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 March 31, 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 |
Common Stock, par value $0.0001 per share | | SPEC | | The Nasdaq Stock Market LLC |
| | | | |
Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50 per share | | SPECW | | The Nasdaq Stock Market LLC |
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 May 10, 2024, there were 18,412,302
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
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Balance Sheets
| |
March 31, 2024 | | |
December 31, 2023 | |
| |
(Unaudited) | | |
| |
Assets | |
| | |
| |
Current assets | |
| | |
| |
Cash | |
$ | 31,414 | | |
$ | 342,996 | |
Inventories | |
| 163,806 | | |
| 243,448 | |
Prepaid expenses and other assets | |
| 474,032 | | |
| 577,665 | |
Total current assets | |
| 669,252 | | |
| 1,164,109 | |
Property and equipment, net | |
| 60,929 | | |
| 67,193 | |
Operating lease right of use asset | |
| 185,728 | | |
| 205,053 | |
Deposits | |
| 6,700 | | |
| 6,700 | |
Total assets | |
$ | 922,609 | | |
$ | 1,443,055 | |
| |
| | | |
| | |
Liabilities and stockholders’ deficit | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable – related party (note 8) | |
$ | — | | |
$ | 20,600 | |
Accounts payable | |
| 1,074,936 | | |
| 1,885,390 | |
Accrued legal costs | |
| 7,353,667 | | |
| 6,765,906 | |
Accrued interest expense | |
| 1,375,472 | | |
| 1,014,360 | |
Other accrued expenses | |
| 1,408,876 | | |
| 1,867,822 | |
Investor deposit | |
| 1,000,000 | | |
| — | |
Other current liabilities | |
| 623,780 | | |
| 123,780 | |
Deferred revenue | |
| 673,878 | | |
| 525,000 | |
Notes payable | |
| 429,370 | | |
| 429,370 | |
Loan payable | |
| 6,680,769 | | |
| 5,200,000 | |
Convertible notes payable, net – related party (note 11) | |
| 1,411,516 | | |
| 1,411,516 | |
Operating lease liability – current portion | |
| 78,786 | | |
| 75,808 | |
Share based compensation liabilities | |
| 582,332 | | |
| 862,614 | |
Forward purchase agreements | |
| 201,250 | | |
| 717,000 | |
Deferred underwriting fees | |
| 5,635,000 | | |
| 5,635,000 | |
Total current liabilities | |
| 28,529,632 | | |
| 26,534,166 | |
| |
| | | |
| | |
Operating lease liability – non current portion | |
| 116,323 | | |
| 136,899 | |
Earnout liabilities | |
| 611,000 | | |
| 1,964,000 | |
Total liabilities | |
| 29,256,955 | | |
| 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 March 31, 2024 and December 31, 2023 | |
| — | | |
| — | |
Common stock, $0.0001 par value; 600,000,000 authorized shares and 16,022,566 shares and 15,344,864 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | |
| 1,602 | | |
| 1,534 | |
Subscription receivable | |
| (149,999 | ) | |
| — | |
Additional paid in capital | |
| 1,511,769 | | |
| — | |
Accumulated deficit | |
| (29,697,718 | ) | |
| (27,193,544 | ) |
Total stockholders’ deficit | |
| (28,334,346 | ) | |
| (27,192,010 | ) |
Total liabilities and stockholders’ deficit | |
$ | 922,609 | | |
$ | 1,443,055 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| |
For the Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
Revenues | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Costs and expenses: | |
| | | |
| | |
Sales and marketing | |
| 131,291 | | |
| 105,000 | |
General and administrative | |
| 919,796 | | |
| 3,611,677 | |
Research and development | |
| 945,125 | | |
| 599,227 | |
Depreciation expense | |
| 8,520 | | |
| 2,997 | |
Total costs and expenses | |
| 2,004,732 | | |
| 4,318,901 | |
Operating loss | |
| (2,004,732 | ) | |
| (4,318,901 | ) |
Other income (expense): | |
| | | |
| | |
Interest expense | |
| (2,379,320 | ) | |
| (37,654 | ) |
Change in fair value of forward purchase agreements | |
| 515,750 | | |
| — | |
Change in fair value of earnout liabilities | |
| 1,353,000 | | |
| — | |
Other miscellaneous income | |
| 11,128 | | |
| — | |
Loss before income taxes | |
| (2,504,174 | ) | |
| (4,356,555 | ) |
Income tax expense | |
| — | | |
| — | |
Net Loss | |
$ | (2,504,174 | ) | |
$ | (4,356,555 | ) |
| |
| | | |
| | |
Net loss per common share, basic and diluted | |
$ | (0.16 | ) | |
$ | (0.69 | ) |
Weighted average shares outstanding, basic and diluted | |
| 15,556,204 | | |
| 6,338,068 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Statements of Changes
in Stockholders’ Deficit (Unaudited)
For the Three Months Ended March 31, 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 | ) |
For the Three Months Ended March 31, 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 | ) |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
SPECTAIRE HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| |
For the Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
Cash Flows from Operating Activities | |
| | |
| |
Net loss | |
$ | (2,504,174 | ) | |
$ | (4,356,555 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation expense | |
| 8,520 | | |
| 2,997 | |
Amortization of right of use assets | |
| 19,325 | | |
| — | |
Share-based compensation | |
| 1,426,851 | | |
| 1,357,048 | |
Change in fair value of stock based compensation liabilities | |
| (1,707,133 | ) | |
| — | |
Non-cash interest expense | |
| 2,341,880 | | |
| 37,654 | |
Change in fair value of forward purchase agreements | |
| (515,750 | ) | |
| — | |
Change in fair value of earnout liabilities | |
| (1,353,000 | ) | |
| — | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other assets | |
| 103,633 | | |
| (7,954 | ) |
Inventories | |
| 79,642 | | |
| — | |
Accounts payable – related party | |
| (20,600 | ) | |
| (188,000 | ) |
Accounts payable, accrued legal costs and other accrued expenses | |
| (681,638 | ) | |
| 1,538,595 | |
Operating lease payments | |
| (17,598 | ) | |
| — | |
Deferred revenue | |
| 148,878 | | |
| 148,780 | |
Net cash used in operating activities | |
| (2,671,164 | ) | |
| (1,467,435 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchases of property and equipment | |
| (2,256 | ) | |
| (10,761 | ) |
Net cash used in investing activities | |
| (2,256 | ) | |
| (10,761 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from issuance of common stock | |
| 682,178 | | |
| — | |
Proceeds from investor subscription | |
| 1,000,000 | | |
| — | |
Proceeds from loan | |
| — | | |
| 5,000,000 | |
Proceeds from convertible notes payable – related party (note 11) | |
| 100,000 | | |
| 1,594,980 | |
Repayment of convertible notes payable – related party (note 11) | |
| (100,000 | ) | |
| — | |
Proceeds from forward purchase agreements | |
| 679,660 | | |
| — | |
Net cash provided by financing activities | |
| 2,361,838 | | |
| 6,594,980 | |
| |
| | | |
| | |
Net (decrease) increase in cash, cash equivalents and restricted cash | |
| (311,582 | ) | |
| 5,116,784 | |
Cash, cash equivalents and restricted cash, beginning of period | |
| 342,996 | | |
| 18,886 | |
Cash, cash equivalents and restricted cash, end of the period | |
$ | 31,414 | | |
$ | 5,135,670 | |
| |
| | | |
| | |
Reconciliation of cash, cash equivalents and restricted cash: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 31,414 | | |
$ | 2,135,670 | |
Restricted cash | |
| — | | |
| 3,000,000 | |
Total cash, cash equivalents and restricted cash shown in the statement of cash flow | |
$ | 31,414 | | |
$ | 5,135,670 | |
| |
| | | |
| | |
Non-Cash investing and financing activities: | |
| | | |
| | |
Distribution of shares relating to the Arosa Loan Agreement (note 9) | |
$ | — | | |
$ | 1,500,000 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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.
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 months ended March
31, 2024, there were no shares purchased under this PIPE Subscription Agreement.
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 U.S. 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 months ended March 31, 2024, the
Company reported an operating loss of $2.0 million and negative cash flows from operations of $2.7 million. As of March 31, 2024, the
Company had an aggregate unrestricted cash balance of $31 thousand, a net working capital deficit of $27.9 million, and accumulated deficit
of $29.7 million.
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 U.S.
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 months ended March 31, 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 its 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.
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 March 31, 2024, the cash balance does not
exceed the FDIC limit. does 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 March 31, 2024 and December
31, 2023, there were no cash equivalents. The Company maintains its cash in checking and savings accounts. Income generated from cash
held in savings accounts is recorded as interest income.
Restricted Cash
Certain deposits are restricted as to withdrawal
or usage against these deposits. Restricted term deposits are classified as current assets based on the term of the deposit and the expiration
date of the underlying restriction.
With respect to the Arosa Loan Agreement (Note
9), the Company deposited $3,000,000 of cash into a restricted escrow account, to be later released upon the satisfaction of certain covenants
as specified. These funds were released from escrow on April 17, 2023.
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 March 31, 2024 and December 31, 2023.
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following table shows the components of inventory at March 31,
2024 and December 31, 2023.
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
Finished goods | |
$ | 579,257 | | |
$ | 291,492 | |
Work in progress | |
| 59,806 | | |
| 173,448 | |
Total | |
| 639,063 | | |
| 464,940 | |
Lower of cost and market adjustment | |
| (475,257 | ) | |
| (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.
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.
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 months ended March 31, 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.
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Operating leases are included in the ROU assets and lease liabilities
on the condensed consolidated balance sheets. The Company has no finance leases.
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, fulfills 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 March 31, 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.
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 March 31, 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 earnout shares, to the extent dilutive. For the three months ended March 31, 2024
unvested restricted stock awards, restricted stock units, earnout shares and warrants were not included in the calculation of dilutive
net loss per share as their effect will be anti-dilutive. There were no potential dilutive common stock equivalents for the three months
ended March 31, 2023.
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.
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.
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:
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
Lab equipment | |
$ | 104,474 | | |
$ | 102,218 | |
Total cost | |
| 104,474 | | |
| 102,218 | |
Less: Accumulated depreciation | |
| (43,545 | ) | |
| (35,025 | ) |
Property and equipment, net | |
$ | 60,929 | | |
$ | 67,193 | |
Depreciation expense was $8,520 and $2,997 for
the three months ended March 31, 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 three months ended March
31, 2024 and 2023, $35,763 and $18,420 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 March 31, 2024:
| |
Operating Leases | |
| |
| |
ROU Assets | |
$ | 185,728 | |
Lease Liabilities: | |
| | |
Current lease liabilities | |
$ | 78,786 | |
Non current lease liabilities | |
| 116,323 | |
Total lease liabilities | |
$ | 195,109 | |
Other supplemental information:
| |
March 31, 2024 | |
Weighted average remaining lease term (years) | |
$ | 2.25 | |
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 March
31, 2024:
Fiscal Year | |
March 31, 2024 | |
Remainder of 2024 | |
$ | 64,320 | |
2025 | |
| 92,862 | |
2026 | |
| 49,056 | |
Total undiscounted lease payments | |
| 206,238 | |
Less: imputed interest | |
| (11,129 | ) |
Total lease liabilities | |
$ | 195,109 | |
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 7 — Other Accrued Expenses
The following table summarizes other accrued expenses:
| |
March 31, | | |
December 31, | |
| |
2024 | | |
2023 | |
Accrued professional services | |
| 387,977 | | |
| 507,977 | |
Insurance premium financing | |
| 250,864 | | |
| 507,348 | |
Accrued payroll and bonus(1) | |
| 602,000 | | |
| 750,414 | |
Other accrued expenses | |
| 168,035 | | |
| 102,083 | |
| |
$ | 1,408,876 | | |
$ | 1,867,822 | |
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 months ended March 31,
2024 and 2023, $309,182 and $386,782, 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 March 31, 2024 and December 31, 2023, respectively. 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 $232,000 and $267,000 outstanding and included in accrued payroll and bonus within other accrued expenses
on the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023, respectively.
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 March 31, 2024.
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 March 31, 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 March 31, 2024 and any financial accounts are not material to the condensed consolidated financial statements.
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 three months ended March 31,
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 March 31, 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.
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 March 31, 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 March 31, 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 extends 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. At March
31, 2024, the debt issuance cost of $500,000 was due and payable and is recorded in other current liabilities on the condensed consolidated
balance sheet. For the three months ended March 31, 2024, $30,769 of amortized debt issuance cost is included in interest expense on the
condensed consolidated statement of operations. At March 31, 2024, $6.7 million of principal net of debt issuance cost 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 March 31,
2024 and December 31, 2023, there was $429,370 owed under this subscription agreement, which is included on the condensed consolidated
balance sheet. As at March 31, 2024, the Company transferred 171,748 shares to the investor pursuant to this agreement. At March 31, 2024,
a total of 85,874 shares are pending to be transferred to the investor under this agreement.
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 March 31, 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 does 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 March 31, 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. At March 31, 2024 and December
31, 2023, $300,000 owing under this promissory note is included in convertible notes – related party on the condensed consolidated
balance sheets at par, respectively.
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 March 31,
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 March 31, 2024 and
December 31, 2023, there were 16,022,566 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 March 31, 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.
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 14 — Share-based Compensation
Restricted Stock Awards
In October 2022, Spectaire granted 3,144,335 shares 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 $1,357,048 in compensation expense for the three months ended March 31, 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 March 31, 2024 and December 31, 2023, the Company did not have sufficient registered shares to
issue. The fair values as of March 31, 2024 and December 31, 2023 were $0.71 and $1.65, respectively. Consequently, the Company recorded
$139,925 of compensation expense recognized for the three months ended March 31, 2024 as a liability which is included in current liabilities
on the condensed consolidated balance sheet. For the three months ended March 31, 2024, a decrease in fair values of compensation liability
of $183,929 is included in compensation expense on the condensed consolidated statement of operations. As of March 31, 2024 and December
31, 2024, $279,849 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 March 31, 2024, the remaining unrecognized compensation expense of the restricted stock
awards is $8,142,285 with a weighted average remaining life of 1.50 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 2,510,000 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 March 31, 2024 and December 31,
2023, the Company did not have sufficient registered shares to issue. The fair values as of March 31, 2024 and December 31, 2023 were
$0.71 and $1.65, respectively. The Company recognized $69,804 in compensation expense for three months ended March 31, 2024 which is included
in general and administrative expenses in the condensed consolidated statement of operations. For the three months ended March 31, 2024,
a decrease in fair value of compensation liability of $306,081 is included in compensation expense on the condensed consolidated statement
of operations. As at March 31, 2024 and December 31, 2023, the resultant liability under the Plan of $302,483 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).
SPECTAIRE HOLDINGS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Liabilities subject to fair value measurements
at March 31, 2024 are as follows:
| |
As of March 31, 2024 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Liabilities | |
| | |
| | |
| | |
| |
Forward purchase agreements | |
$ | - | | |
$ | - | | |
$ | 201,250 | | |
$ | 201,250 | |
Earnout liabilities | |
| - | | |
| - | | |
| 611,000 | | |
| 611,000 | |
Share based compensation liabilities | |
| 582,332 | | |
| - | | |
| - | | |
| 582,332 | |
Total liabilities | |
$ | 582,332 | | |
$ | - | | |
$ | 812,250 | | |
$ | 1,394,582 | |
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 months ended
March 31, 2024, the Company received $679,660 related to the Forward Purchase Agreements. The proceeds are included in additional paid-in
capital on the condensed consolidated balance sheets. As of March 31, 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, $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 months ended March 31, 2024.
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 than 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
than 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 than 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
March 31,
2024 | | |
As of December 31,
2023 | |
Stock Price | |
$ | 0.71 | | |
$ | 1.65 | |
Volatility | |
| 70 | % | |
| 60 | % |
Risk free rate of return | |
| 4.25 | % | |
| 3.62 | % |
Expected term (in years) | |
| 4.55 | | |
| 4.8 | |
| |
As
of
March 31,
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 | |
| (1,353,000 | ) | |
| (47,930,000 | ) |
Balance at end of the period | |
$ | 611,000 | | |
$ | 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.
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. At March 31, 2024 and December
31, 2023, these fees are included as a current liability on the condensed consolidated balance sheets.
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 March 31, 2024, a total of 65 units were built and 0 were in progress. As of December 31, 2023,
a total of 35 units were built and 45 were in progress. As of March 31, 2024 and December 31, 2023, a total cost of $289,531 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 months ended March 31, 2024, the Company sold 677,702
shares for total purchase price of $832,177 to Keystone under this agreement. As at March 31, 2024, $149,999 owing by Keystone for shares
issued was reported as subscription receivable in equity.
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. In March 31, 2024, $1,000,000 was received under this agreement and reported
as investor deposit on the condensed consolidated balance sheet. As of March 31, 2024, there were no shares issued under this agreement.
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 April 5, 2024, the Company entered into the
Amended Arosa Loan Agreement - see Note 9.
On April 23, 2024, the Company amended and restated the Working Capital
Loans effective April 14, 2024, extending the maturity date to one year following the effective date – see Note 11.
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 months ended March 31, 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.
Recent Developments
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 March 31, 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. In March 31, 2024, $1,000,000 was received under this agreement and reported as investor deposit
on the condensed consolidated balance sheet. As of March 31, 2024, there were no shares issued under this agreement.
Business Combination
Spectaire entered into the Merger Agreement with
Perception Capital Corp. II (“PCCT”) on January 16, 2023. On October 19, 2023, Spectaire Merger Sub Corp. (“ 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.
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, 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.
The Business Combination was accounted for as
a reverse recapitalization. Under this method of accounting, PCCT was treated as the acquired company and Spectaire was determined to
be the acquirer for financial statement reporting purposes.
As a result of the Business Combination, each
share of Spectaire’s preferred stock and common stock was converted into the right to receive approximately 0.43 shares of Common
Stock . After the Close of the Business Combination, there were 15,344,864 shares of Common Stock issued and outstanding.
The Common Stock and Warrants commenced trading
on the Nasdaq under the symbols “SPEC” and “SPECW,” respectively, on October 20, 2023, subject to ongoing review
of the Company’s satisfaction of all listing criteria following the Business Combination.
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. |
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 table sets forth our condensed consolidated
statement of operations for the three months ended March 31, 2024 and 2023, and the dollar and percentage change between the two periods:
| |
For the Three Months ended March 31, | | |
| | |
| |
| |
2024 | | |
2023 | | |
$ Change | | |
% Change | |
Revenue | |
$ | - | | |
$ | - | | |
$ | - | | |
| NM* | |
Costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Sales and marketing | |
| 131,291 | | |
| 105,000 | | |
| 26,291 | | |
| 25 | % |
General and administrative | |
| 919,796 | | |
| 3,611,677 | | |
| (2,691,881 | ) | |
| (75 | )% |
Research and development | |
| 945,125 | | |
| 599,227 | | |
| 345,898 | | |
| 58 | % |
Depreciation Expense | |
| 8,520 | | |
| 2,997 | | |
| 5,523 | | |
| 184 | % |
Total costs and expenses | |
| 2,004,732 | | |
| 4,318,901 | | |
| (2,314,169 | ) | |
| (54 | )% |
Operating loss | |
| (2,004,732 | ) | |
| (4,318,901 | ) | |
| 2,314,169 | | |
| (54 | )% |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest Expense | |
| (2,379,320 | ) | |
| (37,654 | ) | |
| (2,341,666 | ) | |
| 6219 | % |
Change in fair value of forward purchase agreement | |
| 515,750 | | |
| - | | |
| 515,750 | | |
| NM* | |
Change in fair value of earnout liabilities | |
| 1,353,000 | | |
| - | | |
| 1,353,000 | | |
| NM* | |
Other income: | |
| 11,128 | | |
| - | | |
| 11,128 | | |
| NM* | |
Loss before income taxes | |
| (2,504,174 | ) | |
| (4,356,555 | ) | |
| 1,852,381 | | |
| (57 | )% |
Income tax expense | |
| - | | |
| - | | |
| - | | |
| 0 | % |
Net loss | |
$ | (2,504,174 | ) | |
$ | (4,356,555 | ) | |
$ | 1,852,381 | | |
| (57 | )% |
NM* | -
Percentage change not meaningful |
Sales and marketing
Sales and marketing increased by $26,291 or 25%,
for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily related to an increase in personnel
costs as Spectaire continues to develop and market its products and technology.
General and administrative expenses
General and administrative expenses decreased
by $2,691,881 or 75%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily related to
share-based compensation expense ($1,637,330), personnel costs ($1,010,062) and legal expenses ($832,462).
Research and development
Research and development increased by $345,898 or 58%, three months
ended March 31, 2024 compared to the three months ended March 31, 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 $5,523 or 184% three months ended
March 31, 2024 compared to the three months ended March 31, 2023 primarily related to depreciation on Spectaire’s lab equipment.
Interest Expense
Interest expense increased by $2,341,666 or 6219%
for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily related to the Arosa loan ($350,274)
and amortization of discount relating to the warrants issued to Arosa ($1,950,000).
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 three months ended March 31, 2024 is recognized into earnings for the year ended December 31, 2023.
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 $1,353,000 is recognized into earnings for the three
months ended March 31, 2024.
Other Income
During the three months ended March 31, 2024,
Spectaire redeemed $11,128 of credit card cash rewards.
Net loss
Net loss was $2,504,174 for the three months ended
March 31, 2024 compared to the net loss of $4,356,555 for the three months ended March 31, 2023. The change primarily relates to the decrease
in share based compensation expense, personnel costs and interest expense, partially offset by changes in the fair value of earnout liabilities
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 months ended March 31, 2024, the
Company reported an operating loss of $2.0 million and negative cash flows from operations of $2.7 million. As of March 31, 2024, the
Company had an aggregate unrestricted cash balance of $0.03 million, a net working capital deficit of $27.9 million, and accumulated deficit
of $29.7 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.
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 three months
ended March 31, 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 March 31, 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 March 31, 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 March 31, 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 extends 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. At March
31, 2024, the debt issuance cost of $500,000 was due and payable and is recorded in other current liabilities on the condensed consolidated
balance sheet. For the three months ended March 31, 2024, $30,769 of amortized debt issuance cost is included in interest expense on the
condensed consolidated statement of operations. At March 31, 2024, $6.7 million of principal net of debt issuance cost 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 sheets.
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 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 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.
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 March 31, 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 March 31, 2024 and December 31, 2023, $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 March 31, 2024, $1,000,000 was received under this agreement and reported
as investor deposit on the condensed consolidated balance sheet. As of March 31, 2024, there were no shares issued under this agreement.
Cash flows for the three months ended March 31, 2024 and 2023
The following table summarizes Spectaire’s
cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023:
| |
For the three months ended March 31, | |
| |
2024 | | |
2023 | |
Net cash used in operating activities | |
$ | (2,671,164 | ) | |
$ | (1,467,435 | ) |
Net cash used in investing activities | |
$ | (2,256 | ) | |
$ | (10,761 | ) |
Net cash provided by financing activities | |
$ | 2,361,838 | | |
$ | 6,594,980 | |
Cash flows from operating activities
Net cash used in operating activities for the
three months ended March 31, 2024 was $(2,671,164), primarily related to the change in value of earnout liabilities, changes in value
of forward purchase agreements liability and decrease in accounts payable and accrued expenses.
Net cash used in operating activities for the
three months ended March 31, 2023 was $(1,467,435), primarily related to net loss for the year , partially offset by stock- based compensation
expense and an increase in accounts payable and accrued expenses.
Cash flows from investing activities
Net cash used in investing activities during the
three months ended March 31, 2024 and 2023 was $(2,256) and $(10,761), respectively, driven by the purchases of lab equipment.
Cash flows from financing activities
Net cash provided by financing activities during
the three months ended March 31, 2024 was $2,361,838, consisting primarily of the proceeds received from the issuance of common stock,
proceeds from forward purchase agreement s and deposit from investor under a subscription agreement.
Net cash provided by financing activities during
the three months ended March 31, 2023 was $6,594,980, consisting primarily of the proceeds received from the Arosa Loan and issuance of
the convertible promissory notes.
Contractual Obligations and Commitments
AireCore™ Mass Spectrometer Program
On June 30, 2023, the Company entered into an
agreement with a Contract Manufacturer in which the vendor will support the Company with a co-build of 5 AireCore™ Mass
Spectrometers at the Company’s 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
March 31, 2024, a total of 65 units were built and 0 were in progress. As of December 31, 2023, a total of 35 units were built and 45
were in progress. As of March 31, 2024 and December 31, 2023, a total cost of $289,531 and $272,198, respectively were incurred, of which
$289,512 and $243,448, respectively is recorded as inventory and the remaining amount is included in research and development costs in
the consolidated statement of operations.
Off balance sheet arrangements
The Company was not a party to any off balance sheet arrangements as
of and for the period ended March 31, 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.
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.
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 December 31, 2023 and 2022.
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, fulfills the goods to the customer
and can limit quantities or stop selling the goods at any time. Therefore, these fees such, mainly, 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.
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 March 31, 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 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 earnout shares, to the extent dilutive. For the three months ended March 31, 2024 unvested restricted stock awards,
restricted stock units, and warrants were not included in the calculation of dilutive net income (loss) per share as their effect
will be anti-dilutive. There were no potential dilutive common stock equivalents for the three months ended March 31, 2023.
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 March 31, 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.
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 March 31, 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 March 31, 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 March 31, 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 March 31, 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.
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 May 6, 2024, the Company received notice from
Nasdaq Stock Market LLC ("Nasdaq") that the Company did not maintain a minimum closing bid price of $1 per share for its common
stock, as required by Nasdaq listing rule 5550(a)(2). The Company has 180 calendar days, or until November 4, 2024, to regain compliance.
The notification has no immediate effect on the
listing of the Company's common stock, and its common stock will continue to trade on The Nasdaq Capital Market under the symbol "SPEC"
at this time. If at any time before November 4, 2024, the bid price of the Company's common stock closes at $1.00 per share or more for
a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance and the
matter will be closed.
There can be no assurance that the Company will
be able to regain compliance with the Minimum Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules.
However, the Company intends to actively monitor the closing bid price for its common stock and will consider available options to resolve
the deficiency and regain compliance with the Minimum Bid Price Requirement.
Additional risks could arise that may also affect
our business. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings
with the SEC.
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 March 31, 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.
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). |
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. |
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. |
|
|
|
May 15, 2024 |
By: |
/s/ Brian Semkiw |
|
|
Brian Semkiw |
|
|
Chief Executive Officer |
|
|
|
May 15, 2024 |
By: |
/s/ Leonardo Fernandes |
|
|
Leonardo Fernandes |
|
|
Chief Financial Officer |
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In connection with the Quarterly Report on Form
10-Q of Spectaire Holdings Inc. (the “Company”) for the period ended March 31, 2024 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that:
In connection with the Annual Report on Form 10-K
of Spectaire Holdings Inc. (the “Company”) for the period ended March 31, 2024 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that: