those
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estimates under different assumptions or conditions. We consider an accounting
judgment, estimate or assumption to be critical when (1) the estimate or
assumption is complex in nature or requires a high degree of judgment and
(2) the use of different judgments, estimates and assumptions could have a
material impact on the financial statements. Our significant accounting policies
are described in Note 2 to our unaudited condensed financial statements included
elsewhere in this Report. Our critical accounting policies and estimates were
described in Part II, Item 7, Critical Accounting Policies in our Annual Report.
There have been no material changes to our critical accounting policies and
estimates since our Annual Report. Accordingly, these are the policies and
estimates we believe are the most critical to aid in fully understanding and
evaluating our financial condition and results of operations:
• The estimates used in the determination of the fair value of the warrant
liability
• The recognition, measurement and valuation of marketable debt securities
held in our Trust Account
• The recognition and measurement of Class A Common Stock subject to
possible redemption
• The computation of net income (loss) per share of common stock
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
our unaudited condensed financial statements.
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