08/20/2024 | Press release | Distributed by Public on 08/20/2024 04:01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 001-40976
SPECTAIRE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware | 98-1578608 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
155 Arlington St. Watertown, MA |
02472 | |
(Address of principal executive offices) | (Zip Code) |
(508)213-8991
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered* | ||
* | Effective as of August 7, 2024, registrant was delisted from Nasdaq and its common stock is now quoted on the over-the-counter market under the trading symbol "SPEC" and its public warrants under the trading symbol "SPECW." |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 19, 2024, there were 18,547,201 shares of the registrant's Class A common stock, par value $0.0001 per share, issued and outstanding, and 0 shares of the registrant's Class B common stock, par value $0.0001 per share, issued and outstanding.
SPECTAIRE HOLDINGS INC.
TABLE OF CONTENTS
Page | |||
Part 1 - Financial Information | |||
Item 1. | Condensed Consolidated Financial Statements (Unaudited) | ||
Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023 | 1 | ||
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) | 2 | ||
Condensed Consolidated Statements of Changes in Stockholders' Deficit for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) | 3 | ||
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited) | 4 | ||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition And Results of Operations | 26 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42 | |
Item 4. | Controls And Procedures | 43 | |
Part II - Other Information | 44 | ||
Item 1. | Legal Proceedings | 44 | |
Item 1a. | Risk Factors | 44 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44 | |
Item 3. | Defaults Upon Senior Securities | 44 | |
Item 4. | Mine Safety Disclosures | 44 | |
Item 5. | Other Information | 44 | |
Item 6. | Exhibits | 45 | |
Signatures | 46 |
i
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Balance Sheets
June 30, 2024 |
December 31, 2023 |
|||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 94,148 | $ | 342,996 | ||||
Inventories | 163,806 | 243,448 | ||||||
Prepaid expenses and other assets | 316,576 | 577,665 | ||||||
Total current assets | 574,530 | 1,164,109 | ||||||
Property and equipment, net | 61,220 | 67,193 | ||||||
Operating lease right of use asset | 166,182 | 205,053 | ||||||
Deposits | 6,700 | 6,700 | ||||||
Total assets | $ | 808,632 | $ | 1,443,055 | ||||
Liabilities and stockholders' deficit | ||||||||
Current liabilities | ||||||||
Accounts payable - related party (note 8) | $ |
-
|
$ | 20,600 | ||||
Accounts payable | 1,113,511 | 1,885,390 | ||||||
Accrued legal costs | 4,016,509 | 6,765,906 | ||||||
Accrued interest expense | 1,745,904 | 1,014,360 | ||||||
Other accrued expenses | 936,180 | 1,867,822 | ||||||
Investor deposit | 2,000,000 |
-
|
||||||
Other current liabilities | 123,780 | 123,780 | ||||||
Deferred revenue | 673,878 | 525,000 | ||||||
Notes payable | 429,370 | 429,370 | ||||||
Loan payable | 7,513,852 | 5,200,000 | ||||||
Convertible notes payable, net - related party (note 11) | 1,111,516 | 1,411,516 | ||||||
Operating lease liability - current portion | 81,802 | 75,808 | ||||||
Share based compensation liabilities | 769,588 | 862,614 | ||||||
Forward purchase agreements | 201,250 | 717,000 | ||||||
Deferred underwriting fees | 1,535,500 | 5,635,000 | ||||||
Total current liabilities | 22,252,640 | 26,534,166 | ||||||
Operating lease liability - non current portion | 95,488 | 136,899 | ||||||
Earnout liabilities | 330,000 | 1,964,000 | ||||||
Total liabilities | 22,678,128 | 28,635,065 | ||||||
Commitments and contingencies (note 16) | ||||||||
Stockholders' deficit | ||||||||
Preferred stock, $0.0001 par value; 20,000,000 authorized shares and 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023 |
-
|
-
|
||||||
Common stock, $0.0001 par value; 600,000,000 authorized shares and 18,547,201 shares and 15,344,864 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | 1,854 | 1,534 | ||||||
Additional paid in capital | 3,305,427 |
-
|
||||||
Accumulated deficit | (25,176,777 | ) | (27,193,544 | ) | ||||
Total stockholders' deficit | (21,869,496 | ) | (27,192,010 | ) | ||||
Total liabilities and stockholders' deficit | $ | 808,632 | $ | 1,443,055 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Revenues | $ |
-
|
$ |
-
|
$ |
-
|
$ |
-
|
||||||||
Costs and expenses: | ||||||||||||||||
Sales and marketing | 130,878 | 121,000 | 262,169 | 226,000 | ||||||||||||
General and administrative | 1,393,505 | 2,172,883 | 2,313,301 | 5,784,560 | ||||||||||||
Research and development | 568,394 | 646,323 | 1,513,519 | 1,245,550 | ||||||||||||
Depreciation expense | 8,969 | 3,734 | 17,489 | 6,731 | ||||||||||||
Total costs and expenses | 2,101,746 | 2,943,940 | 4,106,478 | 7,262,841 | ||||||||||||
Operating loss | (2,101,746 | ) | (2,943,940 | ) | (4,106,478 | ) | (7,262,841 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest income on marketable securities |
-
|
27,684 |
-
|
27,684 | ||||||||||||
Interest expense | (957,332 | ) | (1,982,250 | ) | (3,336,652 | ) | (2,019,904 | ) | ||||||||
Capital raise finance charge | (181,000 | ) |
-
|
(181,000 | ) |
-
|
||||||||||
Change in fair value of forward purchase agreements |
-
|
-
|
515,750 |
-
|
||||||||||||
Change in fair value of earnout liabilities | 281,000 |
-
|
1,634,000 |
-
|
||||||||||||
Loss on initial issuance of warrants |
-
|
(7,309,584 | ) |
-
|
(7,309,584 | ) | ||||||||||
Gain on settlement of professional fees and deferred underwriting fees | 7,475,063 |
-
|
7,475,063 | |||||||||||||
Other miscellaneous income | 4,956 |
-
|
16,084 |
-
|
||||||||||||
Income (loss) before income taxes | 4,520,941 | (12,208,090 | ) | 2,016,767 | (16,564,645 | ) | ||||||||||
Income tax expense |
-
|
-
|
-
|
-
|
||||||||||||
Net Income (loss) | $ | 4,520,941 | $ | (12,208,090 | ) | 2,016,767 | (16,564,645 | ) | ||||||||
Net income (loss) per common share, basic | $ | 0.25 | $ | (1.85 | ) | $ | 0.12 | $ | (2.56 | ) | ||||||
Weighted average shares outstanding, basic | 18,129,623 | 6,581,284 | 16,842,914 | 6,460,348 | ||||||||||||
Net income (loss) per common share, diluted | $ | 0.20 | $ | (1.85 | ) | $ | 0.10 | $ | (2.56 | ) | ||||||
Weighted average shares outstanding, diluted | 22,263,245 | 6,581,284 | 20,995,601 | 6,460,348 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Statements of Changes in Stockholders' Deficit (Unaudited)
For the Three and Six Months Ended June 30, 2024
Preferred Stock | Common Stock | Subscription |
Additional Paid-In |
Accumulated |
Total Stockholders' |
|||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Receivable | Capital | Deficit | Deficit | |||||||||||||||||||||||||
Balance at December 31, 2023 |
-
|
$ |
-
|
15,344,864 | $ | 1,534 | $ |
-
|
$ |
-
|
$ | (27,193,544 | ) | $ | (27,192,010 | ) | ||||||||||||||||
Issuance of common stock |
-
|
-
|
677,702 | 68 | (149,999 | ) | 832,109 |
-
|
682,178 | |||||||||||||||||||||||
Proceeds from forward purchase agreements | - |
-
|
- |
-
|
-
|
679,660 |
-
|
679,660 | ||||||||||||||||||||||||
Net loss | - |
-
|
- |
-
|
-
|
-
|
(2,504,174 | ) | (2,504,174 | ) | ||||||||||||||||||||||
Balance at March 31, 2024 |
-
|
$ |
-
|
16,022,566 | $ | 1,602 | $ | (149,999 | ) | $ | 1,511,769 | $ | (29,697,718 | ) | $ | (28,334,346 | ) | |||||||||||||||
Issuance of common stock | - |
-
|
2,389,736 | 239 |
-
|
1,729,850 |
-
|
1,730,089 | ||||||||||||||||||||||||
Share-based compensation | - |
-
|
134,899 | 13 |
-
|
63,808 |
-
|
63,821 | ||||||||||||||||||||||||
Receipt of subscription payment | - |
-
|
- |
-
|
149,999 |
-
|
-
|
149,999 | ||||||||||||||||||||||||
Net Income | - |
-
|
- |
-
|
-
|
-
|
4,520,941 | 4,520,941 | ||||||||||||||||||||||||
Balance at June 30, 2024 | - | $ |
-
|
18,547,201 | $ | 1,854 | $ |
-
|
$ | 3,305,427 | $ | (25,176,777 | ) | $ | (21,869,496 | ) |
For the Three and Six Months Ended June 30, 2023
Preferred Stock | Common Stock |
Additional Paid-In |
Accumulated |
Total Stockholders' |
||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance at December 31, 2022 | 5,100,000 | $ | 510 | 9,042,818 | $ | 904 | $ | 344,100 | $ | (1,139,407 | ) | $ | (793,893 | ) | ||||||||||||||
Retroactive application of Business Combination (note 1) | (5,100,000 | ) | (510 | ) | (2,820,826 | ) | (282 | ) | 792 |
-
|
-
|
|||||||||||||||||
Balance at December 31, 2022 |
-
|
-
|
6,221,992 | 622 | 344,892 | (1,139,407 | ) | (793,893 | ) | |||||||||||||||||||
Share-based compensation |
-
|
-
|
199,073 | 20 | 1,357,028 |
-
|
1,357,048 | |||||||||||||||||||||
Issuance of common stock |
-
|
-
|
139,291 | 14 | (14 | ) |
-
|
-
|
||||||||||||||||||||
Distribution of shares relating to the Arosa Loan Agreement | - |
-
|
- |
-
|
(1,500,000 | ) |
-
|
(1,500,000 | ) | |||||||||||||||||||
Net loss | - |
-
|
- |
-
|
-
|
(4,356,555 | ) | (4,356,555 | ) | |||||||||||||||||||
Balance at March 31, 2023 |
-
|
$ |
-
|
6,560,356 | $ | 656 | $ | 201,906 | $ | (5,495,962 | ) | $ | (5,293,400 | ) | ||||||||||||||
Share-based compensation | - |
-
|
199,073 | 20 | 1,357,028 |
-
|
1,357,048 | |||||||||||||||||||||
Issuance of common stock | - |
-
|
25,736 | 3 | (3 | ) |
-
|
-
|
||||||||||||||||||||
Issuance of warrants relating to the Arosa Loan Agreement | - |
-
|
- |
-
|
13,809,584 |
-
|
13,809,584 | |||||||||||||||||||||
Net loss | - |
-
|
- |
-
|
-
|
(12,208,090 | ) | (12,208,090 | ) | |||||||||||||||||||
Balance at June 30, 2023 | - | $ |
-
|
6,785,165 | $ | 679 | $ | 15,368,515 | $ | (17,704,052 | ) | $ | (2,334,858 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, |
||||||||
2024 | 2023 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income (loss) | $ | 2,016,767 | $ | (16,564,645 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation expense | 17,489 | 6,731 | ||||||
Amortization of right of use assets | 38,871 |
-
|
||||||
Share-based compensation | 3,110,558 | 2,714,096 | ||||||
Change in fair value of stock based compensation liabilities | (3,139,763 | ) |
-
|
|||||
Gain on settlement of professional fees and deferred underwriting fees | (7,475,063 | ) |
-
|
|||||
Non-cash interest expense | 3,268,510 | 2,019,904 | ||||||
Interest income reinvested on marketable securities |
-
|
(27,684 | ) | |||||
Loss on initial issuance of warrants |
-
|
7,309,584 | ||||||
Change in fair value of forward purchase agreements | (515,750 | ) |
-
|
|||||
Change in fair value of earnout liabilities | (1,634,000 | ) |
-
|
|||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | 261,089 | (4,267 | ) | |||||
Inventories | 79,642 |
-
|
||||||
Accounts payable - related party | (20,600 | ) | (188,000 | ) | ||||
Accounts payable, accrued legal costs and other accrued expenses | (1,867,354 | ) | 612,512 | |||||
Operating lease payments | (35,417 | ) | ||||||
Deferred revenue | 148,878 | 148,780 | ||||||
Net cash used in operating activities | (5,746,143 | ) | (3,972,989 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of marketable securities |
-
|
(3,100,000 | ) | |||||
Redemption of marketable securities |
-
|
1,160,000 | ||||||
Purchases of property and equipment | (11,516 | ) | (18,754 | ) | ||||
Net cash used in investing activities | (11,516 | ) | (1,958,754 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from issuance of common stock | 2,562,266 |
-
|
||||||
Proceeds from investor subscription | 2,000,000 |
-
|
||||||
Proceeds from term loan | 630,000 | 5,000,000 | ||||||
Repayment of term loan | (63,115 | ) |
-
|
|||||
Advance to related party |
-
|
(694,000 | ) | |||||
Repayment of convertible notes payable - related party (note 11) | (300,000 | ) |
-
|
|||||
Proceeds from convertible notes |
-
|
1,819,980 |
||||||
Proceeds from forward purchase agreements | 679,660 |
-
|
||||||
Net cash provided by financing activities | 5,508,811 | 6,125,980 | ||||||
Net (decrease) increase in cash and cash equivalents | (248,848 | ) | 194,237 | |||||
Cash and cash equivalents, beginning of period | 342,996 | 18,886 | ||||||
Cash and cash equivalents, end of the period | $ | 94,148 | $ | 213,123 | ||||
Non-Cash investing and financing activities: | ||||||||
Distribution of shares relating to the Arosa Loan Agreement (note 9) | $ |
-
|
$ | 1,500,000 | ||||
Issuance of warrants related to the Arosa Loan Agreement (note 9) | $ |
-
|
$ | 13,809,584 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Business Operations
Spectaire Holdings Inc. ("Spectaire" or the "Company"), a Delaware corporation incorporated in September 2022, is an industrial technology company whose core offering allows its customers to measure, manage, and potentially reduce carbon dioxide equivalent (CO2e) and other greenhouse gas emissions.
On April 4, 2024, the Company incorporated Spectaire Canada Inc, a wholly owned Ontario, Canada corporation. As of June 30, 2024, Spectaire Canada Inc. has not commenced operations.
Business Combination
On January 16, 2023, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Perception Capital Corp. II ("PCCT"), a blank check company incorporated as a Cayman Islands exempted company limited by shares and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses and Spectaire Merger Sub Corp., a Delaware corporation and a direct wholly owned subsidiary of PCCT ("Merger Sub").
On October 19, 2023, Merger Sub merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of New Spectaire (the "Business Combination" and, together with the other transactions contemplated by the Merger Agreement, the "Transactions").
On October 16, 2023, the Company effected a deregistration under the Companies Act (As Revised) of the Cayman Islands and a domestication under the General Corporation Law of the State of Delaware (the "DGCL"), as amended, pursuant to which the Company's jurisdiction of incorporation changed from the Cayman Islands to the State of Delaware (the "Domestication").
In connection with the Domestication:
(i) | each issued and outstanding Class A ordinary share, par value $0.0001 per share, of the Company (the "Class A Ordinary Shares") and each then issued and outstanding Class B ordinary share, par value $0.0001 per share, of the Company (the "Class B Ordinary Shares" and together with the Class A Ordinary Shares, the "Ordinary Shares"), converted automatically, on a one-for-one basis, into a share of common stock, par value $0.0001 per share, of the Company ("Common Stock"), |
(ii) | each issued and outstanding warrant to purchase one Class A Ordinary Share ("Cayman Warrant") converted automatically into a warrant to acquire one share of Common Stock ("Warrant") pursuant to the Warrant Agreement, dated as of October 27, 2021, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent, and |
(iii) | each issued and outstanding unit of the Company, consisting of one Class A Ordinary Share and one-half of one Cayman Warrant, was cancelled and entitled the holder thereof to one share of Company Common Stock and one-half of one Warrant. |
Upon effectiveness of the Domestication, the Company changed its name from "Perception Capital Corp. II" to "Spectaire Holdings Inc.", filed a certificate of incorporation (the "Company Charter") with the Secretary of State of Delaware and adopted bylaws (the "Company Bylaws" and, together with the Company Charter, the "Company Organizational Documents") under the DGCL.
At closing of the Business Combination, the Company issued 585,000 shares of Common Stock to Polar Multi-Strategy Master Fund ("Polar") pursuant to the terms of the Subscription Agreement entered into on October 4, 2023 where Polar agreed to contribute up to $650,000 to the Company (the "Capital Contribution") and the Company agreed to issue 0.9 shares of Common Stock for each dollar of the Capital Contribution. Upon certain events of default under the Subscription Agreement, PCCT shall issue to Polar 0.1 shares of Common Stock ("Default Shares") for each dollar of the Capital Contribution funded as of the date of such default, and for each month thereafter until such default is cured, subject to certain limitations provided for therein.
On October 11, 2023, the Company entered into a private placement subscription agreement (the "PIPE Subscription Agreement") with an investor (the "PIPE Investor"), pursuant to which the PIPE Investor agreed to subscribe for newly-issued shares of Common Stock (the "PIPE Shares"), with an aggregate purchase price of $3,500,000. On October 19, 2023 ("Closing"), concurrently with the closing of the Business Combination, the PIPE Investor closed on the purchase of 50,000 PIPE Shares at a price of $10.00 per share, for an aggregate purchase price of $500,000 (the "PIPE Investment"). Pursuant to the PIPE Subscription Agreement, within two years following the Closing, the PIPE Investor will purchase additional PIPE Shares in one or multiple subsequent closings for a purchase price per share of $10.00 (subject to as described in the PIPE Subscription Agreement) for an aggregate purchase price of $3,000,000 (the "Additional Investments"). The purchase and sale of the PIPE Shares in the Additional Investments is conditioned upon certain conditions as noted in the PIPE Subscription Agreement. The PIPE Shares issued and sold in the PIPE Investment and to be issued and sold in the Additional Investments pursuant to the PIPE Subscription Agreement have not been and will not be registered under the Securities Act of 1933 (the "Securities Act") and have been and will be issued in reliance on the availability of an exemption from such registration. For the three and six months ended June 30, 2024, there were no shares purchased under this PIPE Subscription Agreement.
5
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the terms of the Arosa Loan Agreement dated March 31, 2023 (See Note 9), Spectaire issued to Arosa a warrant to purchase a number of shares of common stock of Spectaire representing 10.0% of the outstanding number of shares of common stock of Spectaire on a fully diluted basis as of March 31, 2023 at an exercise price of $0.01 per share, subject to adjustment as described in the Arosa Loan Agreement (the "Closing Date Warrant"). Pursuant to the Arosa Loan Agreement, on October 19, 2023, in connection with the closing of the Business Combination, the Company issued an additional warrant to Arosa to purchase 2,194,453 shares of Common Stock, subject to adjustment as described therein (the "Additional Warrant"). The Additional Warrant is exercisable at any time and from time to time from the date of its issuance until October 19, 2028 at an exercise price of $0.01 per share. Upon the issuance of the Additional Warrant, Arosa and the Company agreed to terminate and cancel the Closing Date Warrant. The shares of Common Stock underlying the Additional Warrant represented approximately 10.3% of the outstanding number of shares of Common Stock outstanding as of immediately following the consummation of the Business Combination on a fully diluted basis.
In connection with the Business Combination, the Company also entered into agreements (the "Forward Purchase Agreements") for an OTC Equity Forward Transaction (the "Forward Purchase Transaction") with Meteora Special Opportunity Fund I, LP, Meteora Capital Partners, LP, Meteora Select Trading Opportunities Master, LP (collectively the "Seller"). See Note 15 for further information.
On October 19, 2023, in connection with the consummation of the Business Combination and as contemplated by the Merger Agreement, the Company entered into lock-up agreements (collectively, the "Lock-Up Agreements") with (i) Perception Capital Partners II LLC (the "Sponsor"), (ii) certain of PCCT's directors and officers and (iii) certain stockholders of Spectaire restricting the transfer of Common Stock, Private Placement Warrants and any shares of Common Stock underlying the Private Placement Warrants from and after the Closing. The restrictions under the Lock-Up Agreements (1) with respect to the Common Stock, begin at the Closing, and end on (a) in the case of the Sponsor and certain of PCCT's directors and officers, the date that is 365 days after the Closing, or upon the price of Common Stock reaching $12.00 for any 20 trading days within a 30-trading day period commencing at least 150 days after the Closing, and (b) in the case of the stockholders of Spectaire, the date that is 180 days after the Closing, and (2) with respect to the Private Placement Warrants and any shares of Common Stock underlying the Private Placement Warrants, the date that is 30 days after the Closing.
Spectaire has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
a) | Spectaire's existing stockholders have the ability to control decisions regarding election and removal of directors and officers of the Combined Company; |
b) | Spectaire is the larger entity in terms of substantive operations and employee base; |
c) | Spectaire comprises the ongoing operations of the Combined Company; and |
d) | Spectaire's existing senior management is the senior management of the Combined Company. |
Accordingly, the Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP. Under this method of accounting, PCCT was treated as the "acquired" company and Spectaire was treated as the accounting acquirer for financial statement reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Spectaire issuing stock for the net assets of PCCT, accompanied by a recapitalization. The net assets of PCCT were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Spectaire.
Note 2 - Liquidity and Going Concern
Historically, the Company's primary sources of liquidity have been cash flows from contributions from founders or other investors. For the three and six months ended June 30, 2024, the Company reported an operating loss of $2.1 million and $4.1 million, respectively and negative cash flows from operations of $5.7 million for the six months ended June 30 2024. As of June 30, 2024, the Company had an aggregate unrestricted cash balance of $94 thousand, a net working capital deficit of $21.7 million, and accumulated deficit of $25.2 million.
6
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company's future capital requirements will depend on many factors, including the Company's revenue growth rate, the timing and extent of spending to support further sales and marketing, and research and development efforts. In order to finance these opportunities, the Company will need to raise additional financing. While there can be no assurances, the Company intends to raise such capital through additional equity raises. If additional financing is required from outside sources, the Company may not be able to raise it on terms acceptable to the Company or at all. If the Company is unable to raise additional capital when desired, the Company's business, results of operations and financial condition would be materially and adversely affected.
As a result of the above, in connection with the Company's assessment of going concern considerations in accordance with Financial Accounting Standard Board's ("FASB") Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern," management has determined that the Company's liquidity condition raises substantial doubt about the Company's ability to continue as a going concern through twelve months from the date these condensed consolidated financial statements are available to be issued. These condensed consolidated 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 3 - Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") for interim financial information. Accordingly, certain information and footnote disclosures normally included in consolidated financial statements in accordance with US GAAP have been omitted. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by US GAAP for complete financial statements.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended, (the "Securities Act"), as modified by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as to those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could materially differ from these estimates. On an ongoing basis, the Company evaluates its estimates including those relating to inventory valuation, fair values, income taxes, and contingent liabilities among others. The Company bases its estimates on assumptions both historical and forward looking that are believed to be reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities.
In addition, management monitors the effects of the global macroeconomic environment, including increasing inflationary pressures; social and political issues; regulatory matters, geopolitical tensions; and global security issues. The Company is also mindful of inflationary pressures on its cost base and is monitoring the impact on customer preferences.
7
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and marketable securities. Bank deposits are held by accredited financial institutions and these deposits may at times be in excess of federally insured limits. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions that it believes are of high quality. The Company has not experienced any losses on its deposits of cash or cash equivalents. As of June 30, 2024, the cash balance does not exceed the FDIC limit. As of December 31, 2023, the Company held approximately $90,000 in cash and cash equivalents above the FDIC limit. The Company has not experienced any losses in such accounts.
Business Combinations
The Company evaluates whether acquired net assets should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgement to determine whether the acquired net assets meet the definition of a business by considering if the set includes an acquired input, process, and the ability to create outputs.
The Company accounts for business combinations using the acquisition method when it has obtained control. The Company measures goodwill as the fair value of the consideration transferred including the fair value of any non-controlling interest recognized, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at their fair value as of the acquisition date. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Any contingent consideration ("Earnout liabilities") is measured at fair value at the acquisition date. For contingent consideration that does not meet all the criteria for equity classification, such contingent consideration is required to be recorded at its initial fair value at the acquisition date, and on each balance sheet date thereafter. Changes in the estimated fair value of liability-classified contingent consideration are recognized on the condensed consolidated statements of operations in the period of change.
When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of 90 days or less from the purchase date to be cash equivalents. As of June 30, 2024 and December 31, 2023, there were nocash equivalents. The Company maintains its cash in checking and savings accounts. Income generated from cash held in savings accounts is recorded as interest income.
Marketable securities
During the year ended December 31, 2023, the Company held investment securities in mutual funds primarily in U.S. government securities. Since all of the Company's permitted investments consist of treasury securities, fair values of its investments are determined by Level 1 inputs utilizing quoted market prices (unadjusted) in active markets for identical assets.
These securities are presented on the condensed consolidated balance sheet at fair value at the end of the reporting period. Earnings on these securities are included in interest income on marketable securities in the condensed consolidated statement of operations and are automatically reinvested. The fair value of these securities is determined using quoted market prices in active markets for identical assets. As at June 30, 2024 and December 31, 2024, there were no marketable securities.
Inventories
Inventories consist of finished stock of spectrometer units built by the Company and recorded at the lower of cost or net realizable value and work -in- progress units measured at cost. The Company regularly reviews inventory quantities and records a provision for excess and/or obsolete inventory which reduces the cost basis of the inventory. There was noinventory reserve as of June 30, 2024 and December 31, 2023.
8
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the components of inventory at June 30, 2024 and December 31, 2023.
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
Finished goods | $ | 661,093 | $ | 291,492 | ||||
Work in progress | 59,806 | 173,448 | ||||||
Total | 720,899 | 464,940 | ||||||
Lower of cost and market adjustment | (557,093 | ) | (221,492 | ) | ||||
Balance, end of period | $ | 163,806 | $ | 243,448 |
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line basis over the estimated useful lives of the respective asset. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life of the assets are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.
The following table shows the estimated useful life of assets at June 30, 2024 and December 31, 2023
Assets | Estimated Useful Life | |
Lab equipment | 3 years |
Segment Reporting
Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company has determined it has one operating segment. The Company's chief operating decision maker, its Chief Executive Officer, manages the Company's operations on a consolidated basis for the purposes of allocating resources and evaluating financial performance.
Fair Value Measurements
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels:
● | Level 1: Inputs are quoted prices in active markets for identical assets or liabilities. |
● | Level 2: Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
● | Level 3: Inputs are unobservable for the asset or liability. |
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. The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy based on the inputs used to measure fair value.
9
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts of certain financial instruments, such as cash equivalents, marketable securities, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The fair value of debt instruments for which the Company has not elected fair value accounting is based on the present value of expected future cash flows and assumptions about the then-current market interest rates as of the reporting period and the creditworthiness of the Company. All of the Company's debt is carried on the condensed consolidated balance sheets on a historical cost basis net of unamortized discounts and premiums because the Company has not elected the fair value option of accounting.
The Company's policy is to record transfers between levels, if any, as of the beginning of the fiscal year. For the three and six months ended June 30, 2024 and 2023, no transfers between levels have been recognized.
Warrants
The Company reviews the terms of warrants to purchase its common stock to determine whether warrants should be classified as liabilities or stockholders' deficit in its condensed consolidated balance sheets. In order for a warrant to be classified in stockholders' deficit, the warrant must be (i) indexed to the Company's equity and (ii) meet the conditions for equity classification.
If a warrant does not meet the conditions for stockholders' deficit classification, it is carried on the condensed consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other non-operating losses (gains) in the condensed consolidated statements of operations. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders' deficit in the condensed consolidated balance sheets, and the amount initially recorded is not subsequently remeasured at fair value.
Convertible Notes
The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. In this case, the convertible notes represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the convertible notes date with a charge to expense in accordance with Accounting Standards Codification ("ASC") Topic 480, Distinguishing Liabilities from Equity ("ASC 480").
Leases
The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use ("ROU") assets represent the Company's right to use the underlying asset for the term of the lease and the lease liabilities represent an obligation to make lease payments arising from the lease. The Company's lease agreement contains rent escalation provisions, which are considered in determining the ROU assets and lease liabilities. The Company begins recognizing rent expense when the lessor makes the underlying asset available for use by the Company. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term. The interest rate the Company uses to determine the present value of future lease payments is the Company's incremental borrowing rate because the rate implicit in the Company's leases is not readily determinable. The incremental borrowing rate is a hypothetical rate for collateralized borrowings in economic environments where the leased asset is located based on credit rating factors. The ROU asset is determined based on the lease liability initially established and adjusted for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. Certain leases contain variable costs, such as common area maintenance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the condensed consolidated statements of operations.
Operating leases are included in the ROU assets and lease liabilities on the condensed consolidated balance sheets. The Company has no finance leases.
10
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Product sales
The Company generates revenue through the sale of AireCore™ units directly to customers. The Company considers customer agreements and purchase orders to be the contracts with the customer. There is a single performance obligation, which is the Company's promise to transfer the Company's product to customers based on specific payment and shipping terms in the arrangement. The entire transaction price is allocated to this single performance obligation. Product revenue is recognized when a customer obtains control of the Company's product, which occurs at shipment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products.
The Company evaluated principal versus agent considerations to determine whether it is appropriate to record third-party logistics provider fees paid as an expense. The Company owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct the third-party logistics provider to return the Company's inventories to any location specified by the Company. It is the Company's responsibility to make any returns made by customers directly to logistic providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk, establishes prices of its products, fulfils the goods to the customer and can limit quantities or stop selling the goods at any time. Therefore, these third-party logistics provider fees will be recorded within cost of goods sold as they are incurred and are not recorded as a reduction of revenue.
Profit Sharing Agreement
The Company entered into an agreement with a customer pursuant to which the Company will provide training and marketing support to the customer and receive a percentage of revenue received by the customer when the customer markets spectrometers. The Company evaluated variable considerations to determine if the Company should estimate a reasonable amount of this revenue to be included in the transaction price. The Company determined that since the customer controls all aspects of the transactions with their customers including pricing and timing of service, the expected outcome is highly uncertain and variable revenues cannot be reasonably estimated. Revenue under this agreement will be recognized when the customer makes such confirmation and receipt of a determined amount of funds is highly certain.
Licensing agreement revenue
The Company enters into license agreements with strategic partners to sell and distribute AireCore™. For licenses of technology, recognition of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations under the contract. Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations. Customers pay in advance for the licenses. Revenue is initially deferred and is recognized at the time the performance obligation is complete. At June 30, 2024 and December 31, 2023, $500,000 related to licensing agreements is included in deferred revenue on the condensed consolidated balance sheets.
Share-Based Compensation
The Company accounts for share-based compensation arrangements granted to employees in accordance with ASC 718, Compensation: Stock Compensation ("ASC 718"), by measuring the grant date fair value of the award and recognizing the resulting expense over the period during which the employee is required to perform service in exchange for the award. Equity-based compensation expense is only recognized for awards subject to performance conditions if it is probable that the performance condition will be achieved. The Company accounts for forfeitures when they occur.
11
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Research and Development Costs
Costs related to preliminary research and development of internal use software are expensed as incurred as a component of operating expenses.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC Topic 740, Income Taxes ("ASC 740"). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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 as of June 30, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
Fair Value of Financial Instruments
The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis. The Company uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations in order to determine (a) the values attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments. These valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net income (loss) per share is computed by giving effect to all potential shares of common stock, including restricted stock awards, restricted stock units, convertible notes, warrants and earn-out shares, to the extent dilutive. For the three and six months ended June 30, 2024, unvested restricted stock awards, restricted stock units, and warrants were included in the calculation of dilutive EPS using the treasury stock method; the convertible notes were included in the calculation of dilutive EPS using the if-converted method; and the earn-out shares would be included in the calculation of dilutive EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the earn-out period. For the three and six months ended June 30, 2023, all potentially dilutive securities were notincluded in the calculation of diluted net income (loss) per share as their effect would be anti-dilutive.
12
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of weighted average shares used in the calculations of the basic and diluted net income per share:
Three Months ended June 30, 2024 |
Six Months ended June 30, 2024 |
|||||||
Basic weighted average shares outstanding | 18,129,623 | 16,842,914 | ||||||
Effect of dilution: | ||||||||
Arosa warrants | 951,844 | 951,844 | ||||||
Restricted stock | 1,570,200 | 1,570,200 | ||||||
Restricted stock units | 1,088,726 | 1,088,726 | ||||||
Convertible notes | 522,852 | 541,917 | ||||||
Diluted weighted average shares outstanding | 22,263,245 | 20,995,601 |
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which will add required disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help investors understand how the CODM evaluates segment expenses and operating results. The new standard will also allow disclosure of multiple measures of segment profitability, if those measures are used to allocate resources and assess performance. The amendments will be effective for public companies for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The standard will be effective for public companies for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its condensed consolidated financial statements.
13
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Recapitalization
As discussed in Note 1, "Organization and Business Operations", the Business Combination was consummated on October 19, 2023, which, for accounting purposes, was treated as the equivalent of Spectaire issuing stock for the net assets of PCCT, accompanied by a recapitalization. Under this method of accounting, PCCT was treated as the acquired company for financial accounting and reporting purposes under US GAAP.
Transaction Proceeds
Upon closing of the Business Combination, the Company received gross proceeds of $12.6 million from the Business Combination, offset by total transaction costs and other fees totaling of $12.6 million. The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows and the consolidated statement of changes in stockholders' deficit for the period ended December 31, 2023:
Cash-trust and cash, net of redemptions | $ | 12,623,476 | ||
Less: transaction costs, loans and advisory fees, paid | (419,174 | ) | ||
Less: cash paid in connection with the forward purchase agreements | (12,204,302 | ) | ||
Net proceeds from the Business Combination |
-
|
|||
Less: deferred underwriting fees payable | (5,635,000 | ) | ||
Less: earnout liabilities | (49,894,000 | ) | ||
Less: convertible notes payable, accounts payable and accrued liabilities assumed (including accrued transaction legal costs of $6,211,891) | (9,739,970 | ) | ||
Add: other, net | 24,004 | |||
Reverse recapitalization, net | $ | (65,244,966 | ) |
The number of shares of Common Stock issued immediately following the consummation of the Business Combination were:
PCCT Class A common stock, outstanding prior to the Business Combination | 2,080,915 | |||
Less: Redemption of PCCT Class A common stock | (952,924 | ) | ||
Class A common stock of Perception Capital Corp. II | 1,127,991 | |||
PCCT Class B common stock, outstanding prior to the Business Combination | 5,750,000 | |||
Business Combination shares | 6,877,991 | |||
Spectaire Shares | 8,466,873 | |||
Common Stock immediately after the Business Combination | 15,344,864 |
The number of Spectaire shares was determined as follows:
Spectaire Shares |
Spectaire Shares after conversion ratio |
|||||||
Class A Common Stock | 19,495,432 | 8,466,873 |
Public and private placement warrants
The 11,500,000 Public Warrants issued at the time of PCCT's initial public offering and 10,050,000 warrants issued in connection with private placement at the time of PCCT's initial public offering (the "Private Placement Warrants") remained outstanding and became warrants for the Company (see Note 13).
Redemption
Prior to the closing of the Business Combination, certain PCCT public shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption of 952,924 shares of PCCT Class A common stock for an aggregate payment of $10,664,281.
14
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Property and Equipment
The following table summarizes the components of property and equipment, net:
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
Lab equipment | $ | 113,734 | $ | 102,218 | ||||
Total cost | 113,734 | 102,218 | ||||||
Less: Accumulated depreciation | (52,514 | ) | (35,025 | ) | ||||
Property and equipment, net | $ | 61,220 | $ | 67,193 |
Depreciation expense was $17,489 and $6,731 for the six months ended June 30, 2024 and 2023, respectively. Depreciation expense was $8,969 and $3,734 for the three months ended June 30, 2024 and 2023, respectively.
Note 6 - Leases
The Company leases its office space. The lease agreement does not contain any material residual value guarantees or material restrictive covenants. For the six months ended June 30, 2024 and 2023, $50,948 and $38,950 of operating lease cost are included in general and administrative expenses in the condensed consolidated statements of operations, respectively. For the three months ended June 30, 2024 and 2023, $22,924 and $20,530 of operating lease cost are included in general and administrative expenses in the condensed consolidated statements of operations, respectively.
The following amounts were recorded in the Company's condensed consolidated balance sheet relating to its operating leases and other supplemental information as of June 30, 2024 and December 31, 2023:
June 30, 2024 |
December 31, 2023 |
|||||||
ROU Assets | $ | 166,182 | $ | 205,053 | ||||
Lease Liabilities: | ||||||||
Current lease liabilities | $ | 81,802 | $ | 75,808 | ||||
Non current lease liabilities | 95,488 | 136,899 | ||||||
Total lease liabilities | $ | 177,290 | $ | 212,707 |
Other supplemental information:
June 30, 2024 |
||||
Weighted average remaining lease term (years) | $ | 2.00 | ||
Weighted average discount rate | 5.00 | % |
The following table presents the future lease payments relating to the Company's operating lease liabilities recorded on the condensed consolidated balance sheet as of June 30, 2024:
Fiscal Year |
June 30, 2024 |
|||
Remainder of 2024 | $ | 44,220 | ||
2025 | 92,862 | |||
2026 | 49,056 | |||
Total undiscounted lease payments | 186,138 | |||
Less: imputed interest | (8,848 | ) | ||
Total lease liabilities | $ | 177,290 |
15
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Other Accrued Expenses
The following table summarizes other accrued expenses:
June 30, | December 31, | |||||||
2024 | 2023 | |||||||
Accrued professional services | $ | 92,977 | $ | 507,977 | ||||
Insurance premium financing | 75,681 | 507,348 | ||||||
Accrued payroll and bonus(1) | 527,000 | 750,414 | ||||||
Capital raise fees | 131,000 |
-
|
||||||
Other accrued expenses | 109,522 | 102,083 | ||||||
$ | 936,180 | $ | 1,867,822 |
(1) | Includes $157,000 and $267,000 of accrued professional services due to an entity jointly owned by the Chief Executive Officer and Chief Information Officer of Spectaire at June 30, 2024 and December 31, 2023, respectively (Note 8). |
Note 8 - Related Parties Transactions
Accounts Payable - Related Party
The Chief Executive Officer and Chief Information Officer of Spectaire jointly own and are employed by an entity providing staffing services to Spectaire since inception. For the three and six months ended June 30, 2024, $301,766 and $505,182, respectively of staffing services were provided and expensed by the Company as research and development expenses and general and administrative expenses in the condensed consolidated statements of operations of which $0 and $188,000 was due to the entity as of June 30, 2024 and December 31, 2023, respectively. For the three and six months ended June 30, 2023, $460,284 and $847,065, respectively of staffing services were provided and expensed by the Company as research and development expenses and general and administrative expenses in the condensed consolidated statements of operations. In addition, during the year ended December 31, 2023, $450,000 of Business Combination incentive was provided and expensed by the Company as research and development expenses in the consolidated statement of operations of which there was $157,000 and $267,000 outstanding and included in accrued payroll and bonus within other accrued expenses on the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023, respectively. Effective May 31, 2024, the entity no longer provided staffing services to Spectaire.
On June 1, 2024, the Company entered into a contract for staffing services with an affiliate company. For the three and six months ended June 30, 2024, $60,000 of staffing services were provided and expensed by the Company as research and development expenses and general and administrative expenses in the condensed consolidated statements of operations of which $0 was due to the entity as of June 30, 2024.
In December 2023, the Chief Financial Officer advanced the Company a total of $20,600 to cover operating costs which is outstanding as of December 31, 2023 and was repaid in January 2024.
Convertible Promissory Notes - Related Party
As discussed in Note 11, certain related parties have entered into convertible notes with the Company.
PIPE Subscription Agreement
As discussed in Note 1, on October 11, 2023, the Company entered into a PIPE Subscription Agreement with an investor. On October 19, 2023, concurrently with the closing of the Business Combination, the investor closed on the purchase of 50,000 Class A Shares at a price of $10.00 per share, for an aggregate purchase price of $500,000. No additional shares were issued under this agreement as of June 30, 2024.
16
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Joint Venture
On December 22, 2023, the Company entered into a joint venture agreement (the "Joint Venture") with MLab Capital GmbH ("MLab") and Spectaire Europe GmbH ("JVC"), a wholly owned subsidiary of MLab and an affiliate of a director of the Company. Under the Joint Venture, JVC is responsible for the marketing, sale and manufacture of the Company's AirCore technology in Europe, the Middle East and South America. In accordance with the Joint Venture, the Company will consequently grant JVC an exclusive, non-sublicensable license to conduct such activities upon closing. In consideration for the rights granted by the Company to JVC, JVC agreed to pay to the Company an amount of $1.5 million. Pursuant to the Joint Venture's payment schedule, JVC has paid the Company $500,000 as of June 30, 2024 and December 31, 2023, which has been recorded as deferred revenue on the condensed consolidated balance sheet. The remaining $1.0 million in payments to the Company are contingent upon a third party's approval of the AirCore technology's effectiveness and the delivery of units specified thereunder. The Joint Venture did not commence operations as of June 30, 2024 and any financial accounts are not material to the condensed consolidated financial statements.
Asset Purchase Agreement
On June 14, 2024, the Company entered into an asset purchase agreement (the "Asset Purchase Agreement") by and among a related entity, pursuant to which the Company would purchase certain assets of the related entity in exchange for 1,500,000 shares of Common Stock of the Company. The assets being acquired are the software assets of the related entity that allow the Company's primary business to provide auditable emission transactions for customers with the AireCore product offering. The cost of a group of assets acquired in an asset acquisition shall be allocated to the individual assets acquired or liabilities assumed based on their relative fair values and shall not give rise to goodwill. As of June 30, 2024, the acquisition was not closed.
Note 9 - Loan Payable
On March 31, 2023, Spectaire, as borrower, entered into the Arosa Loan Agreement with Arosa Multi-Strategy Fund LP ("Arosa"), as lender, providing for a term loan (the "Arosa Loan") in a principal amount not to exceed $6.5 million (the "Loan Agreement"), comprised of (i) $5.0 million in cash of which (a) $2.0 million was funded to a deposit account of Spectaire and (b) $3.0 million (the "Arosa Escrow Funds") was funded into an escrow account (the "Arosa Escrow Account") pursuant to an escrow agreement, dated as of March 31, 2023, by and between Spectaire and Wilmington Savings Fund Society, FSB, and (ii) Arosa caused its affiliate to transfer founder units valued by the parties at $1.5 million (the "Arosa Founder Units") to Spectaire. Spectaire will distribute the Arosa Founder Units to Spectaire's shareholders (other than Arosa and its affiliates) on a pro rata basis. Release of the Arosa Escrow Funds from the Arosa Escrow Account is subject to the satisfaction or waiver of customary conditions, including certification that all representations and warranties contained in the Arosa Loan Agreement and related documents are true and correct in all material respects. In April 2023, all conditions for release of the funds from escrow were satisfied. On April 17, 2023, the funds held in Escrow in the Arosa Escrow Account were released. The Arosa Loan accrues interest at a rate of 20.0% per annum based on a 360 day year.
The Company may prepay all, but not less than all, of the outstanding balance of the Arosa Loan at any time upon three days' prior written notice to Arosa. Spectaire will be required to repay the outstanding principal amount of the Arosa Loan, plus the interest accrued and all other sums, if any, that have become due and payable under the Arosa Loan Agreement, upon the occurrence of an event of default under the Arosa Loan Agreement, the closing of the Business Combination or the occurrence of a Change of Control (as defined in the Arosa Loan Agreement). In addition, upon the receipt by Spectaire or any of its subsidiaries of proceeds from an asset sale, Spectaire will be required to repay all or a portion of the outstanding principal amount of the Arosa Loan equal to the amount of the proceeds received from such asset sale.
Pursuant to the Arosa Loan Agreement, Spectaire will pay to Arosa all expenses incurred by Arosa through and after September 30, 2023 relating to the Arosa Loan, provided that Spectaire will not be required to pay any fees of counsel to Arosa incurred on or prior to March 27, 2023 in excess of $200,000. For the six months ended June 30, 2024 and the year ended December 31, 2023, $0 and $119,576 was expensed for counsel fees under the Arosa Loan Agreement, respectively, of which $0 and $44,576 is included in accounts payable on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023.
While the Arosa Loan remains outstanding, Arosa will, subject to certain limitations, have the right to participate in any capital raise by Spectaire or any of its subsidiaries consummated on or prior to the Maturity Date.
The Arosa Loan Agreement includes customary representations, warranties and covenants of the parties for loans of this type. The Arosa Loan Agreement also contains customary events of default, including, among others, non-payment of principal or interest by Spectaire, violations of covenants by Spectaire, Spectaire's insolvency, material judgments against Spectaire, the occurrence of any material adverse change with respect to Spectaire, breaches by any party to that certain Exclusive Patent License Agreement, dated as of September 1, 2018, by and between Spectaire and Massachusetts Institute of Technology or the failure of Spectaire to issue the Arosa Warrants.
17
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Spectaire, its subsidiaries and Arosa also entered into a Guarantee and Collateral Agreement providing that Spectaire's obligations to Arosa are secured by substantially all of Spectaire's assets and all of Spectaire's shareholders entered into a pledge agreement with Arosa pursuant to which such shareholders pledged all of their equity interests in Spectaire to Arosa as collateral under the Arosa Loan.
On March 31, 2023, in accordance with the terms of the Arosa Loan Agreement, Spectaire agreed to issue to Arosa a warrant to purchase a number of shares of Spectaire Common Stock representing 10.0% of the outstanding number of shares of Spectaire Common Stock on a fully diluted basis as of March 31, 2023 at an exercise price of $0.01 per share, subject to adjustment as described in the Arosa Loan Agreement (the "Closing Date Warrant"). Pursuant to the Arosa Loan Agreement, Spectaire will, upon the closing of the Business Combination, issue an additional warrant to Arosa to purchase a number of shares of NewCo Common Stock equal to 5.0% of the outstanding number of shares of NewCo Common Stock on a fully diluted basis at an exercise price of $0.01 per share, subject to adjustment as described in the Arosa Loan Agreement ("the "Additional Warrants"). Taken together after giving effect to the closing of the Business Combination, the shares of NewCo common stock underlying the Closing Date Warrant and the Additional Warrant will represent 10.3% of the outstanding number of shares of NewCo Common Stock on a fully diluted basis. On May 2, 2023, the Company issued Arosa the Closing Date Warrant to purchase 2,200,543 shares of common stock. As a result of the issuance of the warrant, which met the criteria for equity classification under applicable US GAAP, the Company recorded additional paid-in capital in the amount of $13.8 million which was the fair value of the Closing Date Warrant on the issuance date. As a result, the Company recognized a loss on initial issuance of Closing Date Warrant of $7.3 million and a debt discount of $6.5 million. As of June 30, 2024, the debt discount is fully accreted.
On October 13, 2023, The Company requested an additional advance in the aggregate principal amount of $650,000 (the "Additional Advance") under the Arosa Loan Agreement. The Advance together with the original loan in the aggregate principial amount of $6,500,000 advanced by the Lender to the Borrower on or around March 31, 2023 constitute the Loan for all purposes under the Arosa Loan Agreement and the other Loan Documents such that the aggregate outstanding principal amount of the Loan after the making of the Additional Advance is $7,150,000, and all of the terms and conditions applicable to the Loan under the Arosa Loan Agreement and the other Loan Documents shall apply to the Additional Advance.
Pursuant to the Arosa Loan Agreement, on October 19, 2023, in connection with the closing of the Business Combination, the Company issued the Additional Warrant to Arosa to purchase 2,194,453 shares of Common Stock, subject to adjustment as described therein. Upon the issuance of the Additional Warrant, Arosa and the Company agreed to terminate and cancel the Closing Date Warrant. The shares of Common Stock underlying the Additional Warrant represented approximately 10.3% of the outstanding number of shares of Common Stock outstanding as of immediately following the consummation of the Business Combination on a fully diluted basis. As a result of the issuance of the warrant, which met the criteria for equity classification under applicable US GAAP, the Company recorded additional paid-in capital in the amount of $9.3 million which was the fair value of the warrants on the issuance date. As a result, the Company recognized a loss on initial issuance of warrants of $8.6 million and debt discount of $0.7 million. The debt discount is accreted over the term of the loan and netted against the loan principal. As of June 30, 2024, the debt discount is fully accreted.
The Arosa Loan and the Additional Advance matured on March 27, 2024 (the "Maturity Date"). On April 5, 2024, the Company entered into an amended loan agreement with Arosa with an effective date of March 27, 2024 (the "Amended Arosa Loan Agreement"). The Amended Arosa Loan Agreement extended the maturity date to June 1, 2024 and additional interest of $500,000 is payable to Arosa on the effective date of the agreement. In April 2024, the Company paid to Arosa $500,000 which is treated as a debt issuance cost and amortized over the term of the Amended Arosa Loan. For the three and six months ended June 30, 2024, $469,231 and $ 500,000 of amortized debt issuance cost is included in interest expense on the condensed consolidated statement of operations.
On June 1, 2024, the Company entered into a second amended agreement with Arosa (the "Second Amendment to the Arosa Loan Agreement"). The Second Amendment to the Arosa Loan Agreement extends the maturity date to August 30, 2024 and additional interest of $250,000 is payable to Arosa on the effective date of the agreement.. Pursuant to the agreement, the Company shall repay the principal and interest on a bi-weekly basis in amounts equal 50% of net equity proceeds from capital raises. In Jume, the Company paid to Arosa $250,000 which is treated as a debt issuance cost and amortized over the term of the Second Amendment to the Arosa Loan. At June 30, 2024, $6.9 million of principal net of loan discount is reported in loan payable on the condensed consolidated balance sheet. At December 31, 2023, $5.2 million of principal net of loan discount is reported in loan payable on the condensed consolidated balance sheet.
Note 10 - Note Payable
On October 4, 2023, the Company entered into a subscription agreement with an investor to cover working capital expenses of $650,000 prior to the closing of the Business Combination. In connection with the consideration received, the Company issued 0.9 shares of Class A common stock for each dollar contributed by the investor's capital contribution or 585,000 shares. The note does not accrue interest and is due upon the close of the Business Combination. In the event of a default in payment, the Company shall issue to the investor 0.1 shares of common stock monthly for every $1 outstanding until the default is cured. The note was not fully repaid at the close of the Business Combination and as of June 30, 2024 and December 31, 2023, there was $429,370 owed under this subscription agreement, which is included on the condensed consolidated balance sheet. In April 2024, the subscription agreement was amended to include the payment of an additional 85,874 shares per month to Polar until the default is cured. As of June 30, 2024, the Company transferred 257,622 shares to the investor pursuant to this subscription agreement. At June 30, 2024, a total of 429,370 shares are pending to be transferred to the investor under this subscription agreement.
18
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Convertible Notes Payable - Related Party
In October, November, and December 2022, the Company entered into three convertible notes with shareholders to which the shareholders agreed to loan the Company, in the aggregate, $437,499. In January, February, June and August 2023, the Company entered into eight convertible notes with shareholders to which the shareholders agreed to loan the Company, in the aggregate, $1,919,980 (collectively with the convertible promissory notes entered in the year ended December 31, 2022, the "Convertible Promissory Notes"). The Convertible Promissory Notes bear interest at a rate of 6% per annum and subject to the conversion provisions, all principal and interest shall be due and payable on May 8, 2024. Effective upon the closing of a Qualified Financing (as defined below), all of the outstanding principal and interest under these Convertible Promissory Notes will automatically be converted into shares of the same class and series of capital stock of the Company, issued to other investors in the Qualified Financing (the "Qualified Financing Securities") at a conversion price equal to the lower of (i) the price per share of Qualified Financing Securities paid by the other investors in the Qualified Financing and (ii) the price per share that would have been paid by the investors in the Qualified Financing had the pre-money valuation of the Company been $17,900,000 (the "Valuation Cap") (it being understood that, for purposes of clause (ii), the total number of securities of the Company outstanding shall be deemed to include all securities issuable upon the exercise or conversion of options or warrants then outstanding (including any securities reserved and available for future issuance under any equity incentive plan of the Company), but shall exclude any securities issuable upon conversion or cancellation of these Convertible Promissory Notes and any other indebtedness of the Company or similar instruments), in each case with any resulting fraction of a share rounded down to the nearest whole share. "Qualified Financing" means the first issuance or series of related issuances of capital stock by the Company after the date hereof, with immediately available gross proceeds to the Company (excluding proceeds from this and any other indebtedness of the Company or similar instruments that convert into equity in such financing) of at least $2,500,000. The Company shall notify the Holder in writing of the anticipated occurrence of a Qualified Financing at least five days prior to the closing date of the Qualified Financing. The Holder agrees to execute and become party to all agreements that the Company reasonably requests in connection with such Qualified Financing. Upon the closing of the Business Combination on October 19, 2023, all of the outstanding principal and interest under the Convertible Promissory Notes automatically converted into 1,460,638 shares of the common stock of the Company at a conversion price of $1.
In order to finance transaction costs in connection with a Business Combination, PCCT entered into certain loans with the initial shareholders, affiliates of the initial shareholders and certain of PCCT's directors and officers ("Working Capital Loans"). On October 17, 2023, PCCT amended the debt, extending the maturity date to 180 days following the consummation of the Business Combination unless converted at the close of the Business Combination. At the close of the Business Combination, there were insufficient funds in the PCCT trust account to repay these loans and the Working Capital Loans were not converted at the close of the Business Combination. Accordingly, the Company assumed the Working Capital Loans at the close of the Business Combination and as of June 30, 2024 and December 31, 2023, the outstanding amount of Working Capital Loans was $536,701 and was recorded in convertible notes payable - related party on the condensed consolidated balance sheet, respectively. On April 23, 2024, the Company amended and restated the debt effective April 14, 2024 (the "Amended Working Capital Loans"), extending the maturity date to one year following the effective date. At the option of the Company, the amount outstanding under this loan can repaid by conversion into redeemable warrants to purchase the equivalence of Class A common stock at a conversion price of $1 per warrant and an exercise price of $11.50.
Prior to the consummation of the Business Combination, on October 31, 2022, PCCT issued a convertible promissory note in the aggregate principal amount of up to $720,000 (the "Extension Loan") to its sponsor. The Extension Loan was issued in connection with certain payments to be made by the sponsor into the PCCT trust account pursuant to PCCT's amended and restated certificate of incorporation, to provide PCCT with an extension of the date by which it must consummate an initial business combination from November 1, 2022 to November 1, 2023 (the "extension"). The contribution(s) and the Extension Loan do not bear interest. At the close of the Business Combination, there were insufficient funds in the trust to repay this loan and the Extension Loan was not converted at the close of the Business Combination. On April 10, 2023, PCCT amended the debt, increasing the aggregate principal amount of the Extension Loan up to $1,200,000. On October 17, 2023, PCCT amended the debt, extending the maturity date to one year following the consummation of the Business Combination unless converted at the close of the Business Combination. As the Extension Loan did not convert at the close of the Business Combination, the Company assumed the Extension Loan and as of June 30, 2024 and December 31, 2023, $574,815 is outstanding and recorded in convertible notes payable- related party on the condensed consolidated balance sheets, respectively.
As discussed in Note 16, on November 17, 2023, the Company entered into a common stock purchase agreement (the "Common Stock Agreement) with Keystone whereby the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to the lesser of (i) an aggregate of $20 million of newly issued shares of common stock and (ii) the Exchange Cap, on the terms and subject to the conditions set forth in the Purchaser . On November 17, 2023, the Company entered into a convertible note with an investor (the "Holder") as settlement of the commitment fee related to the Common Stock Agreement, in the aggregate, $300,000 (the "New Convertible Promissory Notes") which is recorded as capital raise expense in the consolidated statement of operations for the year ended December 31, 2023. The New Convertible Promissory Note bears interest at a rate of 5% per annum and subject to the conversion provisions, all principal and interest shall be due and payable on May 17, 2024. At the sole discretion of the Holder, the principal and accrued interest may be converted in part of whole into share of common stock of the Company equivalent to the average dollar volume-weighted average price of a share of Common Stock during the five (5) trading day period ending on the trading day immediately prior to the date of the conversion notice (the "VWAP Price"). If the VWAP Price is less than $1.00, the VWAP Price shall be deemed to be $1.00. The convertible note was repaid in April 2024. At June 30, 2024 and December 31, 2023, $0 and $300,000 owing under this promissory note is included in convertible notes - related party on the condensed consolidated balance sheets at par, respectively.
19
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Convertible Notes Payable
In February 2024, the Company issued three promissory notes with aggregate principal amount of $125,000 inclusive of issue discounts of $25,000 in lieu of interest. These promissory notes mature one year after issuance. In March 2024, the Company repaid the promissory notes.
Note 13 - Stockholders' Deficit
Preferred Stock - The Company is authorized to issue 20,000,000 shares of preferred stock with a par value of $0.0001 per share. At June 30, 2024 and December 31, 2023, there were no shares of preferred stock issued and outstanding.
Common stock - The Company is authorized to issue 600,000,000 shares of common stock with a par value of $0.0001 per share. At June 30, 2024 and December 31, 2023, there were 18,547,201 shares and 15,344,864 shares of common stock issued and outstanding, respectively. Each share of Common Stock has one vote and has similar rights and obligations.
As part of PCCT's initial public offering ("IPO"), PCCT issued warrants to third-party investors where each whole warrant entitles the holder to purchase one share of the Company's common stock at an exercise price of $11.50 per share (the "Public Warrants"). Simultaneously with the closing of the IPO, PCCT completed the private sale of warrants where each warrant allows the holder to purchase one share of the Company's common stock at $11.50 per share. At June 30, 2024 and December 31, 2023, there are 11,500,000 Public Warrants and 10,050,000 Private Placement warrants outstanding.
These warrants expire on the fifth anniversary of the Business Combination or earlier upon redemption or liquidation and are exercisable commencing 30 days after the Business Combination, provided that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement) and registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder.
Once the Public Warrants become exercisable, the Company may redeem the outstanding Public Warrants:
● | in whole and not in part; | |
● | at a price of $0.01 per warrant; | |
● | upon not less than 30 days' prior written notice of redemption to each warrant holder; and | |
● | if, and only if, the reported last reported sale price of the Class A ordinary shares for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders (the "Reference Value") equals or exceeds $18.00 per share. |
The Company accounts for the 21,550,000 warrants issued in connection with the PCCT IPO in accordance with the guidance contained in ASC Topic 815, Derivatives and Hedging ("ASC 815"). Such guidance provides that the warrants described above are not precluded from equity classification. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
20
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Share-based Compensation
Restricted Stock Awards
In October 2022, Spectaire granted 3,140,384 of restricted stock awards to certain executives that vest over four years. One year of vesting was recognized on the grant date and the remaining three years will vest monthly. The Company determined the fair value of the awards at the grant date to be a total compensation of $21,712,760 ($21,720,000 less cash paid of $7,240). The Company recognized $2,714,095 in compensation expense for the six months ended June 30, 2024 and 2023, and $1,357,048 for the three months ended June 30, 2024 and 2023, which is included in general and administrative expenses in the condensed consolidated statements of operations. Subsequent to the close of the Business Combination, and as of June 30, 2024 and December 31, 2023, the Company did not have sufficient registered shares to issue. The fair values as of June 30, 2024 and December 31, 2023 were $0.50 and $1.65, respectively. Consequently, the Company recorded $98,154 and $238,079 of compensation expense recognized for the three and six months ended June 30, 2024, respectively, which is included in general and administrative expenses in the condensed consolidated statement of operations. For the three and six months ended June 30, 2024, a decrease in fair values of compensation liability of $1,342,429 and $2,743,480 is included in compensation expense on the condensed consolidated statement of operations. As of June 30, 2024 and December 31, 2024, $294,468 and $323,854 of compensation expense is reported as a liability and is included in current liabilities on the condensed consolidated balance sheets, respectively. As of June 30, 2024, the remaining unrecognized compensation expense of the restricted stock awards is $6,785,238 with a weighted average remaining life of 1.25 years.
2022 Equity Incentive Plan
In December 2022, the Board of Directors of the Company approved the Spectaire Inc. 2022 Equity Incentive Plan (the "Plan") whereby it may grant to certain employees and advisors an award, such as, (a) Incentive Stock Options, (b) Non-Qualified Stock Options, (c) Restricted Stock and (d) Restricted Stock Units, of the Company ("Incentive Award"). On March 1, 2023, the Company issued 1,088,726 Restricted Stock Units to certain employees and board members. These awards become vested and nonforfeitable upon the satisfaction, on or before the expiration date, of both, a service requirement and an applicable liquidity event. The consummation of the Business Combination represented a termination event that required recognition of the share-based payment compensation expense. Upon consummation of the Business Combination and as of June 30, 2024 and December 31, 2023, the Company did not have sufficient registered shares to issue. The fair values as of June 30, 2024 and December 31, 2023 were $0.50 and $1.65, respectively. In May 2024, as approved by the Board, the remaining units representing 66,268 shares of the former CFO were immediately vested. The Company recognized $79,116 and $148,919 in compensation expense for three and six months ended June 30, 2024, respectively, which is included in general and administrative expenses in the condensed consolidated statement of operations. For the three and six months ended June 30, 2024, a decrease in fair value of compensation liability of $90,201 and $396,282 is included in compensation expense on the condensed consolidated statement of operations. As at June 30, 2024 and December 31, 2023, the resultant liability under the Plan of $291,396 and $538,760, respectively, is included in current liabilities on the condensed consolidated balance sheet.
Arosa Founder Units
As described in Note 9, Arosa caused its affiliate to transfer founder units valued by the parties at $1.5 million (the "Arosa Founder Units") to Spectaire. Immediately prior to the close of the Business Combination, Spectaire distributed the Arosa Founder Units to Spectaire's shareholders (other than Arosa and its affiliates) on a pro rata basis.. The transfer of Arosa Founder Units to Spectaire employees and service advisors is subject to ASC 718. Under ASC 718, compensation associated with equity-classified awards is measured at fair value upon the grant date. The Arosa Founder Units were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Stock-based compensation of $1,913,637 was recognized in general and administrative expenses upon consummation of the Business Combination in October 2023 based on the grant date fair value per share of $3.84. The fair value was determined by applying a 15% discount for lack of marketability to the market price of the share on date of grant.
Note 15 - Fair Value Measurements
The Company accounts for certain liabilities at fair value and classifies these liabilities within the fair value hierarchy (Level 1, Level 2, or Level 3).
21
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Liabilities subject to fair value measurements at June 30, 2024 are as follows:
As of June 30, 2024 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities | ||||||||||||||||
Forward purchase agreements | $ |
-
|
$ |
-
|
$ | 201,250 | $ | 201,250 | ||||||||
Earnout liabilities |
-
|
-
|
330,000 | 330,000 | ||||||||||||
Share based compensation liabilities | 769,588 |
-
|
-
|
769,588 | ||||||||||||
Total liabilities | $ | 769,588 | $ |
-
|
$ | 531,250 | $ | 1,300,838 |
Liabilities subject to fair value measurements at December 31, 2023 are as follows:
As of December 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities | ||||||||||||||||
Forward purchase agreements | $ |
-
|
$ |
-
|
$ | 717,000 | $ | 717,000 | ||||||||
Earnout liabilities |
-
|
-
|
1,964,000 | 1,964,000 | ||||||||||||
Share based compensation liabilities | 862,614 |
-
|
-
|
862,614 | ||||||||||||
Total liabilities | $ | 862,614 | $ |
-
|
$ | 2,681,000 | $ | 3,543,614 |
Forward purchase agreement liabilities
In connection with the Business Combination, the Company entered into Forward Purchase Agreements as defined in Note 1. Pursuant to the terms of the Forward Purchase Agreements, the Sellers intend, but are not obligated, to purchase up to a maximum of 2,080,915 of PCCT's Class A Ordinary Shares from holders (other than PCCT or its affiliates) who have elected to redeem such shares in connection with the Business Combination. Purchases by the Sellers will be made through brokers in the open market after the redemption deadline of October 18, 2024 in connection with the Business Combination at a price no higher than the redemption price to be paid by the Company in connection with the Business Combination. The Forward Purchase Agreements are within the scope of ASC 480 due to the obligation to repurchase the issuer's equity shares and transfer cash. Upon the close of the Business Combination, a fair value of $965,000 was assumed by Spectaire. Subsequent to the close of the Business Combination and to December 31, 2023, the Company received proceeds of $346,323 related to the Forward Purchase Agreements. For the three and six months ended June 30, 2024, the Company received $0 and $679,660 related to the Forward Purchase Agreements, respectively. The proceeds are included in additional paid-in capital on the condensed consolidated balance sheets. As of June 30, 2024, 161,000 shares remain outstanding under the Forward Purchase Agreements and the forward purchase agreement liabilities were calculated based on the put option price and number of shares that remain outstanding. Based on the above, $0 and $515,750 was recognized as a net gain within change in fair value of forward purchase agreements on the condensed consolidated statements of operations for the three and six months ended June 30, 2024, respectively.
22
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Earnout Liabilities
Holders of former PCCT Common Stock will be entitled to receive additional Earnout Shares if certain conditions are met. The number of Earnout Shares will be equal to 7,500,000 additional shares of PCCT Common Stock (as equitably adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combinations, exchanges of shares or other like changes or transactions with respect to the Company's Common Stock occurring on or after the Closing). The Earnout Shares may be issued in three equal tranches upon the volume-weighted price per share of PCCT Common Stock equaling or exceeding $15.00, $20.00 or $25.00 for at least 20 trading days in any consecutive 30-day trading period within the five-year period ("Earnout Period") following the closing of the Business Combination. If, during the Earnout Period, there is a Change of Control where the Company ("Acquiror") or its stockholders have the right to receive consideration implying a value per share of Acquiror Common Stock of less than $15 no Earnout Shares will be issuable. If the value per share of Acquiror Common Stock is greater than or equal to $15 but less than $20 then Acquiror shall issue 2,500,000 shares of Acquiror Common Stock to the Eligible Company Equityholders. If the value per share of Acquiror Common Stock is greater than or equal to $20 but less than $25 then Acquiror shall issue 5,000,000 shares of Acquiror Common Stock to the Eligible Company Equityholders. If the value per share of Acquiror Common Stock is greater than or equal to $25 then Acquiror shall issue 7,500,000 shares of Acquiror Common Stock to the Eligible Company Equityholders.
If, during the Earnout Period, (i) any liquidation, dissolution or winding up of Acquiror is initiated, (ii) any bankruptcy, dissolution or liquidation proceeding is instituted by or against Acquiror or (iii) Acquiror makes an assignment for the benefit of creditors or consents to the appointment of a custodian, receiver or trustee for all or substantial part of its assets or properties, then any Earnout Shares that have not been previously issued by Acquiror (whether or not previously earned) shall be deemed earned and due by Acquiror to the Eligible Company Equityholders.
In accordance with ASC 718, these are awards granted with a market condition. The effect of this market condition was reflected in the grant-date fair value of an award. The fair value of the earnout shares was estimated using a Monte Carlo simulation utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Common Stock and current interest rates. Below are the key assumptions used in valuing the earnout shares:
As of June 30, 2024 |
As of December 31, 2023 |
|||||||
Stock Price | $ | 0.50 | $ | 1.65 | ||||
Volatility | 75 | % | 60 | % | ||||
Risk free rate of return | 4.40 | % | 3.62 | % | ||||
Expected term (in years) | 4.30 | 4.8 |
As of June 30, 2024 |
As of December 31, 2023 |
|||||||
Liability at beginning of the period | $ | 1,964,000 | $ |
-
|
||||
Assumed in the Business Combination |
-
|
49,894,000 | ||||||
Change in fair value | (1,634,000 | ) | (47,930,000 | ) | ||||
Balance at end of the period | $ | 330,000 | $ | 1,964,000 |
Note 16 - Commitments and Contingencies
License Agreement
The Company has a license agreement (the "License Agreement") with MIT. As part of the License Agreement, in exchange for certain patent rights owned by MIT, the Company issued MIT shares that contained an anti-dilution provision which states that until the Company reaches a funding threshold of $4,000,000, MIT must retain a 2.5% common stock ownership on a fully-diluted basis. In connection with the License Agreement, the Company issued MIT 316,614 shares in January 2023.
In April 2023, an additional 58,500 shares were issued to MIT in connection with the License Agreement.
23
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Deferred underwriting fees
Upon the consummation of the Business Combination, Spectaire assumed $5,635,000 of deferred underwriting fees related to PCCT's initial public offering. On June 13, 2024, the Company entered into a settlement and release agreement with the underwriter, pursuant to which the Company will issue to the underwriter 1,000,000 warrants at an exercise price of $11.50 (the 'Warrant Award") and a pay a sum of $1,500,000 upon the closing of any financing transaction of at least $15,000,000. The Warrants shall bear the same terms as the existing warrants. The Warrant Award and cash payment will be accepted as full settlement of the $5,635,000 of deferred underwriting fees unless in the event of a bankruptcy proceeding the full amount will be claimed. On At June 30, 2024 and December 31, 2023, $1,535,000 and $5,635,000 are included as a current liability on the condensed consolidated balance sheets, respectively. At June 30, 2024, the warrants were not yet issued. As the agreement on June 13, 2024, legally released Spectaire to any further obligation above the $1,535,000, the Company reversed $4,099,500 as other income during the three and six months ended June 30, 2024.
AireCore™ Mass Spectrometer Program
On June 30, 2023, the Company entered into an agreement with a vendor in which the vendor will support the Company with a co-build of five Spectrometer facilities followed by documentation and assembly of 50 AireCore™ Mass Spectrometers at the vendor's facility. The co-build, documentation and assembly is estimated to cost $276,834. On December 14, 2023, the Company entered into a further agreement with the vendor for a co-build of 30 additional spectrometers at an estimated cost of $122,743. As of June 30, 2024, a total of 52 (of which 31 are subject to testing internally and externally) units were built and 24 received back from testing were in progress. As of December 31, 2023, a total of 35 units were built and 45 were in progress. As of June 30, 2024 and December 31, 2023, a total cost of $371,367 and $272,198, respectively were incurred, of which $289,512 and $243,448, respectively is recorded as inventory, prior to any lower of cost or market adjustment, and the remaining amount is included in research and development costs in the condensed consolidated statement of operations.
Litigation and loss contingencies
From time to time, the Company may be subject to other legal proceedings, claims, investigations, and government inquiries (collectively, legal proceedings) in the ordinary course of business. It may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that the Company believes will have a material adverse impact on the Company's business or condensed consolidated financial statements.
Stock Purchase Agreement
On November 17, 2023, the Company entered into a Purchase Agreement with Keystone (the "Common Stock Purchase Agreement"), whereby the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to the lesser of (i) an aggregate of $20 million of newly issued shares of common stock and (ii) the Exchange Cap, on the terms and subject to the conditions set forth in the Purchaser . Unless earlier terminated, the shares of Common Stock that may be issued under the Common Stock Purchase Agreement may be sold by the Company to Keystone at its discretion until November 17, 2025. For the three and six months ended June 30, 2024, the Company sold 2,389,736 and 3,067,438 shares, respectively for total purchase price of $1,730,089 and 2,562,198, respectively to Keystone under this agreement.
Subscription Agreement
On March 18, 2024, the Company entered into a subscription agreement (the "Subscription Agreement") with an investor, pursuant to which the Company agreed to sell securities to the investor in a private placement. The Subscription Agreement provided for the sale and issuance by the Company of (i) an aggregate of 1,538,461 shares of the Company's common stock and (ii) an accompanying warrant to purchase up to 1,538,461 shares of common stock at an exercise price of $1.30 per share, for aggregate gross proceeds of approximately $2.0 million, before deducting related expenses. The warrant is immediately exercisable and may be exercised at any time until March 18, 2027. The warrants meet the requirements under ASC 815 for equity classification and will be recorded and classified within the condensed consolidated statement of changes in stockholders' deficit based on allocated proceeds upon the issuance of shares. As of June 30, 2024, $2,000,000 was received under this agreement and reported as investor deposit on the condensed consolidated balance sheet. As of June 30, 2024, there were no shares issued under this agreement.
24
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Yorkville Standby Equity Purchase Agreement (SEPA)
On May 17, 2024, the Company entered into a Standby Equity Purchase Agreement (the "SEPA") with Yorkville pursuant to which the Company has the right to sell to Yorkville up to $25 million of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company's option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA. While there is no mandatory minimum amount, the Company may not sell at any time the greater of (i) an amount equal to 100% of the average of the daily traded amount during the five consecutive trading days immediately preceding a sale notice, and (ii) 500,000 shares of Common Stock. The shares of Common Stock delivered by the Company will be purchased at a price equal to 97% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of the sale notice, other than the daily VWAP on a day in which the daily VWAP is less than a minimum acceptable price as stated by the Company in the notice or there is no VWAP on the subject trading day. The Company may establish a minimum acceptable price in each notice below which the Company will not be obligated to make any sales to Yorkville. The net proceeds to the Company will depend on the frequency and prices at which the Company sells Common Stock to Yorkville.
Under applicable Nasdaq rules, in no event may the Company issue to Yorkville under the SEPA shares equal to greater than 19.99% of the shares of Common Stock outstanding immediately prior to the execution of the SEPA (the "Exchange Cap"), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average price per share paid by Yorkville for all of the shares of Common Stock that the Company directs Yorkville to purchase from the Company pursuant to the SEPA, if any, equals or exceeds the lower of (a) the official closing price of the Common Stock on Nasdaq immediately preceding the execution of the SEPA and (b) the average official closing price of the Common Stock on Nasdaq for the five consecutive trading days immediately preceding the execution of the SEPA, adjusted as required by Nasdaq so that the Exchange Cap limitation will not apply to issuances and sales of Common Stock pursuant to the SEPA. In addition, the Company may not issue or sell any shares of Common Stock to Yorkville under the SEPA which, when aggregated with all other shares of Common Stock then beneficially owned by Yorkville and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act, and Rule 13d-3 thereunder), would result in Yorkville beneficially owning more than 4.99% of the outstanding shares of Common Stock.
The SEPA will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the date of the SEPA or (ii) the date on which it has been fully performed. The Company has the right to terminate the SEPA at no cost or penalty upon five (5) trading days' prior written notice to Yorkville, provided that there are no outstanding notices for which shares of common stock need to be issued. The Company and Yorkville may also agree to terminate the SEPA by mutual written consent. As consideration for Yorkville's commitment to purchase the shares of Common Stock pursuant the SEPA (i) a structuring fee in the amount of $25,000 and (ii) a commitment fee equal to 233,644 shares, to be issued within three trading days of the date of the SEPA, and $125,000, to be paid on the three-month anniversary of the date of the SEPA. In May 2024, the Company paid the restructuring fee of $25,000 which is recorded as capital raise expense in the consolidated statement of operations for the three and six months ended June 30, 2024. As of June 30, 2024, there were no shares issued under this agreement. The fair value of $116,845 of the 233,644 shares payable as a commitment fee is recorded as a stock-based compensation expense in the condensed consolidated statement of operations for the three and six months ended June 30, 2024 and the resultant liability is recorded in stock based compensation liability on the condensed consolidated balance sheet as of June 30, 2024.
Forgiveness of Legal Fees
Upon the consummation of the Business Combination, Spectaire assumed $6,115,563 of legal fees related to PCCT's Business Combination transaction costs. On June 4, 2024, The Company and the vendor entered into an agreement pursuant to which the vendor will accept as full settlement of the debt $2,740,000 (the "Adjusted Legal Fees") of which $370,000 is payable in Common Stock representing 1,000,000 shares (the "Stock Settlement') and $2,370,000 is payable in cash (the "Cash Settlement"). The Vendor agreed to defer the Cash Settlement until the earlier of December 31, 2025 and the date of the consummation of a financing transaction in which the Company raises gross proceeds of at least $30 million ("Cash Settlement Repayment Terms"). Notwithstanding the Cash Settlement Repayment Terms, if the Company consummates a financing transaction prior to the Cash Settlement date, the Company shall repay to the vendor an amount equivalent to (1) the Cash Settlement multiplied by the gross proceeds from the financing transaction divided by $30 million. For the three and six months ended June 30, 2024, $0 was paid under this agreement and the balance of $ 2,740,000 is recorded as accrued legal fees on the condensed consolidated balance sheet. At June 30, 2024, the 1,000,000 shares were not yet issued under this agreement. As the agreement on June 4, 2024, legally released Spectaire to any further obligation above the $2,740,000, the Company reversed $3,375,563 as other income during the three and six months ended June 30, 2024.
Note 17 - Subsequent Events
The Company has evaluated and recognized or disclosed subsequent events, as appropriate, from the condensed consolidated balance sheet date through the date these condensed consolidated financial statements were available to be issued.
On August 5, 2024, the Company received a letter from the NASDAQ Stock Exchange ("NASDAQ") Hearings Panel that, following the Company's hearing before the Panel on July 23, 2024, NASDAQ has determined to delist the Company's common stock and that trading in the Company's securities will be suspended from NASDAQ at the open of trading on August 7, 2024. Since being delisted, the Company's common stock and warrants have traded over-the-counter on the OTC Pink Sheets under the trading symbol "SPEC."
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 included herein, our audited consolidated financial statements as of the year ended December 31, 2023 included in our annual report on Form 10-K, and other information included elsewhere in this report. This discussion 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 herein. 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.
Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "Spectaire," "we", "us", "our", and the "Company" are intended to refer to (i) following the Business Combination (as defined below), the business and operations of Spectaire Holdings Inc. (formerly Spectaire Inc.) and its consolidated subsidiaries ("Spectaire"), and (ii) prior to the Business Combination, Spectaire (the predecessor entity in existence prior to the consummation of the Business Combination) and its consolidated subsidiary.
Company Overview
Spectaire is an industrial technology company whose core offering allows its customers to measure, manage, and potentially reduce carbon dioxide equivalent (CO2e) and other greenhouse gas emissions. Our core offering, AireCore™, is a fully integrated hardware, software, and data platform for logistics and supply chain players that uses mass spectrometry to directly measure their emissions. The research and development for AireCore™'s mass spectrometry technology began more than 15 years ago at MIT, led by our Chief Scientific Officer Dr. Brian Hemond and our co-founder Professor Ian Hunter. Our asset-light business model delivers a win-win-win for Spectaire, for our customers, and for the environment.
Companies are coming under increasing pressure from governments, customers, and the public to account for and reduce their emissions. We believe that, prior to our introduction of AireCore™, there was no practical way to directly measure real-time transportation emissions. Instead of directly measuring their emissions, our potential customers currently estimate their emissions using emissions estimation calculators for transport and logistics that estimate based on fuel consumption, mileage, and vehicle weight. These estimates cannot accommodate the minute-to-minute, mile-to-mile variations that often drive significant differences between these estimates and actual emissions. As a result, these estimates have come under criticism for being inaccurate, simplistic, and-until now-impossible to verify. A pilot study conducted with our anchor customer Mosolf found that their emissions estimate calculated using CSN EN 16258, a publicly available and widely used emissions estimation standard, overstated their actual emissions by approximately 60%.
Our AireCore™ patented micro mass spectrometer (MMS) solves this problem. Unlike conventional mass spectrometers which typically have significant cost, size, power, and environmental requirements the AireCore™ uses a proprietary miniaturized and ruggedized analyzer combined with solid state pump technology to address mobile operation in harsh environments.
AireCore™ is cloud-connected through mobile phone networks, enabling a continuous feed of emissions data. AireCore™ core software can also be upgraded over-the-air ("OTA") smartphone-style, enabling continuous roll-out of features and improvements.
AireCore™ is protected by a robust patent portfolio and a lengthy research and development timeline, with significant time and resources invested by MIT in developing technology that is not reflected in our historical financial statements. MIT has granted us an exclusive license for all of the intellectual property owned by MIT that underlies the AireCore™ and is a minority shareholder in Spectaire.
Companies face a "technology gap" between emissions requirements and access to emissions management capabilities, creating a no-win scenario. We believe that AireCore™ is the world's first and only device able to address this technology gap by delivering real-time, accurate, and verifiable emissions measurements, and through its flagship AireCore™ product, we provide a fully integrated hardware, software, and data solution for logistics and supply chain players to directly measure their emissions.
26
Business Combination
On January 16, 2023, PCCT entered into that certain Agreement and Plan of Merger (the "Merger Agreement"), with Perception Spectaire Merger Sub Corp., a Delaware corporation and a direct wholly owned subsidiary of PCCT (the "merger subsidiary"), and Legacy Spectaire, pursuant to which, on October 19, 2023, the merger subsidiary merged with and into Legacy Spectaire, with Legacy Spectaire surviving the merger as a wholly owned subsidiary of New Spectaire (together with the other transaction contemplated by the Merger Agreement, the "Business Combination").
In connection with the consummation of the Business Combination, the Company changed its name from "Perception Capital Corp. II" to "Spectaire Holdings Inc."
For additional information regarding the Business Combination, please see Note 1 to Unaudited Condensed Consolidated Financial Statements.
Recent Developments
Delisting from NASDAQ
On August 5, 2024, the Company received a letter from the NASDAQ Stock Exchange Hearings Panel that, following the Company's hearing before the Panel on July 23, 2024, NASDAQ determined to delist the Company's common stock. Trading in the Company's securities was suspended from NASDAQ at the open of trading on August 7, 2024. The Company's common stock is now quoted on the over-the-counter market (the "OTC") under the Company's existing trading symbol "SPEC" and its public warrants are traded under the existing trading symbol "SPECW."
Leadership Changes
Following the Company's delisting from NASDAQ, effective as of August 7, and transition to the OTC, the Company has determined to reduce the size of the Board, given the reduced regulatory requirements for companies traded on the OTC and to save on overhead costs. Frank Baldesarra and Jim Lambis have resigned from the board, effective as of August 16, and the board size has been reduced to five. In addition, Scott Honour has been appointed as interim Chief Financial Officer, effective as of August 13, and Chris Grossman replaced Brian Semkiw as Chief Executive Officer, effective as of August 23. Mr. Semkiw will remain with the Company as Chairman of the Board of Directors.
Joint Venture
On December 22, 2023, the Company entered into a joint venture agreement (the "Joint Venture") with MLab Capital GmbH ("MLab") and Spectaire Europe GmbH ("JVC"), a wholly owned subsidiary of MLab and an affiliate of a director of the Company. Under the Joint Venture, JVC is responsible for the marketing, sale and manufacture of the Company's AirCore technology in Europe, the Middle East and South America. In accordance with the Joint Venture, the Company will consequently grant JVC an exclusive, non-sublicensable license to conduct such activities upon closing. In consideration for the rights granted by the Company to JVC, JVC agreed to pay to the Company an amount of $1.5 million. Pursuant to the Joint Venture's payment schedule, JVC has paid the Company $500,000 as of December 31, 2023, which has been recorded as deferred revenue on the condensed consolidated balance sheet. The remaining $1.0 million in payments to the Company are contingent upon a third party's approval of the AirCore technology's effectiveness and the delivery of units specified thereunder. The Joint Venture did not commence operations as of June 30, 2024 and any financial accounts are not material to the consolidated condensed financial statements.
Subscription Agreement
On March 18, 2024, the Company entered into a subscription agreement (the "Subscription Agreement") with an investor, pursuant to which the Company agreed to sell securities to the investor in a private placement. The Subscription Agreement provided for the sale and issuance by the Company of (i) an aggregate of 1,538,461 shares of the Company's common stock and (ii) an accompanying warrant to purchase up to 1,538,461 shares of common stock at an exercise price of $1.30 per share, for aggregate gross proceeds of approximately $2.0 million, before deducting related expenses. The warrant is immediately exercisable and may be exercised at any time until March 18, 2027. The warrants meet the requirements under Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging ("ASC 815") for equity classification and will be recorded and classified within the condensed consolidated statement of changes in stockholders' deficit based on allocated proceeds upon the issuance of shares. As of June 30, 2024, $2,000,000 was received under this agreement and reported as investor deposit on the condensed consolidated balance sheet. As of June 30, 2024, there were no shares issued under this agreement.
Yorkville Standby Equity Purchase Agreement (SEPA)
On May 17, 2024, the Company entered into a Standby Equity Purchase Agreement (the "SEPA") with Yorkville pursuant to which the Company has the right to sell to Yorkville up to $25.0 million of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company's option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA. While there is no mandatory minimum amount, the Company may not sell at any time the greater of (i) an amount equal to 100% of the average of the daily traded amount during the five consecutive trading days immediately preceding a sale notice, and (ii) 500,000 shares of Common Stock. The shares of Common Stock delivered by the Company will be purchased at a price equal to 97% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of the sale notice, other than the daily VWAP on a day in which the daily VWAP is less than a minimum acceptable price as stated by the Company in the notice or there is no VWAP on the subject trading day. The Company may establish a minimum acceptable price in each notice below which the Company will not be obligated to make any sales to Yorkville. The net proceeds to the Company will depend on the frequency and prices at which the Company sells Common Stock to Yorkville.
27
Under applicable Nasdaq rules, in no event may the Company issue to Yorkville under the SEPA shares equal to greater than 19.99% of the shares of Common Stock outstanding immediately prior to the execution of the SEPA (the "Exchange Cap"), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average price per share paid by Yorkville for all of the shares of Common Stock that the Company directs Yorkville to purchase from the Company pursuant to the SEPA, if any, equals or exceeds the lower of (a) the official closing price of the Common Stock on Nasdaq immediately preceding the execution of the SEPA and (b) the average official closing price of the Common Stock on Nasdaq for the five consecutive trading days immediately preceding the execution of the SEPA, adjusted as required by Nasdaq so that the Exchange Cap limitation will not apply to issuances and sales of Common Stock pursuant to the SEPA. In addition, the Company may not issue or sell any shares of Common Stock to Yorkville under the SEPA which, when aggregated with all other shares of Common Stock then beneficially owned by Yorkville and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act, and Rule 13d-3 thereunder), would result in Yorkville beneficially owning more than 4.99% of the outstanding shares of Common Stock.
The SEPA will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the date of the SEPA or (ii) the date on which it has been fully performed. The Company has the right to terminate the SEPA at no cost or penalty upon five (5) trading days' prior written notice to Yorkville, provided that there are no outstanding notices for which shares of common stock need to be issued. The Company and Yorkville may also agree to terminate the SEPA by mutual written consent. As of June 30, 2024, there were no shares issued under this agreement.
Subsidiary
On April 4, 2024, the Company incorporated Spectaire Canada Inc, a wholly owned Ontario, Canada corporation. As of June 30, 2024, Spectaire Canada Inc. has not commenced operations.
Asset Purchase Agreement
On June 14, 2024, Spectaire Canada entered into an asset purchase agreement with Corsario Ltd. (the "Vendor") Pursuant to the agreement, the Vendor agrees to sell to Spectaire Canada all technology assets, documentation and other assets as detailed in the agreement. As consideration for the assets received, Spectaire Canada shall issue to the Vendor 1,500,000 shares of common stock on August 1, 2024 (the "Effective Date").
Key Financial Definitions/Components of Results
Revenue
Spectaire will earn revenue based on three high-margin revenue streams through its AireCore™ MMS product line.
● | Product Sales. Spectaire intends to sell the AireCore™ MMS directly to customers at a price of $2,000 per unit. Spectaire projects an approximately 30% gross margin on a unit basis for product sales. |
● | Data Subscription and Services. The AireCore™ MMS requires an annual data subscription to operate, at $1,000 per unit per year. The data subscription grants access to applications, reporting capabilities, and secure cloud connectivity. Spectaire projects an approximately 65% gross margin on data subscriptions. |
● | Carbon Credits. Spectaire will receive a 50% share of carbon credits. Carbon credits pricing will vary depending on their market, certification and quality, but offer a 100% gross margin. |
● | License Revenue. Spectaire will receive license fees for licensing their AireCore™ technology to strategic partners. |
28
Operating Expenses
Selling, general and administrative expense
Selling, general and administrative expenses consist primarily of personnel-related expenses for our executives. These expenses also include non-personnel costs, such as rent, legal, audit and accounting services, share-based compensation expense and other professional fees.
Depreciation expense
Depreciation expense consists of depreciation of Spectaire's lab equipment.
Research and development expense
Research and development expenses include internal personnel and third party consulting costs related to preliminary research and development of Spectaire's products and platforms and share-based compensation expense.
The following tables set forth our condensed consolidated statement of operations for the three and six months ended June 30, 2024 and 2023, and the dollar and percentage change between the two periods:
For the Three Months ended June 30, |
||||||||||||||||
2024 | 2023 | $ Change | % Change | |||||||||||||
Revenue | $ | - | $ | - | $ | - | - | |||||||||
Costs and expenses: | ||||||||||||||||
Sales and marketing | 130,878 | 121,000 | 9,878 | 8 | % | |||||||||||
General and administrative | 1,393,505 | 2,172,883 | (779,378 | ) | (36 | )% | ||||||||||
Research and development | 568,394 | 646,323 | (77,929 | ) | (12 | )% | ||||||||||
Depreciation Expense | 8,969 | 3,734 | 5,235 | 140 | % | |||||||||||
Total costs and expenses | 2,101,746 | 2,943,940 | (842,194 | ) | (29 | )% | ||||||||||
Operating loss | (2,101,746 | ) | (2,943,940 | ) | 842,194 | (29 | )% | |||||||||
Other income (expense): | ||||||||||||||||
Interest Income on marketable securities | - | 27,684 | (27,684 | ) | 100 | % | ||||||||||
Interest Expense | (957,332 | ) | (1,982,250 | ) | 1,024,918 | (52 | )% | |||||||||
Capital raise finance charge | (181,000 | ) | - | (181,000 | ) | NM | * | |||||||||
Change in fair value of forward purchase agreement | - | - | - | NM | * | |||||||||||
Change in fair value of earnout liabilities | 281,000 | - | 281,000 | NM | * | |||||||||||
Loss on initial issuance of warrants | - | (7,309,584 | ) | 7,309,584 | (100 | )% | ||||||||||
Gain on settlement of professional fees and deferred underwriting fees | 7,475,063 | - | 7,475,063 | NM | * | |||||||||||
Other income: | 4,956 | - | 4,956 | NM | * | |||||||||||
Income (loss) before income taxes | 4,520,941 | (12,208,090 | ) | 16,729,031 | (137 | )% | ||||||||||
Income tax expense | - | - | - | 0 | % | |||||||||||
Net (loss) income | $ | 4,520,941 | $ | (12,208,090 | ) | $ | 16,729,031 | (137 | )% |
NM* - Percentage change not meaningful
29
For the Six Months ended June 30, |
||||||||||||||||
2024 | 2023 | $ Change | % Change | |||||||||||||
Revenue | $ | - | $ | - | $ | - | NM | * | ||||||||
Costs and expenses: | ||||||||||||||||
Sales and marketing | 262,169 | 226,000 | 36,169 | 16 | % | |||||||||||
General and administrative | 2,313,301 | 5,784,560 | (3,471,259 | ) | (60 | )% | ||||||||||
Research and development | 1,513,519 | 1,245,550 | 267,969 | 22 | % | |||||||||||
Depreciation Expense | 17,489 | 6,731 | 10,758 | 160 | % | |||||||||||
Total costs and expenses | 4,106,478 | 7,262,841 | (3,156,363 | ) | (43 | )% | ||||||||||
Operating loss | (4,106,478 | ) | (7,262,841 | ) | 3,156,363 | (43 | )% | |||||||||
Other income (expense): | ||||||||||||||||
Interest Income on marketable securities | - | 27,684 | (27,684 | ) | 100 | % | ||||||||||
Interest Expense | (3,336,652 | ) | (2,019,904 | ) | (1,316,748 | ) | 65 | % | ||||||||
Capital raise finance charge | (181,000 | ) | - | (181,000 | ) | NM | * | |||||||||
Change in fair value of forward purchase agreement | 515,750 | - | 515,750 | NM | * | |||||||||||
Change in fair value of earnout liabilities | 1,634,000 | - | 1,634,000 | NM | * | |||||||||||
Loss on initial issuance of warrants | - | (7,309,584 | ) | 7,309,584 | (100 | )% | ||||||||||
Gain on settlement of professional fees and deferred underwriting fees | 7,475,063 | - | 7,475,063 | NM | * | |||||||||||
Other income | 16,084 | - |
16,084 |
NM | * | |||||||||||
Income (loss) before income taxes | 2,016,767 | (16,564,645 | ) | 18,581,412 | (112 | )% | ||||||||||
Income tax expense | - | - | - | 0 | % | |||||||||||
Net (loss) income | $ | 2,016,767 | $ | (16,564,645 | ) | $ | 18,581,412 | (112 | )% |
NM* - Percentage change not meaningful
Sales and marketing
Sales and marketing increased by $9,878 or 8%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily related to an increase in personnel costs as Spectaire continues to develop and market its products and technology, partially offset by a decrease in consulting cost.
Sales and marketing increased by $36,169 or 16%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily related to an increase in personnel costs as Spectaire continues to develop and market its products and technology, partially offset by a decrease in consulting costs.
General and administrative expenses
General and administrative expenses decreased by $779,378 or 36%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily related to share-based compensation expense ($1,105,970) and legal expenses ($301,078), partially offset by an increase in personnel cost of $162,380 and an increase in insurance cost of $182,531.
General and administrative expenses decreased by $3,471,259 or 60%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily related to share-based compensation expense ($2,743,300), personnel costs ($847,681) and legal expenses ($312,104).
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Research and development
Research and development decreased by $77,929 or 12% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily related to consulting fees ($60,000) and parts and material ($98,707), partially offset by the inventory mark -to- market adjustment loss as Spectaire continues to develop its products and technology ($81,837).
Research and development increased by $267,969 or 22% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily related to the inventory mark-to-market adjustment loss as Spectaire continues to develop its products and technology.
Depreciation expense
Depreciation expense increased by $5,235 or 140% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily related to depreciation on newly purchased lab equipment.
Depreciation expense increased by $10,758 or 160% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily related to depreciation on newly purchased lab equipment.
Interest income on marketable securities
Interest income decreased by $27,684 or 100% for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 primarily related to the liquidation of marketable securities in 2023.
Capital raise finance charge
Capital raise finance charge increased by $181,000 for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 primarily related the increase in financing transactions.
Interest expense
Interest expense decreased by $1,024,918 or 52% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily related to the amortization of discount relating to the warrants issued to Arosa ($1,625,000) in 2023, partially offset by the amortization of debt issuance cost ($556,198).
Interest expense increased by $1,316,748 or 65% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily related to amortization of discount relating to the warrants issued to Arosa ($1,950,000), partially offset by the amortization of debt issuance cost ($586,967).
Fair value of forward purchase agreements
Upon consummation of the Business Combination, Spectaire assumed $965,000 in liabilities in connection with Forward Purchase Agreements. The change in fair value of $515,750 during the six months ended June 30, 2024, respectively is recognized into earnings.
Fair value of earnout liabilities
Upon consummation of the Business Combination, Spectaire assumed $49,894,000 of earnout liabilities. The change in fair value of $281,000 and $1,634,000 is recognized into earnings for the three and six months ended June 30, 2024.
Loss on issuance of warrants
During the three and six months ended June 30, 2023, Spectaire recorded $7,309,584 of loss related to the initial issuance of the Arosa warrants.
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Gain on settlement of professional fees
During the three and six months ended June 30, 2024, Spectaire negotiated reduction in underwriting and legal fees. As the company was legally released from their obligation, a gain on the settlement of the fees of $7,475,063 was recognized in earnings.
Other income
During the three and six months ended June 30, 2024, other income of $4,956 and $11,128, respectively, was primarily related to redemption of credit card cash rewards.
Net income (loss)
Net income was $4,520,941 for the three months ended June 30, 2024 compared to the net loss of $12,208,090 for the three months ended June 30, 2023. The change primarily relates to the gain on settlement of professional fee, decrease in loss on initial issuance of warrants, decrease in interest expense, a decrease in share-based compensation expense and changes in the fair value of earnout liabilities as discussed above.
Net income was $2,016,767 for the six months ended June 30, 2024 compared to the net loss of $16,564,645 for the six months ended June 30, 2023. The change primarily relates to the gain on settlement of professional fee, decrease in loss on initial issuance of warrants, a decrease in share-based compensation expense, a change in fair value of forward purchase agreement and changes in the fair value of earnout liabilities, partially offset by an increase in interest expense as discussed above.
Liquidity and capital resources
Historically, the Company's primary sources of liquidity have been cash flows from contributions from founders or other investors. For the three and six months ended June 30, 2024, the Company reported an operating loss of $2.1 million and $4.1 million and negative cash flows from operations of $5.7 million for the six months ended June 30, 2024. As of June 30, 2024, the Company had an aggregate unrestricted cash balance of $94 thousands, a net working capital deficit of $21.7 million, and accumulated deficit of $25.2 million.
The Company's future capital requirements will depend on many factors, including the Company's revenue growth rate, the timing and extent of spending to support further sales and marketing and research and development efforts. In order to finance these opportunities, the Company will need to raise additional financing. While there can be no assurances, the Company intends to raise such capital through issuances of additional equity raises. If additional financing is required from outside sources, the Company may not be able to raise it on terms acceptable to the Company or at all. If the Company is unable to raise additional capital when desired, the Company's business, results of operations and financial condition would be materially and adversely affected.
As a result of the above, in connection with the Company's assessment of going concern considerations in accordance with Financial Accounting Standard Board's ("FASB") Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern," management has determined that the Company's liquidity condition raises substantial doubt about the Company's ability to continue as a going concern through twelve months from the date these condensed consolidated financial statements are available to be issued. These condensed consolidated 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.
Loan Payable
On March 31, 2023, Spectaire, as borrower, entered into the Arosa Loan Agreement with Arosa Multi-Strategy Fund LP ("Arosa"), as lender, providing for a term loan (the "Arosa Loan") in a principal amount not to exceed $6.5 million (the "Loan Agreement"), comprised of (i) $5,000,000 in cash of which (a) $2.0 million was funded to a deposit account of Spectaire and (b) $3.0 million (the "Arosa Escrow Funds") was funded into an escrow account (the "Arosa Escrow Account") pursuant to an escrow agreement, dated as of March 31, 2023, by and between Spectaire and Wilmington Savings Fund Society, Federal Savings Bank ("FSB"), and (ii) Arosa caused its affiliate to transfer founder units valued by the parties at $1.5 million (the "Arosa Founder Units") to Spectaire. Spectaire will distribute the Arosa Founder Units to Spectaire's shareholders (other than Arosa and its affiliates) on a pro rata basis. Release of the Arosa Escrow Funds from the Arosa Escrow Account is subject to the satisfaction or waiver of customary conditions, including certification that all representations and warranties contained in the Arosa Loan Agreement and related documents are true and correct in all material respects. These funds were released from escrow on April 17, 2023. The Arosa Loan accrues interest at a rate of 20.0% per annum based on a 360 day year.
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The Company may prepay all, but not less than all, of the outstanding balance of the Arosa Loan at any time upon three days' prior written notice to Arosa. Spectaire will be required to repay the outstanding principal amount of the Arosa Loan, plus the interest accrued and all other sums, if any, that have become due and payable under the Arosa Loan Agreement, upon the occurrence of an event of default under the Arosa Loan Agreement, the closing of the Business Combination or the occurrence of a Change of Control (as defined in the Arosa Loan Agreement). In addition, upon the receipt by Spectaire or any of its subsidiaries of proceeds from an asset sale, Spectaire will be required to repay all or a portion of the outstanding principal amount of the Arosa Loan equal to the amount of the proceeds received from such asset sale.
Pursuant to the Arosa Loan Agreement, Spectaire will pay to Arosa all expenses incurred by Arosa through and after September 30, 2023 relating to the Arosa Loan, provided that Spectaire will not be required to pay any fees of counsel to Arosa incurred on or prior to March 27, 2023 in excess of $200,000. For the six months ended June 30, 2024 and the year ended December 31, 2023, $0 and $119,576 was expensed for counsel fees under the Arosa Loan Agreement, respectively, of which $44,576 is included in accounts payable on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023.
While the Arosa Loan remains outstanding, Arosa will, subject to certain limitations, have the right to participate in any capital raise by Spectaire or any of its subsidiaries consummated on or prior to the Maturity Date.
The Arosa Loan Agreement includes customary representations, warranties and covenants of the parties for loans of this type. The Arosa Loan Agreement also contains customary events of default, including, among others, non-payment of principal or interest by Spectaire, violations of covenants by Spectaire, Spectaire's insolvency, material judgments against Spectaire, the occurrence of any material adverse change with respect to Spectaire, breaches by any party to that certain Exclusive Patent License Agreement, dated as of September 1, 2018, by and between Spectaire and MIT or the failure of Spectaire to issue the Arosa Warrants.
Spectaire, its subsidiaries and Arosa also entered into a Guarantee and Collateral Agreement providing that Spectaire's obligations to Arosa are secured by substantially all of Spectaire's assets and all of Spectaire's shareholders entered into a pledge agreement with Arosa pursuant to which such shareholders pledged all of their equity interests in Spectaire to Arosa as collateral under the Arosa Loan.
On March 31, 2023, in accordance with the terms of the Arosa Loan Agreement, Spectaire agreed to issue to Arosa a warrant to purchase a number of shares of Spectaire Common Stock representing 10.0% of the outstanding number of shares of Spectaire Common Stock on a fully diluted basis as of March 31, 2023 at an exercise price of $0.01 per share, subject to adjustment as described in the Arosa Loan Agreement (the "Closing Date Warrant"). Pursuant to the Arosa Loan Agreement, Spectaire will, upon the closing of the Business Combination, issue an additional warrant to Arosa to purchase a number of shares of NewCo Common Stock equal to 5.0% of the outstanding number of shares of NewCo Common Stock on a fully diluted basis at an exercise price of $0.01 per share, subject to adjustment as described in the Arosa Loan Agreement (the "Additional Warrants"). Taken together after giving effect to the closing of the Business Combination, the shares of NewCo common stock underlying the Closing Date Warrant and the Additional Warrant will represent 10.3% of the outstanding number of shares of NewCo Common Stock on a fully diluted basis. On May 2, 2023, the Company issued Arosa the Closing Date Warrant to purchase 2,200,543 shares of common stock. As a result of the issuance of the Closing Date Warrant, which met the criteria for equity classification under applicable US GAAP, the Company recorded additional paid-in capital in the amount of $13.8 million which was the fair value of the warrants on the issuance date. As a result, the Company recognized a loss on initial issuance of Closing Date Warrants of $7.3 million and a debt discount of $6.5 million. The debt discount is accreted over the term of the loan and netted against the loan principal. As of June 30, 2024, the debt discount is fully accreted.
On October 13, 2023, The Company requested an additional advance in the aggregate principal amount of $650,000 (the "Additional Advance") under the Arosa Loan Agreement. The Advance together with the original loan in the aggregate principial amount of $6,500,000 advanced by the Lender to the Borrower on or around March 31, 2023 constitute the Loan for all purposes under the Arosa Loan Agreement and the other Loan Documents such that the aggregate outstanding principal amount of the Loan after the making of the Additional Advance is $7,150,000, and all of the terms and conditions applicable to the Loan under the Arosa Loan Agreement and the other Loan Documents shall apply to the Additional Advance.
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Pursuant to the Arosa Loan Agreement, on October 19, 2023, in connection with the closing of the Business Combination, the Company issued the Additional Warrant to Arosa to purchase 2,194,453 shares of Common Stock, subject to adjustment as described therein. Upon the issuance of the Additional Warrant, Arosa and the Company agreed to terminate and cancel the Closing Date Warrant. The shares of Common Stock underlying the Additional Warrant represented approximately 10.3% of the outstanding number of shares of Common Stock outstanding as of immediately following the consummation of the Business Combination on a fully diluted basis. As a result of the issuance of the warrant, which met the criteria for equity classification under applicable US GAAP, the Company recorded additional paid-in capital in the amount of $9.3 million which was the fair value of the warrants on the issuance date. As a result, the Company recognized a loss on initial issuance of warrants of $8.6 million and debt discount of $0.7 million. The debt discount is accreted over the term of the loan and netted against the loan principal. As of June 30, 2024, the debt discount is fully accreted.
The Arosa Loan and the Additional Advance matured on March 27, 2024 (the "Maturity Date"). On April 5, 2024, the Company entered into an amended loan agreement with Arosa with an effective date of March 27, 2024 (the "Amended Arosa Loan Agreement"). The Amended Arosa Loan Agreement extended the maturity date to June 1, 2024 and additional interest of $500,000 is payable to Arosa on the effective date of the agreement. In April 2024, the Company paid to Arosa $500,000 which is treated as a debt issuance cost and amortized over the term of the Amended Arosa Loan. For the three and six months ended June 30, 2024, $469,231 and $ 500,000 of amortized debt issuance cost is included in interest expense on the condensed consolidated statement of operations.
On June 1, 2024, the Company entered into a second amended agreement with Arosa (the "Second Amendment to the Arosa Loan Agreement"). The Second Amendment to the Arosa Loan Agreement extends the maturity date to August 30, 2024 and additional interest of $250,000 is payable to Arosa on the effective date of the agreement. Pursuant to the agreement, the Company shall repay the principal and interest on a bi-weekly basis in amounts equal 50% of net equity proceeds from capital raises. In June, the Company paid to Arosa $250,000 which is treated as a debt issuance cost and amortized over the term of the Second Amendment to the Arosa Loan. At June 30, 2024, $6.9 million of principal net of loan discount is reported in loan payable on the condensed consolidated balance sheet. At December 31, 2023, $5.2 million of principal net of loan discount is reported in loan payable on the condensed consolidated balance sheet.
Debt Financings
In October, November, and December 2022, Spectaire entered into three convertible notes with shareholders to which the shareholders agreed to loan to Spectaire, in the aggregate, $437,499. In January 2023, Spectaire entered into four additional convertible notes for a face value of $500,000, $369,980, $100,000, and $50,000. In February 2023, Spectaire entered into two additional convertible notes for a face value of $500,000 and $75,000. In April 2023, Spectaire entered into an additional convertible note with a face value of $225,000. In August 2023, Spectaire entered into two additional convertible notes for a face value of $100,000 (All notes collectively the "Convertible Promissory Notes").
The Convertible Promissory Notes bear interest at a rate of 6% per annum and subject to the conversion provisions, all principal and interest was due and payable on May 8, 2024. Effective upon the closing of a Qualified Financing (as defined below), all of the outstanding principal and interest under the Convertible Promissory Notes will automatically be converted into shares of the same class and series of capital stock of Spectaire issued to other investors in the Qualified Financing (the "Qualified Financing Securities") at a conversion price equal to the lower of (i) the price per share of Qualified Financing Securities paid by the other investors in the Qualified Financing and (ii) the price per share that would have been paid by the investors in the Qualified Financing had the pre-money valuation of Spectaire been $17,900,000 (the "Valuation Cap") (it being understood that, for purposes of clause (ii), the total number of securities of Spectaire outstanding shall be deemed to include all securities issuable upon the exercise or conversion of Spectaire Options or warrants then outstanding (including any securities reserved and available for future issuance under any equity incentive plan of Spectaire), but shall exclude any securities issuable upon conversion or cancellation of the Convertible Promissory Notes and any other indebtedness of Spectaire or similar instruments), in each case with any resulting fraction of a share rounded down to the nearest whole share. "Qualified Financing" means the first issuance or series of related issuances of capital stock by Spectaire after the date of the Convertible Promissory Note, with immediately available gross proceeds to Spectaire (excluding proceeds from this and any other indebtedness of Spectaire or similar instruments that convert into equity in such financing) of at least $2,500,000. Spectaire shall notify the holder in writing of the anticipated occurrence of a Qualified Financing at least five days prior to the closing date of the Qualified Financing. Each holder has agreed to execute and become party to all agreements that Spectaire reasonably requests in connection with such Qualified Financing.
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Upon the closing of the Business Combination on October 19, 2023, all of the outstanding principal and interest under the Convertible Promissory Notes automatically converted into 1,460,638 shares of the common stock of the Company at a conversion price of $1.
In order to finance transaction costs in connection with a Business Combination, the initial shareholders or an affiliate of the initial shareholders or certain of the PCCT's directors and officers 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 will 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, without interest, or, at the lender's discretion, up to $2,500,000 of such Working Capital Loans may be convertible into warrants at a price of $1.00 per warrant. On October 17, 2023, PCCT amended the debt, extending the maturity date to 180 days following the consummation of the Business Combination unless converted at the close of the Business Combination. The Working Capital Loans were not converted at the close of the business combination and as of December 23, 2023, the outstanding amount of Working Capital Loans were $536,701 was recorded in convertible promissory notes - related party on the condensed consolidated balance sheets. On April 23, 2024, the Company amended and restated the debt effective April 14, 2024 (the "Amended Working Capital Loans"), extending the maturity date to one year following the effective date. At the option of the Company, the amount outstanding under this loan can repaid by conversion into redeemable warrants to purchase the equivalence of Class A common stock at a conversion price of $1 per warrant and an exercise price of $11.50.
Prior to the consummation of the Business Combination, on October 31, 2022, PCCT issued a convertible promissory note in the aggregate principal amount of up to $720,000 (the "Extension Loan") to its sponsor. The Extension Loan was issued in connection with certain payments to be made by the sponsor into the PCCT trust account pursuant to PCCT's amended and restated certificate of incorporation, to provide PCCT with an extension of the date by which it must consummate an initial business combination from November 1, 2022 to November 1, 2023 (the "Extension"). The contribution(s) and the Extension Loan do not bear interest. At the close of the Business Combination, there were insufficient funds in the PCCT trust to repay this loan and the Extension Loan was not converted at the close of the Business Combination. On April 10, 2023, PCCT amended the debt, increasing the aggregate principal amount of the extension loan up to $1,200,000. On October 17, 2023, PCCT amended the debt, extending the maturity date to one year following the consummation of the Business Combination unless converted at the close of the Business Combination. As the Extension Loan did not convert at the close of the Business Combination, the Company assumed the Extension Loan and as of June 30, 2024 and December 31, 2023, $574,815 is outstanding and recorded in convertible notes payable - related party on the condensed consolidated balance sheets.
On November 17, 2023, the Company entered into the Common Stock Purchase Agreement with Keystone whereby we have the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to the lesser of (i) an aggregate of $20 million of newly issued shares of common stock and (ii) the Exchange Cap, on the terms and subject to the conditions set forth in the Common Stock Purchase Agreement. On November 17, 2023, the Company entered into a convertible note with an investor (the "Holder") to the investor as settlement of the commitment fee related to the Common Stock Purchase Agreement, in the aggregate, $300,000 (the "New Convertible Promissory Notes") which is recorded as capital raise expense in the consolidated statement of operations for the year ended December 31, 2023. The Convertible Promissory Notes bear interest at a rate of 5% per annum and subject to the conversion provisions, all principal and interest shall be due and payable on May 17, 2024. At the sole discretion of the Holder, the principal and accrued interest may be converted in part of whole into share of common stock of the company equivalent to the average dollar volume-weighted average price of a share of Common Stock during the five (5) trading day period ending on the trading day immediately prior to the date of the conversion notice (the "VWAP Price"). If the VWAP Price is less than $1.00, the VWAP Price shall be deemed to be $1.00. At June 30, 2024 and December 31, 2023, $0 and $300,000 owing under this promissory note is included on the condensed consolidated balance sheets at par.
On March 18, 2024, the Company entered into a subscription agreement (the "Subscription Agreement") with an investor, pursuant to which the Company agreed to sell securities to the investor in a private placement. The Subscription Agreement provided for the sale and issuance by the Company of (i) an aggregate of 1,538,461 shares of the Company's common stock and (ii) an accompanying warrant to purchase up to 1,538,461 shares of common stock at an exercise price of $1.30 per share, for aggregate gross proceeds of approximately $2.0 million, before deducting related expenses. The warrant is immediately exercisable and may be exercised at any time until March 18, 2027. The warrants meet the requirements under ASC 815 for equity classification and will be recorded and classified within the condensed consolidated statement of changes in equity based on allocated proceeds upon the issuance of shares. In 2024, $2,000,000 was received under this agreement and reported as investor deposit on the condensed consolidated balance sheet. As of June 30, 2024, there were no shares issued under this agreement.
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On May 17, 2024, the Company entered into a Standby Equity Purchase Agreement (the "SEPA") with Yorkville pursuant to which the Company has the right to sell to Yorkville up to $25 million of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company's option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA. While there is no mandatory minimum amount, the Company may not sell at any time the greater of (i) an amount equal to 100% of the average of the daily traded amount during the five consecutive trading days immediately preceding a sale notice, and (ii) 500,000 shares of Common Stock. The shares of Common Stock delivered by the Company will be purchased at a price equal to 97% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of the sale notice, other than the daily VWAP on a day in which the daily VWAP is less than a minimum acceptable price as stated by the Company in the notice or there is no VWAP on the subject trading day. The Company may establish a minimum acceptable price in each notice below which the Company will not be obligated to make any sales to Yorkville. The net proceeds to the Company will depend on the frequency and prices at which the Company sells Common Stock to Yorkville.
Under applicable Nasdaq rules, in no event may the Company issue to Yorkville under the SEPA shares equal to greater than 19.99% of the shares of Common Stock outstanding immediately prior to the execution of the SEPA (the "Exchange Cap"), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average price per share paid by Yorkville for all of the shares of Common Stock that the Company directs Yorkville to purchase from the Company pursuant to the SEPA, if any, equals or exceeds the lower of (a) the official closing price of the Common Stock on Nasdaq immediately preceding the execution of the SEPA and (b) the average official closing price of the Common Stock on Nasdaq for the five consecutive trading days immediately preceding the execution of the SEPA, adjusted as required by Nasdaq so that the Exchange Cap limitation will not apply to issuances and sales of Common Stock pursuant to the SEPA. In addition, the Company may not issue or sell any shares of Common Stock to Yorkville under the SEPA which, when aggregated with all other shares of Common Stock then beneficially owned by Yorkville and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act, and Rule 13d-3 thereunder), would result in Yorkville beneficially owning more than 4.99% of the outstanding shares of Common Stock.
The SEPA will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the date of the SEPA or (ii) the date on which it has been fully performed. The Company has the right to terminate the SEPA at no cost or penalty upon five (5) trading days' prior written notice to Yorkville, provided that there are no outstanding notices for which shares of common stock need to be issued. The Company and Yorkville may also agree to terminate the SEPA by mutual written consent. As consideration for Yorkville's commitment to purchase the shares of Common Stock pursuant the SEPA (i) a structuring fee in the amount of $25,000 and (ii) a commitment fee equal to 233,644 shares, to be issued within three trading days of the date of the SEPA, and $125,000, to be paid on the three-month anniversary of the date of the SEPA. In May 2024, the Company paid the restructuring fee of $25,000 which is recorded as capital raise expense in the consolidated statement of operations for the three and six months ended June 30, 2024. As of June 30, 2024, there were no shares issued under this agreement. The fair value of $116,845 of the 233,644 shares payable as a commitment fee is recorded as a stock based compensation in the condensed consolidated statement of operations for the three and six months ended June 30, 2024 and the resultant liability is recorded in stock based compensation liabilities on the condensed consolidated balance sheet.
Cash flows for the three and six months ended June 30, 2024 and 2023
The following table summarizes Spectaire's cash flows from operating, investing and financing activities for the three and six months ended June 30, 2024 and 2023:
For the six months ended June 30, |
||||||||
2024 | 2023 | |||||||
Net cash used in operating activities | $ | (5,746,143 | ) | $ | (3,972,989 | ) | ||
Net cash used in investing activities | $ | (11,516 | ) | $ | (1,958,754 | ) | ||
Net cash provided by financing activities | $ | 5,508,811 | $ | 6,125,980 |
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Cash flows used in operating activities
Net cash used in operating activities for the six months ended June 30, 2024 was $(5,746,143), primarily related to the Company's operating loss of $4.1 million and a decrease in accounts payable and accrued expenses.
Net cash used in operating activities for the six months ended June 30, 2023 was $(3,972,989), primarily related to net loss for the six months ended June 30, 2024, partially offset by stock-based compensation expense, non-cash interest expense, loss on issuance of warrants and an increase in accounts payable and accrued expenses.
Cash flows used in investing activities
Net cash used in investing activities during the six months ended June 30, 2024 and 2023 was $(11,516) and $(1,958,758), respectively, driven by the purchases of lab equipment and the purchase of marketable securities net of sales in 2023.
Cash flows provided by financing activities
Net cash provided by financing activities during the six months ended June 30, 2024 was $5,508,811, consisting primarily of the proceeds received from the issuance of common stock, proceeds from forward purchase agreements, proceeds from loan and deposit from investor under a subscription agreement.
Net cash provided by financing activities during the six months ended June 30, 2023 was $6,125,980, consisting primarily of the proceeds received from the Arosa Loan and issuance of the convertible promissory notes.
Contractual Obligations and Commitments
License Agreement
The Company has a license agreement (the "License Agreement") with MIT. As part of the License Agreement, in exchange for certain patent rights owned by MIT, the Company issued MIT shares that contained an anti-dilution provision which states that until the Company reaches a funding threshold of $4,000,000, MIT must retain a 2.5% common stock ownership on a fully-diluted basis. In connection with the License Agreement, the Company issued MIT 316,614 shares in January 2023.
In April 2023, an additional 58,500 shares were issued to MIT in connection with the License Agreement.
Deferred underwriting fees
Upon the consummation of the Business Combination, Spectaire assumed $5,635,000 of deferred underwriting fees related to PCCT's initial public offering. On June 13, 2024, the Company entered into a settlement and release agreement with the underwriter, pursuant to which the Company will issue to the underwriter 1,000,000 warrants at an exercise price of $11.50 (the 'Warrant Award") and a pay a sum of $1,500,000 upon the closing of any financing transaction of at least $15,000,000. The Warrants shall bear the same terms as the existing warrants. The Warrant Award and cash payment will be accepted as full settlement of the $5,635,000 of deferred underwriting fees unless in the event of a bankruptcy proceeding the full amount will be claimed. On At June 30, 2024 and December 31, 2023, $ 1,535,000 and $5,635,000 are included as a current liability on the condensed consolidated balance sheets, respectively. At June 30, 2024, the warrants were not yet issued. As the agreement on June 13, 2024, legally released Spectaire to any further obligation above the $1,535,000, the Company reversed $4,100,000 as other income during the three and six months ended June 30, 2024.
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AireCore™ Mass Spectrometer Program
On June 30, 2023, the Company entered into an agreement with a vendor in which the vendor will support the Company with a co-build of five Spectrometer facilities followed by documentation and assembly of 50 AireCore™ Mass Spectrometers at the vendor's facility. The co-build, documentation and assembly is estimated to cost $276,834. On December 14, 2023, the Company entered into a further agreement with the vendor for a co-build of 30 additional spectrometers at an estimated cost of $122,743. As of June 30, 2024, a total of 52 (of which 31 are subject to testing internally and externally) units were built and 24 received back from testing were in progress. As of December 31, 2023, a total of 35 units were built and 45 were in progress. As of June 30, 2024 and December 31, 2023, a total cost of $371,367 and $272,198, respectively were incurred, of which $289,512 and $243,448, respectively is recorded as inventory, prior to any lower of cost or market adjustment, and the remaining amount is included in research and development costs in the condensed consolidated statement of operations.
Litigation and loss contingencies
From time to time, the Company may be subject to other legal proceedings, claims, investigations, and government inquiries (collectively, legal proceedings) in the ordinary course of business. It may receive claims from third parties asserting, among other things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that the Company believes will have a material adverse impact on the Company's business or condensed consolidated financial statements.
Stock Purchase Agreement
On November 17, 2023, the Company entered into a Purchase Agreement with Keystone (the "Common Stock Purchase Agreement"), whereby the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to the lesser of (i) an aggregate of $20 million of newly issued shares of common stock and (ii) the Exchange Cap, on the terms and subject to the conditions set forth in the Purchaser . Unless earlier terminated, the shares of Common Stock that may be issued under the Common Stock Purchase Agreement may be sold by the Company to Keystone at its discretion until November 17, 2025. For the three and six months ended June 30, 2024, the Company sold 2,389,736 and 3,067,438 shares, respectively for total purchase price of $1,730,089 and 2,562,198, respectively to Keystone under this agreement.
Subscription Agreement
On March 18, 2024, the Company entered into a subscription agreement (the "Subscription Agreement") with an investor, pursuant to which the Company agreed to sell securities to the investor in a private placement. The Subscription Agreement provided for the sale and issuance by the Company of (i) an aggregate of 1,538,461 shares of the Company's common stock and (ii) an accompanying warrant to purchase up to 1,538,461 shares of common stock at an exercise price of $1.30 per share, for aggregate gross proceeds of approximately $2.0 million, before deducting related expenses. The warrant is immediately exercisable and may be exercised at any time until March 18, 2027. The warrants meet the requirements under ASC 815 for equity classification and will be recorded and classified within the condensed consolidated statement of changes in stockholders' deficit based on allocated proceeds upon the issuance of shares. As of June 30, 2024, $2,000,000 was received under this agreement and reported as investor deposit on the condensed consolidated balance sheet. As of June 30, 2024, there were no shares issued under this agreement.
Yorkville Standby Equity Purchase Agreement (SEPA)
On May 17, 2024, the Company entered into a Standby Equity Purchase Agreement (the "SEPA") with Yorkville pursuant to which the Company has the right to sell to Yorkville up to $25 million of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company's option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA. While there is no mandatory minimum amount, the Company may not sell at any time the greater of (i) an amount equal to 100% of the average of the daily traded amount during the five consecutive trading days immediately preceding a sale notice, and (ii) 500,000 shares of Common Stock. The shares of Common Stock delivered by the Company will be purchased at a price equal to 97% of the lowest daily VWAP of the shares of Common Stock during the three consecutive trading days commencing on the date of the delivery of the sale notice, other than the daily VWAP on a day in which the daily VWAP is less than a minimum acceptable price as stated by the Company in the notice or there is no VWAP on the subject trading day. The Company may establish a minimum acceptable price in each notice below which the Company will not be obligated to make any sales to Yorkville. The net proceeds to the Company will depend on the frequency and prices at which the Company sells Common Stock to Yorkville.
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Under applicable Nasdaq rules, in no event may the Company issue to Yorkville under the SEPA shares equal to greater than 19.99% of the shares of Common Stock outstanding immediately prior to the execution of the SEPA (the "Exchange Cap"), unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap in accordance with applicable Nasdaq rules, or (ii) the average price per share paid by Yorkville for all of the shares of Common Stock that the Company directs Yorkville to purchase from the Company pursuant to the SEPA, if any, equals or exceeds the lower of (a) the official closing price of the Common Stock on Nasdaq immediately preceding the execution of the SEPA and (b) the average official closing price of the Common Stock on Nasdaq for the five consecutive trading days immediately preceding the execution of the SEPA, adjusted as required by Nasdaq so that the Exchange Cap limitation will not apply to issuances and sales of Common Stock pursuant to the SEPA. In addition, the Company may not issue or sell any shares of Common Stock to Yorkville under the SEPA which, when aggregated with all other shares of Common Stock then beneficially owned by Yorkville and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act, and Rule 13d-3 thereunder), would result in Yorkville beneficially owning more than 4.99% of the outstanding shares of Common Stock.
The SEPA will automatically terminate on the earliest to occur of (i) the 36-month anniversary of the date of the SEPA or (ii) the date on which it has been fully performed. The Company has the right to terminate the SEPA at no cost or penalty upon five (5) trading days' prior written notice to Yorkville, provided that there are no outstanding notices for which shares of common stock need to be issued. The Company and Yorkville may also agree to terminate the SEPA by mutual written consent. As consideration for Yorkville's commitment to purchase the shares of Common Stock pursuant the SEPA (i) a structuring fee in the amount of $25,000 and (ii) a commitment fee equal to 233,644 shares, to be issued within three trading days of the date of the SEPA, and $125,000, to be paid on the three-month anniversary of the date of the SEPA. In May 2024, the Company paid the restructuring fee of $25,000 which is recorded as capital raise expense in the consolidated statement of operations for the three and six months ended June 30, 2024. As of June 30, 2024, there were no shares issued under this agreement. The fair value of $116,845 of the 233,644 shares payable as a commitment fee is recorded as a stock based compensation in the condensed consolidated statement of operations for the three and six months ended June 30, 2024 and the resultant liability is recorded in stock based compensation liabilities on the condensed consolidated balance sheet.
Forgiveness of Legal Fees
Upon the consummation of the Business Combination, Spectaire assumed $6,115,563 of legal fees related to PCCT's Business Combination transaction costs. On June 4, 2024, The Company and the vendor entered into an agreement pursuant to which the vendor will accept as full settlement of the debt $2,740,000 (the "Adjusted Legal Fees") of which $370,000 is payable in Common Stock representing 1,000,000 shares (the "Stock Settlement') and $2,370,000 is payable in cash (the "Cash Settlement"). The Vendor agreed to defer the Cash Settlement until the earlier of December 31, 2025 and the date of the consummation of a financing transaction in which the Company raises gross proceeds of at least $30 million ("Cash Settlement Repayment Terms"). Notwithstanding the Cash Settlement Repayment Terms, if the Company consummates a financing transaction prior to the Cash Settlement date, the Company shall repay to the vendor an amount equivalent to the Cash Settlement multiplied by the gross proceeds from the financing transaction divided by $30 million. For the three and six months ended June 30, 2024, $0 was paid under this agreement and the balance of $ 2,740,000 is recorded as accrued legal fees on the condensed consolidated balance sheet. At June 30, 2024, the 1,000,000 shares were not yet issued under this agreement. As the agreement on June 4, 2024, legally released Spectaire to any further obligation above the $2,740,000, the Company reversed $3,375,563 as other income during the three and six months ended June 30, 2024.
Off balance sheet arrangements
The Company was not a party to any off balance sheet arrangements as of and for the period ended June 30, 2024.
Critical Accounting Policies and Significant Management Estimates
We prepare our condensed consolidated financial statements in accordance with US GAAP for interim financial information, expressed in U.S. dollars. Accordingly, they do not include all information and footnotes required by US GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in accordance with US GAAP. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. References to GAAP issued by the FASB in these accompanying notes to the condensed consolidated financial statements are to the FASB Accounting Standards Codification. All significant intercompany balances and transactions have been eliminated in consolidation.
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Preparation of condensed consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could materially differ from these estimates. On an ongoing basis the Company evaluates its estimates including those relating to inventory valuation, fair values, income taxes, and contingent liabilities among others. The Company bases its estimates on assumptions both historical and forward looking that are believed to be reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities.
In addition, management monitors the effects of the global macroeconomic environment, including increasing inflationary pressures; social and political issues; regulatory matters, geopolitical tensions; and global security issues. The Company is also mindful of inflationary pressures on its cost base and is monitoring the impact on customer preferences.
Fair Value Measurements
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels:
● | Level 1: Inputs are quoted prices in active markets for identical assets or liabilities. |
● | Level 2: Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
● | Level 3: Inputs are unobservable for the asset or liability. |
The carrying amounts of certain financial instruments, such as cash equivalents, marketable securities, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. The fair value of debt instruments for which the Company has not elected fair value accounting is based on the present value of expected future cash flows and assumptions about the then-current market interest rates as of the reporting period and the creditworthiness of the Company. All of the Company's debt is carried on the condensed consolidated balance sheet on a historical cost basis net of unamortized discounts and premiums because the Company has not elected the fair value option of accounting.
Warrants
The Company reviews the terms of warrants to purchase its common stock to determine whether warrants should be classified as liabilities or stockholders' deficit in its condensed consolidated balance sheets. In order for a warrant to be classified in stockholders' deficit, the warrant must be (i) indexed to the Company's equity and (ii) meet the conditions for equity classification.
If a warrant does not meet the conditions for stockholders' deficit classification, it is carried on the condensed consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other non-operating losses (gains) in the consolidated statements of operations. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders' deficit in the condensed consolidated balance sheets, and the amount initially recorded is not subsequently remeasured at fair value.
Share-Based Compensation
The Company accounts for share-based compensation arrangements granted to employees in accordance with ASC 718, Compensation: Stock Compensation ("ASC 718"), by measuring the grant date fair value of the award and recognizing the resulting expense over the period during which the employee is required to perform service in exchange for the award. Equity-based compensation expense is only recognized for awards subject to performance conditions if it is probable that the performance condition will be achieved. The Company accounts for forfeitures when they occur.
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Inventories
Inventories consist of finished stock of spectrometer units built by the Company and recorded at the lower of cost or net realizable value and work-in-progress units measured at cost. The Company regularly reviews inventory quantities and records a provision for excess and/or obsolete inventory which reduces the cost basis of the inventory. There was no inventory reserve as of June 30, 2023 and December 31, 2023.
Revenue Recognition
Product sales
The Company generates revenue through the sale of AireCore™ units directly to customers. The Company considers customer agreements and purchase orders to be the contracts with the customer. There is a single performance obligation, which is the Company's promise to transfer the Company's product to customers based on specific payment and shipping terms in the arrangement. The entire transaction price is allocated to this single performance obligation. Product revenue is recognized when a customer obtains control of the Company's product, which occurs at shipment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products.
The Company evaluated principal versus agent considerations to determine whether it is appropriate to record third-party logistics provider fees paid as an expense. The Company owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct the third-party logistics provider to return the Company's inventories to any location specified by the Company. It is the Company's responsibility to make any returns made by customers directly to logistic providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card chargebacks), establishes prices of its products, fulfils the goods to the customer and can limit quantities or stop selling the goods at any time. Therefore, these fees such as shipping and handling expenses will be recorded within cost of goods sold as they are incurred and are not recorded as a reduction of revenue since.
Profit Sharing Agreement
The Company entered into an agreement with a customer pursuant to which the company will provide training and marketing support to the customer and receive a percentage of revenue received by the customer when the customer markets spectrometers. The Company evaluated variable considerations to determine if the company should estimate a reasonable amount of this revenue to be included in the transaction price. The Company determined that since customer controls all aspects of the transactions with their customers including pricing and timing of service, the expected outcome is highly uncertain and variable revenues cannot be reasonably estimated. Revenue under this agreement will be recognized when customer makes such confirmation and receipt of a determined amount of funds is highly certain.
Licensing agreement revenue
The Company enters into license agreements to strategic partners to sell and distribute AireCore™. For licenses of technology, recognition of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations under the contract. Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations. Customers pay in advance for the licenses. Revenue is initially deferred and is recognized at the time the performance obligation is complete.
Research and Development Costs
Costs related to preliminary research and development of internal use software are expensed as incurred as a component of operating expenses.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC Topic 740, Income Taxes ("ASC 740"). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
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ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions 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 as of June 30, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
Net Income (loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net income (loss) per share is computed by giving effect to all potential shares of common stock, including restricted stock awards, restricted stock units, convertible notes, warrants and earn-out shares, to the extent dilutive. For the three and six months ended June 30, 2024, unvested restricted stock awards, restricted stock units, and warrants were included in the calculation of dilutive EPS using the treasury stock method; the convertible notes were included in the calculation of dilutive EPS using the if-converted method; and the earn-out shares would be included in the calculation of dilutive EPS based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the earn-out period. For the three and six months ended June 30, 2024, all potentially dilutive securities were not included in the calculation of diluted net income (loss) per share as their effect would be anti-dilutive.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which will add required disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help investors understand how the CODM evaluates segment expenses and operating results. The new standard will also allow disclosure of multiple measures of segment profitability, if those measures are used to allocate resources and assess performance. The amendments will be effective for public companies for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The standard will be effective for public companies for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The Company maintains its cash in checking and savings accounts. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Concentration of Major Customers
As of June 30, 2024, Spectaire only had five anticipated customers in its initial pilot program, and Spectaire expects to depend upon a small number of customers for a substantial portion of its future revenue. Accordingly, a loss of any significant customer could have a material adverse effect on Spectaire's financial condition and operating results. Spectaire cannot assure that (i) orders that may be completed, delayed, cancelled or reduced will be replaced with new business; (ii) the pilot customers will ultimately utilize Spectaire's products and services; or (iii) the pilot customers will enter into additional contracts with Spectaire on acceptable terms or at all.
There can also be no assurance that Spectaire's efforts to secure new customers and programs in Spectaire's traditional or new markets, including through acquisitions, will succeed in reducing Spectaire's customer concentration. Acquisitions are also subject to integration risk, and revenues and margins could be lower than Spectaire anticipates. Failure to secure business from existing or new customers in any of Spectaire's end markets would adversely impact Spectaire's operating results.
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Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. Bank deposits are held by accredited financial institutions and these deposits may at times be in excess of federally insured limits. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions that it believes are of high quality. The Company has not experienced any losses on its deposits of cash or cash equivalents. As of June 30, 2024, our cash was maintained with one financial institution in the United States in checking and savings accounts.
Foreign Currency Exchange Risk
Our operations include activities in the United States. In addition, we contract with vendors that are located outside of the United States and certain invoices are denominated in foreign currencies. While our operating results are exposed to changes in foreign currency exchange rates between the U.S. dollar and various foreign currencies, there was no material impact on our results of operations for any periods presented herein.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and material costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein. While we are seeing, and expect to continue to see, inflation due to, among other things, geopolitical and macroeconomic events, such as the ongoing global military conflicts and related sanctions, as of June 30, 2024, we do not expect anticipated changes in inflation to have a material effect on our business, financial condition or results of operations for future reporting periods other than general impacts on companies due to general economic and market conditions.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, as amended (the "Exchange Act")) as of the end of the period covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act 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 management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, due solely to the material weaknesses in our internal control over financial reporting, which pertain to internal controls over the recognition of share-based payment expense, the fair value of earnout liabilities and income taxes. As a result, we performed additional analysis as deemed necessary to ensure that our condensed consolidated financial statements were prepared in accordance with US GAAP. Accordingly, management believes that the condensed consolidated financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Management intends to implement remediation steps to improve our disclosure controls and procedures and our internal control over financial reporting. Specifically, we intend to expand and improve our review process for complex transactions. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications, and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter ended June 30, 2024, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting with the exception of the ongoing implementation of our plan to remediate the material weaknesses described above.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are and, from time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any other legal proceedings that, in the opinion of our management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
ITEM 1A. RISK FACTORS
On August 5, 2024, the Company received a letter from the NASDAQ Stock Exchange Hearings Panel that, following the Company's hearing before the Panel on July 23, 2024, NASDAQ determined to delist the Company's common stock. Trading in the Company's securities was suspended from NASDAQ at the open of trading on August 7, 2024. The Company's common stock is now quoted on the OTC under the Company's existing trading symbol "SPEC" and its public warrants are traded under the existing trading symbol "SPECW." The delisting may negatively impact the Company by, among other things, (i) reducing the liquidity and market price of the Company's common stock; (ii) reducing the number of investors willing to hold or acquire the Company's common stock, which could negatively impact the Company's ability to raise equity financing; (iii) limiting the Company's ability to use a registration statement in certain circumstances to offer and sell freely tradable securities, thereby preventing the Company from fully accessing the public capital markets; and (iv) impairing the Company's ability to provide equity incentives to its employees.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Private Placement
On March 18, 2024, the Company entered into a Subscription Agreement (the "Subscription Agreement") with the investor named therein (the "Investor"), pursuant to which the Company agreed to sell securities to the Investor in a private placement (the "Private Placement"). The Purchase Agreement provided for the sale and issuance by the Company of (i) an aggregate of 1,538,461 shares (the "Shares") of Common Stock and (ii) an accompanying warrant to purchase up to 1,538,461 shares of Common Stock (the "Warrant") at an exercise price of $1.30 per share, for aggregate gross proceeds of approximately $2.0 million, before deducting expenses relating to the Private Placement. The closing of the Private Placement occurred on March 18, 2024. These securities were issued pursuant to Section 4(a)(2) of the Securities Act.
Equity Line of Credit
On November 17, 2023, the Company entered into the Purchase Agreement (the "Purchase Agreement") with Keystone Capital Partners, LLC, a Delaware limited liability company ("Keystone"), whereby the Company has the right, but not the obligation, to sell to Keystone, and Keystone is obligated to purchase, up to the lesser of (i) an aggregate of $20 million of newly issued shares of Common Stock and (ii) the Exchange Cap (as defined in the Purchase Agreement). Between January 1, 2024 and June 30, 2024, the Company issued and sold an aggregate of 677,702 shares of Common Stock to Keystone pursuant to the Purchase Agreement at an average price per share of $1.23, resulting in aggregate gross proceeds to the Company of approximately $832,177. These securities were issued pursuant to Section 4(a)(2) of the Securities Act.
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
The following exhibits are filed as part of, or incorporated by reference into, this Report.
Exhibit Number | Description | |
3.1 | Certificate of Incorporation of Spectaire Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC on October 19, 2023). | |
3.2 | Bylaws of Spectaire Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on October 19, 2023). | |
10.1 | Standby Equity Purchase Agreement, dated May 17, 2024 between Spectaire Holdings Inc and YA II PN, Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 21, 2024) | |
10.2 | Registration Rights Agreement, dated May 17, 2024, between Spectaire Holdings Inc. and YA IIPN, Ltd. incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on May 21, 2024) | |
10.3 | Second Amended Loan Agreement by and between Arosa Multi-Strategy Fund LP and Spectaire Holdings Inc., dated June 1, 2024 | |
31.1 | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (embedded within Inline XBRL document) |
* | Filed or furnished herewith. |
+ | Indicates management contract or compensatory plan |
# | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC. |
† | The information in Exhibits 32.1 and 32.2 shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Annual Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference. |
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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, thereunto duly authorized.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SPECTAIRE HOLDINGS INC. | ||
August 19, 2024 |
By: | /s/ Brian Semkiw |
Brian Semkiw | ||
Chief Executive Officer | ||
August 19, 2024 |
By: | /s/ Scott Honour |
Scott Honour | ||
Interim Chief Financial Officer |
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