Third Quarter 2021 Corporate Update November 11, 2021 1 TM Forward-Looking Statements Certain statements in this Presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements about the outcome of any legal or regulatory proceedings to which PureCycle Technologies, Inc. ("PCT") is, or may become a party, and the fin ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 001-40234 PureCycle Technologies, Inc. (Exact name of registrant as specified in its charter) Delaware State 86-2293091 (I.R.S. Empl ...

Financial Data and Key Metrics Changes - The company ended Q2 2021 with $238 million in unrestricted cash and investments, a decrease from $570 million at the end of Q1 2021, attributed to operating expenses, construction expenditures, and interest payments [41][42]. Business Line Data and Key Metrics Changes - The Ironton plant is on track for commissioning in the second half of 2022, with construction activities expected to start in Q3 2021 [8][14]. - The Augusta plant's initial engineering design is expected to be completed by early October, with a capacity of 130 million pounds per year per line, reduced from the original 165 million pounds [16][18]. Market Data and Key Metrics Changes - The company is actively negotiating feedstock contracts worth over £300 million, with expectations to close multiple agreements in Q3 [9][10]. - The feedstock strategy includes a focus on post-consumer curbside, non-curbside, and post-industrial waste, with promising opportunities identified for large volumes at good value [26][30]. Company Strategy and Development Direction - The company aims to expand its purification capabilities to Asia and is preparing for long lead purchases for the Augusta site [10][11]. - A new pricing model, "feedstock plus," has been accepted in the market, which is expected to enhance margins and de-risk the business model [37][38]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the progress of the Ironton and Augusta plants despite global supply chain disruptions due to COVID-19 [14][15]. - The company anticipates that the demand for ultra-pure recycled polypropylene will continue to grow, with plans to produce 1 billion pounds by 2025 [40][45]. Other Important Information - The company has signed a memorandum of understanding with SK Global to pursue a joint venture in South Korea, with plans for plant construction to begin by the end of 2022 [55][56]. - The company is focusing on building its own feedstock processing capabilities to control supply and optimize its supply chain [30][66]. Q&A Session Summary Question: Can you provide history on the MOU with SK Global and key milestones? - Management highlighted the strong alignment of interests with SK Global and noted that the relationship has developed positively, with a focus on finalizing a definitive agreement [55][56]. Question: How should we think about pricing contracts for the Augusta plant? - Management indicated that the pricing model will be hybrid, incorporating both legacy contracts and the new feedstock plus model [72][73]. Question: What are the plans for feedstock processing at Augusta? - The company plans to primarily focus on purification at Augusta, with preprocessing done at separate locations to optimize logistics [65][66]. Question: How is the company managing construction costs amid inflation? - Management expressed confidence in the cost and schedule management for the Ironton plant, noting that agreements were made well in advance [113][114].

| --- | --- | --- | --- | --- | |-------------------------------------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | Second Quarter 2021 Corporate Update August 12, 2021 | | | | | | | | | | | Forward-Looking Statements Certain statements in this Presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amen ...

[PART I - Financial Information](index=4&type=section&id=PART%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2021 [Unaudited Condensed Consolidated Balance Sheets](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Details the company's assets, liabilities, and stockholders' equity as of June 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | **Total Assets** | $685,137 | $404,128 | | Cash | $37,703 | $64,492 | | Debt securities available for sale | $200,432 | — | | Restricted cash | $300,871 | $266,082 | | Property, plant and equipment, net | $138,411 | $70,218 | | **Total Liabilities** | $358,339 | $296,228 | | Bonds payable | $232,037 | $235,676 | | Notes payable | $59,203 | $26,477 | | Warrant liability | $17,899 | — | | **Total Stockholders' Equity** | $326,798 | $107,900 | | Accumulated deficit | $(129,523) | $(84,563) | - Total assets increased significantly from **$404.1 million** at December 31, 2020, to **$685.1 million** at June 30, 2021, primarily driven by the addition of debt securities available for sale and an increase in property, plant, and equipment[20](index=20&type=chunk) - Total liabilities also increased from **$296.2 million** to **$358.3 million**, with a new warrant liability of **$17.9 million** recognized[20](index=20&type=chunk) - Stockholders' equity saw a substantial increase from **$107.9 million** to **$326.8 million**, largely due to the Business Combination and related capital activities[22](index=22&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Summarizes the company's expenses and resulting net loss for the three and six months ended June 30, 2021 Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating costs | $2,411 | $1,793 | $4,541 | $3,476 | | Research and development | $224 | $9 | $771 | $357 | | Selling, general and administrative | $7,259 | $1,048 | $14,883 | $2,286 | | Total operating costs and expenses | $9,894 | $2,850 | $20,195 | $6,119 | | Interest expense | $6,054 | $597 | $12,143 | $1,185 | | Change in fair value of warrants | $(359) | $1,120 | $13,262 | $1,775 | | Net loss | $(15,277) | $(4,415) | $(45,397) | $(8,979) | | Basic and diluted loss per share | $(0.13) | $(0.19) | $(0.54) | $(0.48) | - Net loss significantly increased to **$(45.4) million** for the six months ended June 30, 2021, from **$(9.0) million** in the prior year, due to higher operating costs, R&D, SG&A, interest expense, and change in fair value of warrants[25](index=25&type=chunk) - Selling, general and administrative expenses surged by **593%** for the three months and **551%** for the six months ended June 30, 2021, reflecting increased headcount and transaction-related costs[25](index=25&type=chunk)[236](index=236&type=chunk) - Interest expense increased by **914%** for the three months and **925%** for the six months ended June 30, 2021, mainly due to interest on Revenue Bonds and Convertible Notes[25](index=25&type=chunk)[237](index=237&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholder's Equity](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholder's%20Equity) Outlines the changes in stockholders' equity resulting from the Business Combination and other capital activities - Total stockholders' equity increased from **$107.9 million** at December 31, 2020, to **$326.8 million** at June 30, 2021, primarily driven by the Business Combination and related capital activities[22](index=22&type=chunk)[28](index=28&type=chunk) - The Business Combination resulted in a significant increase in common shares issued and outstanding, from **0 shares** at December 31, 2020, to **117.34 million shares** at June 30, 2021[20](index=20&type=chunk)[114](index=114&type=chunk) - Additional paid-in capital increased from **$192.4 million** to **$456.3 million**, reflecting proceeds from the ROCH and PIPE financing, net of issuance costs[22](index=22&type=chunk)[259](index=259&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Details the sources and uses of cash from operating, investing, and financing activities for the six months ended June 30 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(42,982) | $(7,190) | | Net cash used in investing activities | $(242,932) | $(1,557) | | Net cash provided by financing activities | $293,914 | $9,874 | | Net increase in cash and restricted cash | $8,000 | $1,127 | | Cash and restricted cash, end of period | $338,574 | $1,277 | - Net cash used in operating activities increased by **$35.8 million** to **$(43.0) million** for the six months ended June 30, 2021, due to higher transaction-related payments and interest paid[33](index=33&type=chunk)[257](index=257&type=chunk) - Net cash used in investing activities surged by **$241.4 million** to **$(242.9) million**, driven by **$200.7 million** in purchases of debt securities and **$40.7 million** in capital expenditures[33](index=33&type=chunk)[258](index=258&type=chunk) - Net cash provided by financing activities increased by **$284.0 million** to **$293.9 million**, mainly from **$298.5 million** in net proceeds from the Business Combination[33](index=33&type=chunk)[259](index=259&type=chunk) [Notes to the Interim Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Interim%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of the company's organization, accounting policies, debt, equity, and other financial details [NOTE 1 - ORGANIZATION](index=13&type=section&id=NOTE%201%20-%20ORGANIZATION) Describes the company's business, the recent Business Combination, and its assessment of liquidity and going concern - PureCycle Technologies, Inc. (PCT) is commercializing a patented recycling process, licensed from P&G, to transform plastic waste into virgin-like resin (UPRP)[40](index=40&type=chunk) - On March 17, 2021, PCT consummated a Business Combination with Roth CH Acquisition I Co. (ROCH), resulting in PCT becoming a publicly traded company on NASDAQ[42](index=42&type=chunk)[43](index=43&type=chunk) - The Business Combination was accounted for as a **reverse recapitalization**, with Legacy PCT treated as the accounting acquirer[57](index=57&type=chunk) - The company incurred approximately **$27.9 million** in direct and incremental costs related to the equity issuance from the Business Combination[46](index=46&type=chunk) - As of June 30, 2021, PCT had an unrestricted cash balance of **$37.7 million** and working capital of **$198.3 million**, believing capital raised is sufficient for at least one year[59](index=59&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=16&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the key accounting principles and policies applied in the preparation of the financial statements - The company classifies highly liquid investments with original maturities of three months or less as cash and cash equivalents[64](index=64&type=chunk) - Debt securities are accounted for as **Available for Sale**, measured at fair value with unrealized gains/losses in other comprehensive income[65](index=65&type=chunk) - Warrants are evaluated for liability classification under ASC 480 or derivative features under ASC 815, with re-assessment each reporting period[68](index=68&type=chunk) - The company adopted ASU 2020-06 (simplifying convertible debt accounting) using a modified retrospective approach, resulting in adjustments as of January 1, 2021[74](index=74&type=chunk)[75](index=75&type=chunk) [NOTE 3 – NOTES PAYABLE AND DEBT INSTRUMENTS](index=17&type=section&id=NOTE%203%20%E2%80%93%20NOTES%20PAYABLE%20AND%20DEBT%20INSTRUMENTS) Details the company's various debt instruments, including convertible notes, revenue bonds, and related party loans - All secured term loans and promissory notes from related parties were paid off by December 21, 2020, resulting in **zero outstanding balances** as of June 30, 2021[77](index=77&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[89](index=89&type=chunk) - The company issued **$60.0 million** in Senior Convertible Notes with a **5.875%** interest rate, maturing October 15, 2022[91](index=91&type=chunk)[249](index=249&type=chunk) - The Southern Ohio Port Authority (SOPA) issued **$249.6 million** in Revenue Bonds to fund the Phase II Facility[97](index=97&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) - The Paycheck Protection Program (PPP) loan of **$314 thousand** was fully forgiven on April 9, 2021[109](index=109&type=chunk) [NOTE 4 - STOCKHOLDERS' EQUITY](index=22&type=section&id=NOTE%204%20-%20STOCKHOLDERS'%20EQUITY) Explains the structure of stockholders' equity following the reverse recapitalization and Business Combination - The condensed consolidated statements of stockholders' equity reflect a reverse recapitalization as of March 17, 2021, with prior periods retroactively adjusted[111](index=111&type=chunk)[113](index=113&type=chunk) - As of June 30, 2021, **117.34 million common shares** were issued and outstanding, compared to 0 shares at December 31, 2020, following the Business Combination[114](index=114&type=chunk) - The company is authorized to issue **25.0 million shares** of preferred stock, but none were issued or outstanding as of June 30, 2021[115](index=115&type=chunk) [NOTE 5 - EQUITY-BASED COMPENSATION](index=23&type=section&id=NOTE%205%20-%20EQUITY-BASED%20COMPENSATION) Describes the company's equity incentive plan, restricted stock units, and stock option awards - The PureCycle Technologies, Inc. 2021 Equity and Incentive Compensation Plan was approved on March 17, 2021, reserving approximately **8.28 million shares** for various awards[116](index=116&type=chunk)[117](index=117&type=chunk) - Unvested Legacy PCT Class C Units were converted to PCT's restricted shares, maintaining original vesting schedules and forfeiture restrictions[118](index=118&type=chunk) Equity-Based Compensation Cost (in thousands) | Period | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Restricted Stock (3 months ended June 30) | $222 | $173 | | Restricted Stock (6 months ended June 30) | $461 | $590 | | Stock Options (3 months ended June 30) | $613 | $0 | | Stock Options (6 months ended June 30) | $681 | $0 | - Stock options granted during the six months ended June 30, 2021, totaled **613 thousand** with a weighted average grant-date fair value of **$11.41**, resulting in **$681 thousand** in compensation cost[133](index=133&type=chunk) [NOTE 6 - WARRANTS](index=26&type=section&id=NOTE%206%20-%20WARRANTS) Details the various warrants issued, exercised, or cancelled, and their accounting treatment as equity or liability - Legacy PCT Class B Preferred Units warrants (**211 thousand**) were exercised on October 15, 2020, for $1, with a fair value of **$18.17 million** recorded in APIC[138](index=138&type=chunk) - Legacy PCT Class B-1 Preferred Units warrants (**13 thousand total**) were cancelled on March 12, 2021, prior to the Business Combination[140](index=140&type=chunk)[142](index=142&type=chunk)[146](index=146&type=chunk) - RTI warrants were modified to purchase **971 thousand shares** of PCT common stock, becoming liability-classified and remeasured at fair value each reporting period, capped at **$15.0 million**[148](index=148&type=chunk)[192](index=192&type=chunk) - Approximately **5.9 million** public and private warrants to purchase common stock were outstanding upon the Business Combination closing[152](index=152&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) [NOTE 7 - RELATED PARTY TRANSACTIONS](index=30&type=section&id=NOTE%207%20-%20RELATED%20PARTY%20TRANSACTIONS) Discloses transactions with related parties, including management services and prepaid tax payments - PureCycle reimbursed Innventure Management Services LLC **$121 thousand** and **$187 thousand** for management services during the six months ended June 30, 2021 and 2020, respectively[161](index=161&type=chunk) - As of June 30, 2021, the company owed Innventure Management Services LLC **$37 thousand**, classified as accounts payable[161](index=161&type=chunk) - A related party receivable of **$78 thousand** for prepaid tax payments on behalf of unitholders was recorded as of June 30, 2021[162](index=162&type=chunk) [NOTE 8 – NET LOSS PER SHARE](index=30&type=section&id=NOTE%208%20%E2%80%93%20NET%20LOSS%20PER%20SHARE) Explains the calculation of basic and diluted net loss per share using the two-class method - The company applies the two-class method for net loss per common share, allocating losses only to common stock[165](index=165&type=chunk)[166](index=166&type=chunk) Net Loss Per Share (in thousands, except per share data) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(15,277) | $(5,202) | $(45,397) | $(12,930) | | Weighted average common shares outstanding | 117,346 | 27,156 | 84,284 | 27,156 | | Net loss per share, basic and diluted | $(0.13) | $(0.19) | $(0.54) | $(0.48) | - Weighted-average outstanding common share equivalents were excluded from diluted EPS calculation as they were **anti-dilutive**[168](index=168&type=chunk) [NOTE 9 – PROPERTY, PLANT AND EQUIPMENT](index=31&type=section&id=NOTE%209%20%E2%80%93%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) Provides a breakdown of property, plant, and equipment, highlighting the increase in construction in process Property, Plant and Equipment, Net (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :---------------------- | :------------ | :---------------- | | Building | $11,488 | $11,642 | | Machinery and equipment | $12,900 | $13,594 | | Land | $1,150 | $1,150 | | Construction in process | $112,656 | $43,603 | | Total Net Book Value | $138,411 | $70,218 | - Construction in process significantly increased from **$43.6 million** at December 31, 2020, to **$112.7 million** at June 30, 2021, reflecting ongoing development of the Phase II Facility[169](index=169&type=chunk)[172](index=172&type=chunk) - Depreciation expense for the six months ended June 30, 2021, was **$985 thousand**, up from **$934 thousand** in the prior year[172](index=172&type=chunk) [NOTE 10 – DEVELOPMENT PARTNER ARRANGEMENTS](index=32&type=section&id=NOTE%2010%20%E2%80%93%20DEVELOPMENT%20PARTNER%20ARRANGEMENTS) Details agreements with key development partners, including P&G, Impact Recycling, Total, and Nestle - PCT is in Phase 3 of its patent license agreement with P&G, involving commercial manufacture and a prepaid royalty payment of **$2.0 million**[173](index=173&type=chunk)[174](index=174&type=chunk) - A patent sublicense agreement with Impact Recycling Limited required an initial license fee of **$2.5 million**, fully paid by June 30, 2021[175](index=175&type=chunk) - A **$5.0 million** prepayment from Total Petrochemicals & Refining S.A./N.V. for future recycled PP resin was recorded as deferred revenue[176](index=176&type=chunk)[178](index=178&type=chunk) - A strategic alliance agreement with Nestec Ltd. (Nestle) provided **$1.0 million** for R&D, recorded as a Deferred research and development obligation[179](index=179&type=chunk)[180](index=180&type=chunk) [NOTE 11 - INCOME TAXES](index=33&type=section&id=NOTE%2011%20-%20INCOME%20TAXES) Explains the company's income tax status, deferred tax assets, and valuation allowance - Upon the Business Combination, PCT's tax status changed from a partnership to a corporation, requiring recognition of deferred tax assets/liabilities[181](index=181&type=chunk) - A **full valuation allowance** is required for net deferred tax assets as their realization is not more likely than not[182](index=182&type=chunk) - The company reported **$0 tax expense** for the periods ended June 30, 2021 and 2020, and has no uncertain tax positions[182](index=182&type=chunk)[183](index=183&type=chunk) [NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=33&type=section&id=NOTE%2012%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) Presents the fair value hierarchy for financial assets and liabilities measured at fair value - Financial assets and liabilities measured at fair value are classified into Level 1, Level 2, or Level 3 inputs[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) Fair Value Hierarchy of Financial Instruments (in thousands) | Category | Level 1 | Level 2 | Level 3 | Total (June 30, 2021) | | :---------------------- | :------ | :------ | :------ | :-------------------- | | **Assets** | | | | | | Commercial paper | $— | $96,896 | $— | $96,896 | | Corporate Bonds | $— | $97,649 | $— | $97,649 | | Municipal bonds | $— | $5,887 | $— | $5,887 | | **Liabilities** | | | | | | RTI warrants | $— | $— | $15,000 | $15,000 | | Private warrants | $— | $— | $2,899 | $2,899 | - Private warrants and RTI warrants are classified as **Level 3 liabilities**, measured using a Black-Scholes model[188](index=188&type=chunk)[191](index=191&type=chunk) [NOTE 13 - AVAILABLE-FOR-SALE INVESTMENTS](index=35&type=section&id=NOTE%2013%20-%20AVAILABLE-FOR-SALE%20INVESTMENTS) Details the composition and maturity of the company's available-for-sale debt securities - The company's available-for-sale investments, totaling **$200.4 million** as of June 30, 2021, consist of highly liquid commercial paper and bonds[195](index=195&type=chunk)[198](index=198&type=chunk) - These investments are reported at fair value, with unrealized losses of **$108 thousand** recorded in accumulated other comprehensive income[198](index=198&type=chunk) - The average remaining maturity of debt securities as of June 30, 2021, was **0.9 years**, with **$136.3 million** due within one year[198](index=198&type=chunk) [NOTE 14 - CONTINGENCIES](index=37&type=section&id=NOTE%2014%20-%20CONTINGENCIES) Discloses ongoing legal proceedings, specifically putative class action complaints filed against the company - Two putative class action complaints were filed against PCT and management on or about May 11, 2021, alleging federal securities law violations[201](index=201&type=chunk) - The lawsuits were consolidated, and Lead Plaintiffs were identified on August 5, 2021; PCT intends to vigorously defend the lawsuits[201](index=201&type=chunk) - Given the early stage of litigation, PCT cannot reasonably estimate the possible range of loss from these lawsuits[201](index=201&type=chunk) [NOTE 15 - SUBSEQUENT EVENTS](index=37&type=section&id=NOTE%2015%20-%20SUBSEQUENT%20EVENTS) Describes significant events that occurred after the balance sheet date but before the financial statements were issued - On July 8, 2021, the Compensation Committee approved new short-term and long-term incentive programs, issuing **2.6 million RSU** and performance share awards[202](index=202&type=chunk) - On August 11, 2021, the Board approved the issuance of **38 thousand RSU awards** to non-employee directors[202](index=202&type=chunk) - On July 29, 2021, PCT reached an agreement to build its first U.S. cluster facility in Augusta, expected to produce up to **650 million pounds/year**[203](index=203&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial condition, operational results, liquidity, and critical accounting policies [Overview](index=38&type=section&id=Overview) Summarizes the company's business, technology, current projects, and strategic plans for global expansion - PCT is commercializing a patented purification recycling technology, licensed from P&G, to restore waste polypropylene into near-virgin UPRP[206](index=206&type=chunk) - The first commercial-scale plant in Ironton, Ohio, is under construction, expected to commence production in late 2022 with a capacity of **107 million pounds/year**[206](index=206&type=chunk) - PCT plans to build new recycling facilities globally, aiming for approximately **30 commercial lines by 2030** and **50 by 2035**[207](index=207&type=chunk) - The Feedstock Evaluation Unit (FEU) has successfully processed approximately **145 feedstocks**, validating the process and securing long-term agreements[208](index=208&type=chunk) [The Business Combination](index=38&type=section&id=The%20Business%20Combination) Details the March 17, 2021, business combination with Roth CH Acquisition I Co. and its accounting treatment - On March 17, 2021, PureCycle completed its business combination with Roth CH Acquisition I Co. (ROCH), becoming a public company[210](index=210&type=chunk)[212](index=212&type=chunk) - The transaction was accounted for as a **reverse recapitalization**, with Legacy PCT considered the accounting acquirer[213](index=213&type=chunk) [Business Highlights](index=39&type=section&id=Business%20Highlights) Outlines key business strengths, including the unique technology, P&G license, offtake agreements, and facility construction progress - PCT's unique resin purification process produces near-virgin quality polypropylene resin from waste, with potential for food-grade applications[215](index=215&type=chunk) - The exclusive worldwide license from P&G for the Technology extends for the duration of relevant patents (expiring between 2036 and 2039)[216](index=216&type=chunk) - PCT has legally binding offtake agreements with three blue-chip customers for a minimum of **63 million pounds/year** of UPRP from the Phase II Facility[220](index=220&type=chunk) - Construction of the Phase II Facility began in October 2020, with commercial operation expected by the end of 2022; remaining capital to complete is estimated at **$183.9 million**[222](index=222&type=chunk)[223](index=223&type=chunk) - An agreement was reached on July 29, 2021, to build the first U.S. cluster facility in Augusta, Georgia, projected to produce up to **650 million pounds/year**[226](index=226&type=chunk) [Basis of Presentation](index=41&type=section&id=Basis%20of%20Presentation) Describes the consolidation principles and basis for preparing the interim financial statements - The condensed consolidated interim financial statements include the accounts of PureCycle Technologies, Inc. and its subsidiaries, presented in U.S. Dollars[227](index=227&type=chunk) - Intercompany balances and transactions are eliminated upon consolidation, and the statements reflect normal recurring adjustments[227](index=227&type=chunk) - Results for the six months ended June 30, 2021, are not necessarily indicative of the full year's results[227](index=227&type=chunk) [Components of Results of Operations](index=41&type=section&id=Components%20of%20Results%20of%20Operations) Explains the key line items in the statement of operations and expected future trends - The company has not generated any operating revenue to date and expects to begin generating revenue by the end of 2022[228](index=228&type=chunk) - Operating costs are expected to increase substantially with scaling operations and headcount[229](index=229&type=chunk) - Research and development expenses are expected to increase due to investments in feedstock evaluation and analytical capabilities[230](index=230&type=chunk) - Selling, general and administrative expenses are projected to rise due to increased headcount and public company compliance costs[231](index=231&type=chunk)[232](index=232&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Provides a comparative analysis of operating results for the three and six months ended June 30, 2021 and 2020 Operating Results Comparison (in thousands, except %) | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | Change ($) | Change (%) | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Operating costs | $2,411 | $1,793 | $618 | 34% | $4,541 | $3,476 | $1,065 | 31% | | Research and development | $224 | $9 | $215 | 2389% | $771 | $357 | $414 | 116% | | Selling, general and administrative | $7,259 | $1,048 | $6,211 | 593% | $14,883 | $2,286 | $12,597 | 551% | | Total operating costs and expenses | $9,894 | $2,850 | $7,044 | 247% | $20,195 | $6,119 | $14,076 | 230% | | Interest expense | $6,054 | $597 | $5,457 | 914% | $12,143 | $1,185 | $10,958 | 925% | | Change in fair value of warrants | $(359) | $1,120 | $(1,479) | (132)% | $13,262 | $1,775 | $11,487 | 647% | | Net loss | $(15,277) | $(4,415) | $10,862 | 246% | $(45,397) | $(8,979) | $36,418 | 406% | - Operating costs increased by **34%** and **31%** for the three and six months, respectively, due to higher repairs, maintenance, and personnel costs[234](index=234&type=chunk) - Research and development expenses saw significant increases of **2389%** and **116%** for the three and six months, respectively, driven by development of the Phase II Facility[235](index=235&type=chunk) - Selling, general and administrative expenses rose by **593%** and **551%** for the three and six months, respectively, primarily due to new headcount and transaction-related expenses[236](index=236&type=chunk) - Interest expense increased by **914%** and **925%** for the three and six months, respectively, mainly attributable to interest on Revenue Bonds and Convertible Notes[237](index=237&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash position, restricted cash, proceeds from the Business Combination, and future capital needs - As of June 30, 2021, PCT had **$338.6 million** in cash and cash equivalents, plus **$200.4 million** in highly liquid debt securities, with **$300.9 million** of the cash balance restricted[239](index=239&type=chunk) Restricted Cash Balance (in millions) as of June 30, 2021 | Component | Amount | | :-------------------------------- | :----- | | Equity Escrow Reserve | $50.0 | | Capitalized Interest Reserve | $43.8 | | Debt Service Reserve | $21.0 | | Ironton Plant 1 Construction | $183.9 | | Letter of Credit for Ironton Utilities | $2.1 | | Other | $0.1 | | **Total Restricted Cash** | **$300.9** | - The company received **$326.0 million** in gross proceeds from the Business Combination, offset by **$27.9 million** in capitalized issuance costs[240](index=240&type=chunk) - Future capital requirements depend on construction costs for Phase II and Augusta Facilities, potentially requiring additional financing[241](index=241&type=chunk) [Indebtedness](index=43&type=section&id=Indebtedness) Details the terms and conditions of the company's Convertible Senior Secured Notes - PCT issued **$60.0 million** in Convertible Senior Secured Notes due 2022, with interest payable semi-annually at **5.875%** per year[242](index=242&type=chunk)[249](index=249&type=chunk) - The first interest payment of **$1.7 million** on April 15, 2021, was paid in kind, increasing the principal amount of the Convertible Notes[249](index=249&type=chunk) - Following the Business Combination, the conversion rate for the Convertible Notes is approximately **144.4 shares per $1,000 principal amount**[251](index=251&type=chunk) - The Convertible Notes are subject to certain customary events of default and restrictions on incurring senior indebtedness[248](index=248&type=chunk) [Cash Flows](index=45&type=section&id=Cash%20Flows) Provides a comparative analysis of cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(42,982) | $(7,190) | $(35,792) | 498% | | Net cash used in investing activities | $(242,932) | $(1,557) | $(241,375) | 15,503% | | Net cash provided by financing activities | $293,914 | $9,874 | $284,040 | 2,877% | | Cash and cash equivalents, beginning of period | $330,574 | $150 | $330,424 | 220,283% | | Cash and cash equivalents, end of period | $338,574 | $1,277 | $337,297 | 26,413% | - Net cash used in operating activities increased by **$35.8 million**, primarily due to higher transaction costs, interest payments, and professional fees[257](index=257&type=chunk) - Net cash used in investing activities increased by **$241.4 million**, driven by **$200.7 million** in debt securities purchases and **$40.7 million** in capital expenditures[258](index=258&type=chunk) - Net cash provided by financing activities increased by **$284.0 million**, mainly from **$298.5 million** from the Business Combination (net of issuance costs)[259](index=259&type=chunk) [Off-Balance Sheet Arrangements](index=46&type=section&id=Off-Balance%20Sheet%20Arrangements) States that the company has no material off-balance sheet arrangements - PCT has no off-balance sheet arrangements that materially affect its financial condition, revenues, or liquidity[261](index=261&type=chunk) - Legally binding offtake arrangements with customers are not unconditional and definitive agreements, thus not qualifying as off-balance sheet arrangements[261](index=261&type=chunk) [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Highlights the accounting policies that involve significant judgments and estimates, including income taxes and equity-based compensation - Income tax provision is estimated quarterly based on the annual effective tax rate and deferred tax asset recovery[263](index=263&type=chunk) - Equity-based compensation cost is measured at grant date fair value using the Black-Scholes model and recognized straight-line over the vesting period[265](index=265&type=chunk)[266](index=266&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) - Warrants are classified as equity or liability, with liability-classified warrants remeasured at fair value each reporting period through earnings[268](index=268&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) [Recent Accounting Pronouncements](index=48&type=section&id=Recent%20Accounting%20Pronouncements) Refers to Note 2 for information on the potential impact of recently issued accounting standards - Refer to Note 2 for detailed information on recent accounting pronouncements, their adoption timing, and potential impact on financial statements[275](index=275&type=chunk) [Emerging Growth Company Election](index=48&type=section&id=Emerging%20Growth%20Company%20Election) Discusses the company's status as an emerging growth company and its election to use extended transition periods - PCT is an 'emerging growth company' under the JOBS Act and has elected to use extended transition periods for new accounting standards[276](index=276&type=chunk)[277](index=277&type=chunk) - This election may make PCT's shares less attractive to investors due to potential differences in accounting standards[277](index=277&type=chunk)[278](index=278&type=chunk) - PCT will remain an emerging growth company until the earliest of December 31, 2025, or meeting certain revenue or debt issuance thresholds[278](index=278&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is not required to provide quantitative and qualitative disclosures about market risk for this reporting period - The company is not required to provide information regarding quantitative and qualitative disclosures about market risk[279](index=279&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the evaluation of disclosure controls, identifies material weaknesses, and outlines remediation plans [Evaluation of Disclosure Controls and Procedures](index=49&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Presents management's conclusion on the effectiveness of disclosure controls and procedures as of June 30, 2021 - As of June 30, 2021, management concluded that disclosure controls and procedures were **not effective** due to material weaknesses in internal control[282](index=282&type=chunk) - Despite the material weaknesses, management concluded that the financial statements fairly present the company's financial position[282](index=282&type=chunk) [Previously Reported Material Weakness](index=49&type=section&id=Previously%20Reported%20Material%20Weakness) Describes the specific material weaknesses identified in the internal control over financial reporting - Material weaknesses identified include insufficient qualified personnel, inadequate segregation of duties, and ineffective IT controls over user access[283](index=283&type=chunk)[284](index=284&type=chunk) - These weaknesses arose because PCT lacked the necessary processes, systems, and personnel for public company financial reporting[284](index=284&type=chunk) [Remediation Plans](index=50&type=section&id=Remediation%20Plans) Outlines the specific measures being taken to address the identified material weaknesses - Remediation measures include adding **5 qualified personnel** with public accounting/company experience[285](index=285&type=chunk)[288](index=288&type=chunk) - Formal controls for review procedures, reconciliations, disclosure, and financial statement processes have been designed and implemented[288](index=288&type=chunk) - Full remediation will require effective operation for a sufficient period, with ongoing senior management and audit committee oversight[285](index=285&type=chunk)[286](index=286&type=chunk) [Changes in Internal Control over Financial Reporting](index=50&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) Reports on any changes in internal control that occurred during the most recent fiscal quarter - The company is actively taking actions to remediate the previously identified material weaknesses in internal control over financial reporting[287](index=287&type=chunk) - Except for the remediation efforts, there were no other material changes in internal control during the quarter ended June 30, 2021[287](index=287&type=chunk) [PART II - Other Information](index=51&type=section&id=PART%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 14 for a description of two putative class action complaints filed against the company - Two putative class action complaints were filed against PCT and certain senior members of management on or about May 11, 2021[201](index=201&type=chunk)[289](index=289&type=chunk) - The lawsuits rely on information from a research report published by Hindenburg Research LLC[201](index=201&type=chunk)[300](index=300&type=chunk) - PCT intends to vigorously defend the lawsuits but cannot reasonably estimate the possible range of loss at this stage[201](index=201&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) Outlines various risks that could materially and adversely affect the company's business, financial condition, and prospects [Risks Related to PCT's Status as an Early Commercial Stage Emerging Growth Company](index=51&type=section&id=Risks%20Related%20to%20PCT's%20Status%20as%20an%20Early%20Commercial%20Stage%20Emerging%20Growth%20Company) Details risks associated with the company's pre-revenue status, lack of diversification, and substantial debt - PCT is an early commercial stage company with **no revenue** and may never achieve or sustain profitability[292](index=292&type=chunk)[293](index=293&type=chunk) - The business is not diversified, relying solely on the Ironton and Augusta facilities[294](index=294&type=chunk)[295](index=295&type=chunk) - Failure to meet performance and pricing targets under the P&G License Agreement could result in termination or conversion to a non-exclusive license[296](index=296&type=chunk) - PCT's substantial consolidated debt (**$291.3 million** as of June 30, 2021) and associated covenants could impair its ability to obtain additional financing[297](index=297&type=chunk)[298](index=298&type=chunk) [Risks Related to PCT's Operations](index=52&type=section&id=Risks%20Related%20to%20PCT's%20Operations) Covers operational risks including litigation, the COVID-19 pandemic, construction delays, cyber threats, and intellectual property protection - PCT faces risks from litigation, including two putative class action complaints filed in May 2021, which could incur significant expenses[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) - The COVID-19 pandemic poses risks to suppliers, contractors, and customers, potentially disrupting construction and supply chains[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk) - Construction of the Phase II Facility may face delays or cost overruns, severely impacting business operations and financial condition[309](index=309&type=chunk)[310](index=310&type=chunk) - Initial reliance on a single facility makes PCT vulnerable to adverse changes, shutdowns, or equipment failures[311](index=311&type=chunk) - Cyber risks and failures in operational or security systems could lead to data breaches, financial losses, and reputational damage[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk) - Inability to sufficiently protect proprietary intellectual property could harm PCT's competitive position[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk) [Risks Related to PCT's Production of UPRP](index=56&type=section&id=Risks%20Related%20to%20PCT's%20Production%20of%20UPRP) Discusses risks related to technology scalability, facility efficiency, strategic partnerships, and feedstock procurement - There is no guarantee that the Technology is scalable to commercial-scale operation or that the Phase II Facility will achieve expected quality parameters[320](index=320&type=chunk) - The Augusta Facility, PCT's first 'cluster' model, may not achieve expected efficiencies in construction, permitting, or operating costs[321](index=321&type=chunk) - Failure to secure future strategic partners for additional offtake and feedstock opportunities could curtail product development[322](index=322&type=chunk)[323](index=323&type=chunk) - PCT's ability to procure sufficient quantity and quality of waste polypropylene feedstock is dependent on external factors[324](index=324&type=chunk)[325](index=325&type=chunk) - Global expansion requires sourcing feedstock internationally, making PCT vulnerable to changes in international trade agreements and tariffs[326](index=326&type=chunk) [Risks Related to the Market for UPRP](index=57&type=section&id=Risks%20Related%20to%20the%20Market%20for%20UPRP) Addresses market risks such as customer acceptance, pricing volatility, and competition - The market for UPRP is in development, and customer acceptance is not guaranteed[328](index=328&type=chunk) - Offtake agreements are subject to index pricing, and fluctuations in these prices could adversely impact financial results[330](index=330&type=chunk) - Competition from new products, technologies, or P&G's sublicensees could reduce demand for UPRP[331](index=331&type=chunk)[332](index=332&type=chunk) [Risks Related to Regulatory Developments](index=58&type=section&id=Risks%20Related%20to%20Regulatory%20Developments) Outlines risks associated with meeting regulatory requirements for food-grade applications and ongoing compliance costs - PCT may not meet applicable regulatory requirements for UPRP in food-grade applications, including obtaining LNOs from the FDA[334](index=334&type=chunk)[335](index=335&type=chunk) - Ongoing compliance with numerous and evolving regulatory requirements will be time-consuming and costly[336](index=336&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) [Risks Related to Human Capital Management](index=59&type=section&id=Risks%20Related%20to%20Human%20Capital%20Management) Covers risks related to retaining key personnel and management's limited experience operating a public company - PCT's success depends on retaining its specialized management team and key operating personnel[343](index=343&type=chunk)[345](index=345&type=chunk) - Management has limited experience operating a public company, which could divert time from business growth to compliance activities[346](index=346&type=chunk) [Risks Related to PCT's common stock](index=60&type=section&id=Risks%20Related%20to%20PCT's%20common%20stock) Details risks for stockholders, including market volatility, potential delisting, dilution, and anti-takeover provisions - An active trading market for PCT's common stock may not develop or be sustained[348](index=348&type=chunk) - Failure to comply with NASDAQ's continued listing standards could lead to delisting[349](index=349&type=chunk)[350](index=350&type=chunk) - The market price of PCT's common stock is likely to be highly volatile[350](index=350&type=chunk)[351](index=351&type=chunk) - The exercise of registration rights for approximately **94.3 million shares** could adversely affect the market price of PCT's common stock[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk) - Future offerings of debt or equity securities could dilute existing stockholders' rights or reduce the market price of common stock[359](index=359&type=chunk)[360](index=360&type=chunk) - Certain provisions in the Certificate of Incorporation and Bylaws could hinder, delay, or prevent a change in control[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) [General Risk Factors](index=63&type=section&id=General%20Risk%20Factors) Covers broader risks including financing, emerging growth company status, internal controls, and public company costs - PCT may be unable to obtain additional financing to fund operations and growth[365](index=365&type=chunk) - As an emerging growth company, PCT's reliance on reduced reporting requirements may make its shares less attractive to investors[366](index=366&type=chunk)[368](index=368&type=chunk) - Failure to remediate identified material weaknesses in internal control over financial reporting could adversely affect financial reporting accuracy[369](index=369&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk) - As a public company, PCT will incur significant increased expenses and administrative burdens[374](index=374&type=chunk) - Certain private warrants are presented as liabilities with subsequent fair value remeasurement, which may adversely affect the stock price[375](index=375&type=chunk)[376](index=376&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for this period - No unregistered sales of equity securities or use of proceeds to report[378](index=378&type=chunk) [Item 3. Defaults Upon Senior Securities](index=66&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for this period - No defaults upon senior securities to report[379](index=379&type=chunk) [Item 4. Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[380](index=380&type=chunk) [Item 5. Other Information](index=66&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this period - No other information to report[381](index=381&type=chunk) [Item 6. Exhibits](index=66&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Quarterly Report on Form 10-Q, including key agreements and certifications - Key exhibits include the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation and Bylaws, and various compensation agreements[384](index=384&type=chunk) - Certifications by the CEO and CFO (Rule 13a-14(a) and Section 1350) are filed herewith[384](index=384&type=chunk) - The financial statements are provided in Inline XBRL format[383](index=383&type=chunk)[384](index=384&type=chunk) [Signatures](index=69&type=section&id=Signatures) The report is duly signed on behalf of the company by its Chief Executive Officer and Chief Financial Officer - The report is signed by Michael Otworth, Chief Executive Officer, and Michael Dee, Chief Financial Officer, on August 12, 2021[389](index=389&type=chunk)

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) This section provides essential filing details for PureCycle Technologies, Inc.'s Form 10-Q, including registrant information and securities listed on Nasdaq [Registrant Information](index=1&type=section&id=Registrant%20Information) PureCycle Technologies, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2021, as a Delaware corporation with common stock, warrants, and units listed on Nasdaq - PureCycle Technologies, Inc. is a Delaware corporation, headquartered in Orlando, Florida[2](index=2&type=chunk) Securities Registered Pursuant to Section 12(b) of the Act | Title of each class | Trading Symbols | Name of each exchange on which registered | | :------------------ | :-------------- | :---------------------------------------- | | Common Stock, par value $0.001 per share | PCT | The Nasdaq Stock Market LLC | | Warrants, each exercisable for one share of common stock, $0.001 par value, at an exercise price of $11.50 per share | PCTTW | The Nasdaq Stock Market LLC | | Units, each consisting of one share of common stock, $0.001 par value, and three quarters of one warrant | PCTTU | The Nasdaq Stock Market LLC | - As of May 19, 2021, there were approximately **117,349,281 shares** of the registrant's common stock outstanding[6](index=6&type=chunk) [PART I - Financial Information](index=4&type=section&id=PART%20I%20-%20Financial%20Information) This part presents PureCycle Technologies, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2021 [CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS](index=4&type=section&id=CAUTIONARY%20STATEMENT%20ON%20FORWARD-LOOKING%20STATEMENTS) This section outlines the forward-looking statements in the Form 10-Q, emphasizing inherent uncertainties and risks that could cause actual results to differ materially - Forward-looking statements are based on current management expectations and are subject to uncertainties and changes in circumstances[11](index=11&type=chunk) - Key risks include PCT's ability to meet regulatory requirements for UPRP in food-grade applications, comply with regulations, achieve financial performance, manage legal proceedings (including recently filed securities class action cases), scale the Ironton plant, maintain P&G license exclusivity, implement its business model, ensure profitability of offtake arrangements, source feedstock, secure future capital, and manage the impact of the COVID-19 pandemic[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk)[15](index=15&type=chunk) [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents PureCycle Technologies, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with comprehensive explanatory notes [Unaudited Condensed Consolidated Balance Sheets](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2021, and December 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Cash | $252,549 | $64,492 | | Total current assets | $259,340 | $67,828 | | Restricted cash | $317,535 | $266,082 | | Property, plant and equipment, net | $108,388 | $70,218 | | TOTAL ASSETS | $685,263 | $404,128 | | Total current liabilities | $30,626 | $33,075 | | TOTAL LIABILITIES | $343,917 | $296,228 | | TOTAL STOCKHOLDERS' EQUITY | $341,346 | $107,900 | - Total assets increased significantly from **$404.1 million** at December 31, 2020, to **$685.3 million** at March 31, 2021, primarily driven by increases in cash, restricted cash, and property, plant and equipment[20](index=20&type=chunk) - Total stockholders' equity more than tripled from **$107.9 million** to **$341.3 million**, reflecting the impact of the Business Combination and related equity transactions[22](index=22&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's financial performance, detailing revenues, expenses, and net loss for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating costs | $2,130 | $1,683 | | Research and development | $547 | $348 | | Selling, general and administrative | $7,624 | $1,238 | | Total operating costs and expenses | $10,301 | $3,269 | | Interest expense | $6,089 | $588 | | Change in fair value of warrants | $13,621 | $655 | | Total other expense | $19,819 | $1,295 | | Net loss | $(30,120) | $(4,564) | | Loss per share (Basic and diluted) | $(0.59) | $(0.19) | | Weighted average common shares (Basic and diluted) | 51,223 | 27,156 | - Net loss significantly increased to **$30.1 million** for the three months ended March 31, 2021, from **$4.6 million** in the prior-year period, primarily due to higher selling, general and administrative expenses, interest expense, and a substantial change in the fair value of warrants[24](index=24&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit, for the periods presented Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2020 | March 31, 2021 | | :----------------------- | :---------------- | :------------- | | Common stock (shares) | — | 117,349 | | Common stock (amount) | $— | $117 | | Additional paid-in capital | $192,381 | $455,475 | | Accumulated deficit | $(84,563) | $(114,246) | | Total stockholders' equity | $107,900 | $341,346 | - The Business Combination and related recapitalization significantly impacted stockholders' equity, with common shares issued and outstanding increasing to **117,349 thousand** and additional paid-in capital rising to **$455.5 million** by March 31, 2021[26](index=26&type=chunk) - The accumulated deficit increased from **$84.6 million** at December 31, 2020, to **$114.2 million** at March 31, 2021, reflecting the net loss incurred during the quarter[26](index=26&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(20,568) | $(4,919) | | Net cash used in investing activities | $(33,891) | $(763) | | Net cash provided by financing activities | $293,969 | $8,641 | | Net increase in cash | $239,510 | $2,959 | | Cash, end of period | $570,084 | $3,109 | - Net cash provided by financing activities dramatically increased to **$294.0 million** in Q1 2021, primarily due to proceeds from the ROCH and PIPE financing, significantly boosting the company's cash balance[30](index=30&type=chunk) - Cash used in investing activities rose substantially to **$33.9 million**, driven by increased construction activities for the plant[30](index=30&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, debt, equity, and significant events [NOTE 1 - ORGANIZATION](index=13&type=section&id=NOTE%201%20-%20ORGANIZATION) This note details PureCycle Technologies, Inc.'s formation, business, the significant Business Combination on March 17, 2021, and its liquidity position - PureCycle Technologies, Inc. (PCT) is commercializing a patented recycling process, licensed from Procter & Gamble (P&G), to transform plastic waste into virgin-like resin[31](index=31&type=chunk) - On March 17, 2021, PCT consummated a Business Combination with Roth CH Acquisition I Co. (ROCH), which was accounted for as a reverse recapitalization, with Legacy PCT treated as the accounting acquirer[32](index=32&type=chunk)[48](index=48&type=chunk) Business Combination Financials (in thousands) | Metric | Amount | | :------------------------------------ | :------------- | | Total merger consideration | $1,156,914 | | Cash - ROCH Trust and cash (net of redemptions) | $76,510 | | Cash - PIPE | $250,000 | | Less transaction costs | $(28,049) | | Net Business Combination and PIPE financing | $298,461 | | Assumed warrant liability | $4,604 | - The company's liquidity improved significantly post-Business Combination, with an unrestricted cash balance of **$252.5 million** and working capital of **$228.7 million** as of March 31, 2021, deemed sufficient to fund obligations for at least one year[50](index=50&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=15&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the company's key accounting policies, including income tax provisions, warrant classification, and the adoption of new accounting pronouncements like ASU 2020-06 - The Company adopted ASU 2019-12 (Income Taxes) in Q1 2021 using a prospective approach, with no material impact on financial statements[57](index=57&type=chunk) - Warrants are evaluated for liability classification under ASC 480 or derivative features under ASC 815, with re-assessment at each reporting period[58](index=58&type=chunk) - The Company adopted ASU 2020-06 (Debt with Conversion and Other Options) using a modified retrospective approach, simplifying accounting for convertible debt instruments[61](index=61&type=chunk)[64](index=64&type=chunk) Impact of ASU 2020-06 Adoption on Balance Sheet (in thousands) | Metric | December 31, 2020 (As reported) | Adjustments | January 1, 2021 (As adjusted) | | :------------------ | :------------------------------ | :---------- | :---------------------------- | | Notes payable | $26,599 | $30,638 | $57,237 | | APIC | $192,381 | $(31,075) | $161,306 | | Accumulated deficit | $84,563 | $437 | $85,000 | [NOTE 3 – NOTES PAYABLE AND DEBT INSTRUMENTS](index=17&type=section&id=NOTE%203%20%E2%80%93%20NOTES%20PAYABLE%20AND%20DEBT%20INSTRUMENTS) This note details the company's various debt instruments, including convertible notes and revenue bonds, primarily used for plant construction, and their associated interest costs - All previously outstanding secured term loans and promissory notes were paid off by October 7, 2020, upon the closing of the bond offering[67](index=67&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) Convertible Notes Summary (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Unamortized deferred issuance costs | $2,916 | $3,288 | | Net carrying amount | $57,084 | $56,712 | | Fair value | $231,916 | $123,532 | | Contractual interest expense (Q1 2021) | $881 | $— | | Amortization of deferred financing costs (Q1 2021) | $641 | $— | | Effective interest rate (Q1 2021) | 9.1% | —% | | Conversion price (March 31, 2021) | $6.93 | N/A | - Revenue Bonds were issued by SOPA on October 7, 2020, totaling **$211.1 million** in principal across three series (2020A, 2020B, 2020C) with interest rates ranging from **6.25% to 13.00%** and maturities up to December 1, 2042, with proceeds for the Ohio Plant construction[90](index=90&type=chunk)[91](index=91&type=chunk) - The company maintains a Paycheck Protection Program loan of approximately **$314 thousand**, with an application for forgiveness submitted as of December 31, 2020[95](index=95&type=chunk)[96](index=96&type=chunk) [NOTE 4 - STOCKHOLDERS' EQUITY](index=21&type=section&id=NOTE%204%20-%20STOCKHOLDERS'%20EQUITY) This note details changes in stockholders' equity, primarily from the Business Combination's reverse recapitalization, and outlines authorized and outstanding shares - The reverse recapitalization resulted in the conversion of Legacy PCT Class A, B Preferred, B-1 Preferred, and C Units into PCT common stock using various exchange ratios[97](index=97&type=chunk) Stock Authorization and Outstanding Shares (in thousands) | Stock Type | Authorized (March 31, 2021) | Issued and Outstanding (March 31, 2021) | Issued and Outstanding (December 31, 2020) | | :----------- | :-------------------------- | :-------------------------------------- | :--------------------------------------- | | Common Stock | 250,000 | 117,349 | 0 | | Preferred Stock | 25,000 | 0 | 0 | [NOTE 5 - EQUITY-BASED COMPENSATION](index=21&type=section&id=NOTE%205%20-%20EQUITY-BASED%20COMPENSATION) This note describes the company's equity incentive plan, including restricted stock and stock options, detailing shares reserved, vesting, and valuation assumptions - The PureCycle Technologies, Inc. 2021 Equity and Incentive Compensation Plan was approved on March 17, 2021, reserving approximately **8.28 million shares** of common stock for issuance[103](index=103&type=chunk)[104](index=104&type=chunk) Restricted Stock Activity (in thousands, except per share data) | Metric | Non-vested at Dec 31, 2020 (after recap) | Granted (Q1 2021) | Vested (Q1 2021) | Forfeited (Q1 2021) | Non-vested at Mar 31, 2021 | | :--------------------------------------- | :--------------------------------------- | :---------------- | :---------------- | :------------------ | :--------------------------- | | Number of RSU's | 762 | 143 | (116) | (17) | 772 | | Weighted average grant date fair value | $1.39 | $11.90 | $1.10 | $3.13 | $1.98 | | Weighted average remaining recognition period (years) | N/A | N/A | N/A | N/A | 2.44 | - Total equity-based compensation cost for restricted stock was **$239 thousand** for Q1 2021, down from **$417 thousand** in Q1 2020[111](index=111&type=chunk) Stock Option Activity (in thousands, except per share data) | Metric | Balance, Dec 31, 2020 | Granted (Q1 2021) | Balance, Mar 31, 2021 | | :--------------------------------------- | :-------------------- | :---------------- | :-------------------- | | Number of Options | — | 613 | 613 | | Weighted Average Exercise Price | $— | $28.90 | $28.90 | | Weighted Average Remaining Contractual Term (Years) | — | 7 | 7 | - Total equity-based compensation cost for stock options was **$68 thousand** for Q1 2021, with no cost in Q1 2020[117](index=117&type=chunk) [NOTE 6 - WARRANTS](index=24&type=section&id=NOTE%206%20-%20WARRANTS) This note details the company's various warrants, their classification as liability or equity, fair value measurement, and the impact of the Business Combination - Legacy PCT Class B Preferred Units warrants, issued to P&G, were exercised in Q4 2020, resulting in no activity or expense in Q1 2021, compared to **$655 thousand** expense in Q1 2020[123](index=123&type=chunk) - Legacy PCT Class B-1 Preferred Units warrants were cancelled on March 12, 2021, prior to the Business Combination closing, with no expense recognized in Q1 2021 or Q1 2020[125](index=125&type=chunk)[130](index=130&type=chunk) - Warrants issued to RTI Global (Legacy PCT Class C Units) were modified post-Business Combination to purchase PCT common stock, reclassified as a liability, and resulted in **$15.0 million** expense in Q1 2021[132](index=132&type=chunk)[136](index=136&type=chunk) - Public warrants are equity-classified, while private warrants are liability-classified due to cashless exercise provisions for initial holders, with a fair value of **$3.3 million** at March 31, 2021[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[175](index=175&type=chunk) [NOTE 7 - RELATED PARTY TRANSACTIONS](index=28&type=section&id=NOTE%207%20-%20RELATED%20PARTY%20TRANSACTIONS) This note outlines transactions with related parties, primarily Innventure LLC, detailing managerial support, reimbursements, and related party receivables - Innventure LLC, a significant owner of Legacy PCT, provided managerial and operational support, with certain executives serving as employees or officers of Innventure[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) Related Party Transactions (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Payments to Innventure Management Services LLC | $55 | $102 | | Amount owed to Innventure Management Services LLC (as of period end) | $22 | $30 | | Related party receivable balance (as of period end) | $78 | $78 | [NOTE 8 – NET LOSS PER SHARE](index=28&type=section&id=NOTE%208%20%E2%80%93%20NET%20LOSS%20PER%20SHARE) This note explains the calculation of net loss per common share using the two-class method, including retroactive adjustments and anti-dilutive exclusions - The weighted average shares outstanding were retroactively adjusted to reflect the exchange ratio from the Business Combination[153](index=153&type=chunk) Net Loss Per Share (in thousands, except per share data) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(30,120) | $(5,294) | | Weighted average common shares outstanding, basic and diluted | 51,223 | 27,156 | | Net loss per share, basic and diluted | $(0.59) | $(0.19) | - Vested but unexercised warrants, non-vested restricted stock units, and convertible notes were excluded from diluted EPS calculation as they were anti-dilutive[154](index=154&type=chunk) [NOTE 9 – PROPERTY, PLANT AND EQUIPMENT](index=30&type=section&id=NOTE%209%20%E2%80%93%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) This note provides a breakdown of the company's property, plant, and equipment, highlighting the significant increase in construction in process for the Phase II Facility Property, Plant and Equipment, Net (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :----------------------- | :------------- | :---------------- | | Building | $11,565 | $11,642 | | Machinery and equipment | $13,284 | $13,594 | | Land | $1,150 | $1,150 | | Construction in process | $82,166 | $43,603 | | Total property, plant and equipment, net | $108,388 | $70,218 | - Construction in process increased by **$38.6 million** from December 31, 2020, to March 31, 2021, reflecting ongoing investment in the Phase II Facility[155](index=155&type=chunk)[158](index=158&type=chunk) - Depreciation expense for the three months ended March 31, 2021, was **$490 thousand**, compared to **$465 thousand** in the prior-year period[158](index=158&type=chunk) [NOTE 10 – DEVELOPMENT PARTNER ARRANGEMENTS](index=31&type=section&id=NOTE%2010%20%E2%80%93%20DEVELOPMENT%20PARTNER%20ARRANGEMENTS) This note details key agreements with development partners, including patent licenses, block and release agreements, and strategic alliances for technology and future product sales - PCT is in Phase 3 of its patent license agreement with P&G, involving commercial manufacture and a prepaid royalty payment of **$2.0 million**[159](index=159&type=chunk)[160](index=160&type=chunk) - The company paid the remaining **$1.6 million** of an initial **$2.5 million** license fee to Impact Recycling Limited in Q1 2021; this fee is recorded as prepaid royalties and licenses and will be amortized when the technology is operational[161](index=161&type=chunk) - A **$5.0 million** prepayment from Total Petrochemicals & Refining S.A./N.V. for future recycled polypropylene resin was released to the company in Q1 2021 and recorded as deferred revenue[162](index=162&type=chunk) - Nestle committed **$1.0 million** to fund R&D efforts, recorded as a Deferred research and development obligation, which may be convertible into a prepaid product purchase arrangement or a 5-year term loan[165](index=165&type=chunk)[166](index=166&type=chunk) [NOTE 11 - INCOME TAXES](index=32&type=section&id=NOTE%2011%20-%20INCOME%20TAXES) This note explains the company's income tax status change post-Business Combination and the requirement for a full valuation allowance on deferred tax assets - Following the Business Combination, the company's tax status changed from a partnership to a direct taxpayer for federal and state income tax purposes[167](index=167&type=chunk) - A full valuation allowance is required for any net deferred tax assets, as their realization is not considered more likely than not[168](index=168&type=chunk) - The company reported **$0 tax expense** for the three months ended March 31, 2021, and 2020[168](index=168&type=chunk) [NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS](index=32&type=section&id=NOTE%2012%20%E2%80%93%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) This note details the fair value measurements of financial instruments, particularly liability-classified warrants, outlining the fair value hierarchy and valuation assumptions - The company classifies its financial liabilities measured at fair value into a three-level hierarchy, with Level 3 representing unobservable inputs requiring significant management judgment[170](index=170&type=chunk)[171](index=171&type=chunk)[173](index=173&type=chunk) Fair Value of Financial Liabilities (in thousands) | Liability | March 31, 2021 (Level 3) | December 31, 2020 (Level 3) | | :---------------- | :----------------------- | :------------------------ | | RTI warrants | $15,000 | $— | | Private warrants | $3,258 | $— | | Total | $18,258 | $— | - Private warrants were measured at **$3.3 million** fair value at March 31, 2021, using a Black-Scholes model with **46.1% expected volatility** and a **4.96-year expected option term**[175](index=175&type=chunk) - RTI warrants were measured at **$15.0 million** fair value at March 31, 2021, using a Black-Scholes model with **48.51% expected volatility** and a **3.75-year expected option term**, capped by a repurchase option[180](index=180&type=chunk)[181](index=181&type=chunk) [NOTE 13 - SUBSEQUENT EVENTS](index=34&type=section&id=NOTE%2013%20-%20SUBSEQUENT%20EVENTS) This note discloses significant events after March 31, 2021, including PPP loan forgiveness, an amendment to Revenue Bonds, and the filing of class action lawsuits - On April 9, 2021, the Small Business Administration remitted **$314 thousand** in principal and **$3 thousand** in interest for forgiveness of the company's Paycheck Protection Program loan[184](index=184&type=chunk) - An Amended and Restated Guaranty of Completion (ARG) for the Revenue Bonds was executed on May 11, 2021, broadening the use of the **$50.0 million Liquidity Reserve**, extending its maintenance period, and outlining conditions for its reduction and termination[185](index=185&type=chunk)[188](index=188&type=chunk) - Two putative class action complaints were filed on or about May 11, 2021, alleging violations of federal securities laws, relying on information from a Hindenburg Research report[190](index=190&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on PureCycle Technologies, Inc.'s financial condition and results of operations, covering business overview, financial performance, liquidity, and critical accounting policies [Overview](index=37&type=section&id=Overview) PureCycle Technologies is commercializing a patented purification recycling technology to transform waste polypropylene into ultra-pure recycled polypropylene (UPRP), with its first commercial plant expected by late 2022 - PCT is commercializing a patented purification recycling technology, licensed from P&G, to produce ultra-pure recycled polypropylene (UPRP) with near-virgin characteristics[194](index=194&type=chunk) - The first commercial-scale plant in Ironton, Ohio, is expected to have a nameplate capacity of approximately **107 million pounds/year**, with production commencing in late 2022 and full operation by 2023[194](index=194&type=chunk) - PCT aims for global expansion, targeting approximately **30 commercial lines operational by 2030** and **50 by 2035**, with an installed capacity of approximately **1.0 billion pounds by the end of 2024**[195](index=195&type=chunk) - The Feedstock Evaluation Unit (FEU) has successfully processed over **145 feedstocks** and produced recycled polypropylene nearly identical to virgin material, validating the process for customers and suppliers[196](index=196&type=chunk) [The Business Combination](index=37&type=section&id=The%20Business%20Combination) This section reiterates the consummation of the business combination on March 17, 2021, between ROCH and Legacy PCT, accounted for as a reverse recapitalization - The Business Combination was consummated on March 17, 2021, involving ROCH and Legacy PCT[198](index=198&type=chunk) - The transaction was accounted for as a reverse recapitalization, treating Legacy PCT as the accounting predecessor[200](index=200&type=chunk) [Business Highlights](index=38&type=section&id=Business%20Highlights) PureCycle Technologies is positioned as a leader in polypropylene recycling, leveraging an exclusive P&G license and securing substantial feedstock and offtake agreements - Global demand for virgin or near-virgin polypropylene is projected to exceed **200 billion pounds by 2024**, with less than **1% of U.S. polypropylene recycled** as of 2019[201](index=201&type=chunk) - PCT holds an exclusive, worldwide license from P&G for its patented technology to produce near-virgin quality UPRP, with patents expiring between **2036 and 2039**[203](index=203&type=chunk) - The company has legally binding offtake agreements with three blue-chip customers for a minimum of **47.5 million pounds of UPRP annually** from the Phase II Facility, with total committed capacity up to **138 million pounds per year** at PCT's option[205](index=205&type=chunk) - Feedstock required for the Phase II Facility's **107 million pounds nameplate capacity** is secured for at least the first three years[206](index=206&type=chunk) - PCT received a **$5 million prepayment** in March 2021 under a pre-purchase term sheet for future UPRP, with reimbursement conditions tied to the Phase II Facility's construction and commercial production[207](index=207&type=chunk) [Completion of the Phase II Facility and Expansion of Our Manufacturing Footprint](index=39&type=section&id=Completion%20of%20the%20Phase%20II%20Facility%20and%20Expansion%20of%20Our%20Manufacturing%20Footprint) Construction of the Phase II Facility in Ironton, Ohio, commenced in October 2020, with an estimated remaining cost of $265.9 million and expected commercial operation by the end of 2022 - Construction of the Phase II Facility began in October 2020 and is expected to be commercially operational by the end of 2022, with an annual production capacity of **107 million pounds by 2023**[208](index=208&type=chunk) - The estimated total remaining cost to complete the Phase II Facility is approximately **$265.9 million**[209](index=209&type=chunk) - Timely completion is dependent on third-party contractors and obtaining necessary permits, with risks of unexpected costs, delays, and potential liability for construction overruns[210](index=210&type=chunk)[211](index=211&type=chunk) [Basis of Presentation](index=39&type=section&id=Basis%20of%20Presentation) The condensed consolidated interim financial statements are presented in U.S. Dollars, prepared in accordance with U.S. GAAP and SEC regulations, and are not necessarily indicative of full-year results - Financial statements are presented in U.S. Dollars and prepared in accordance with U.S. GAAP and SEC rules[212](index=212&type=chunk) - Interim results are not necessarily indicative of the full year's performance[212](index=212&type=chunk) [Components of Results of Operations](index=41&type=section&id=Components%20of%20Results%20of%20Operations) This section outlines the key components of the company's results of operations, including revenue, operating costs, R&D, and SG&A, anticipating significant expense increases as it scales - The company has not generated any operating revenue to date, with revenue expected to begin by the end of 2022 when the Phase II Facility becomes commercially operational[213](index=213&type=chunk) - Operating costs are expected to increase substantially with scaling operations and increased headcount, primarily related to the Phase I Facility[214](index=214&type=chunk) - Research and development expenses are projected to increase due to investments in feedstock evaluation, new mechanical separators, and in-house analytical capabilities[215](index=215&type=chunk) - Selling, general and administrative expenses are expected to rise significantly due to business growth and the costs associated with operating as a public company[216](index=216&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) For the three months ended March 31, 2021, the company experienced a substantial increase in net loss, primarily driven by higher SG&A, interest expense, and a significant change in warrant fair value Operating Results Comparison (in thousands, except %) | Metric | 2021 | 2020 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Operating costs | $2,130 | $1,683 | $447 | 27 % | | Research and development | $547 | $348 | $199 | 57 % | | Selling, general and administrative | $7,624 | $1,238 | $6,386 | 516 % | | Total operating costs and expenses | $10,301 | $3,269 | $7,032 | 215 % | | Interest expense | $6,089 | $588 | $5,501 | 936 % | | Change in fair value of warrants | $13,621 | $655 | $12,966 | 1,980 % | | Other expense | $109 | $52 | $57 | 110 % | | Net loss | $30,120 | $4,564 | $25,556 | 560 % | - Selling, general and administrative expenses increased by **$6.4 million (516%)** due to transaction-related expenses (**$3.2 million**), professional services (**$2.0 million**), and legal fees (**$0.5 million**) associated with the Business Combination and Revenue Bonds[221](index=221&type=chunk) - Interest expense surged by **$5.5 million (936%)** due to interest on the newly issued Revenue Bonds and Convertible Notes[222](index=222&type=chunk) - The change in fair value of warrants increased by **$13.0 million**, primarily from the liability-classified RTI and private warrants[223](index=223&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) As a pre-commercial company, PureCycle's operations are funded by equity and debt financing, with $570.1 million in cash and equivalents as of March 31, 2021, including restricted cash for plant construction - As of March 31, 2021, the company had **$570.1 million** in cash and cash equivalents, including **$317.5 million** in restricted cash for Phase II Facility construction[224](index=224&type=chunk) - The Business Combination provided **$326.0 million** in gross proceeds, net of **$27.9 million** in capitalized issuance costs[225](index=225&type=chunk) - The remaining cost to complete the Phase II Facility is estimated at **$265.9 million**[226](index=226&type=chunk) - Future capital requirements depend on construction costs, additional plant development, and business growth, potentially requiring further equity or debt financing[226](index=226&type=chunk) [Indebtedness](index=42&type=section&id=Indebtedness) This section details the company's Convertible Notes offering, including the issuance of $60.0 million in Senior Convertible Notes due 2022, outlining interest, maturity, and conversion terms - The company issued **$60.0 million** in aggregate principal amount of Convertible Senior Secured Notes due 2022 to Magnetar Investors[227](index=227&type=chunk)[228](index=228&type=chunk) - The Convertible Notes bear interest at **5.875% per year**, payable semi-annually, and mature on October 15, 2022, with a possible extension to April 15, 2023[232](index=232&type=chunk) - The conversion price is **$6.93 per share**, allowing for potential conversion into approximately **8.66 million shares** of common stock[233](index=233&type=chunk) - The Convertible Notes are senior obligations, fully and unconditionally guaranteed by the company and its subsidiaries, and are subject to certain covenants and events of default[229](index=229&type=chunk)[231](index=231&type=chunk) [Cash Flows](index=43&type=section&id=Cash%20Flows) The company's cash flows for the three months ended March 31, 2021, show a significant increase in cash from financing activities, offsetting increased usage in operating and investing activities Cash Flow Summary (in thousands, except %) | Metric | 2021 | 2020 | $ Change | % Change | | :-------------------------------- | :--------- | :------- | :--------- | :--------- | | Net cash used in operating activities | $(20,568) | $(4,919) | $(15,649) | 318 % | | Net cash used in investing activities | $(33,891) | $(763) | $(33,128) | 4,342 % | | Net cash provided by financing activities | $293,969 | $8,641 | $285,328 | 3,302 % | | Cash and cash equivalents, end of year | $570,084 | $3,109 | $566,975 | 18,237 % | - Net cash used in operating activities increased by **$15.6 million (318%)** due to higher transaction-related payments, D&O insurance, employee costs, and the Impact License agreement, partially offset by a **$5.0 million** prepayment receipt[239](index=239&type=chunk) - Net cash used in investing activities increased by **$33.1 million (4,342%)** due to payments for the construction of the Phase II Facility[240](index=240&type=chunk) - Net cash provided by financing activities increased by **$285.3 million (3,302%)**, primarily from **$298.5 million** in proceeds from the Business Combination and PIPE financing, net of issuance costs[241](index=241&type=chunk) [Off-Balance Sheet Arrangements](index=44&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no material off-balance sheet arrangements or interests in variable interest entities that would require consolidation, as existing offtake agreements are not unconditional - The company has no off-balance sheet arrangements that materially affect its financial condition or results of operations[242](index=242&type=chunk) - Legally binding offtake arrangements are not considered off-balance sheet arrangements as they are not unconditional and definitive agreements[242](index=242&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines critical accounting policies and estimates requiring significant management judgment, including income taxes, equity-based compensation, and warrants, detailing valuation methodologies - Income tax provision relies on estimates of the annual effective tax rate, expected operating income, and likelihood of recovering deferred tax assets[244](index=244&type=chunk)[245](index=245&type=chunk) - Equity-based compensation cost is measured at grant date fair value using the Black-Scholes option-pricing model, with assumptions for dividend yield, volatility, risk-free rate, and expected term[247](index=247&type=chunk)[248](index=248&type=chunk) - Warrants are classified as equity or liability based on their terms; liability-classified warrants (e.g., RTI and private warrants) are remeasured at fair value each period through earnings using the Black-Scholes model[249](index=249&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - Stock options compensation expense is recognized straight-line over the vesting period, with fair value estimated using the Black-Scholes model[255](index=255&type=chunk)[256](index=256&type=chunk) [Recent Accounting Pronouncements](index=47&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for detailed information on recent accounting pronouncements, their adoption timing, and the company's assessment of their potential impact - For information on recent accounting pronouncements, refer to Note 2 to the audited consolidated financial statements[257](index=257&type=chunk) [Emerging Growth Company Election](index=47&type=section&id=Emerging%20Growth%20Company%20Election) PureCycle Technologies, Inc. qualifies as an 'emerging growth company' (EGC) under the JOBS Act but has irrevocably elected not to use the extended transition period for new accounting standards - PCT is an 'emerging growth company' (EGC) under the JOBS Act, benefiting from reduced reporting requirements[258](index=258&type=chunk)[259](index=259&type=chunk) - PCT has irrevocably elected not to take advantage of the extended transition period for new or revised financial accounting standards, meaning it will comply with standards applicable to non-EGC public companies[259](index=259&type=chunk) - PCT will remain an EGC until the earliest of December 31, 2025, achieving **$1.07 billion** in annual gross revenue, becoming a large accelerated filer, or issuing over **$1.0 billion** in non-convertible debt[260](index=260&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, PureCycle Technologies, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide disclosures about market risk[261](index=261&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that PureCycle Technologies, Inc.'s disclosure controls and procedures were not effective as of March 31, 2021, due to previously reported material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2021, due to material weaknesses in internal control over financial reporting[263](index=263&type=chunk) - Material weaknesses identified include insufficient qualified personnel for complex accounting, inadequate segregation of duties, ineffective control environment, ineffective IT controls, and issues with completeness and cutoff of expenses and payables[265](index=265&type=chunk)[272](index=272&type=chunk) - Remediation plans are underway, involving adding qualified personnel (CFO, VP Finance, Corporate Controller, Plant Controller, AP/AR Analyst), implementing new financial processes, evaluating IT systems, and strengthening controls over related entity payments and purchase orders[267](index=267&type=chunk)[268](index=268&type=chunk)[355](index=355&type=chunk) - Despite the material weaknesses, management concluded that the interim financial statements fairly present the company's financial position, results of operations, and cash flows[263](index=263&type=chunk) [PART II - Other Information](index=50&type=section&id=PART%20II%20-%20Other%20Information) This part provides additional information beyond financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) PureCycle Technologies, Inc. was not party to any material legal proceedings during the quarter ended March 31, 2021, but two class action lawsuits were filed subsequently, which the company intends to defend - No material legal proceedings were active during the quarter ended March 31, 2021[274](index=274&type=chunk) - Subsequent to March 31, 2021, two putative class action complaints were filed (Theodore Lawsuit and Tennenbaum Lawsuit) alleging violations of federal securities laws against PCT and certain senior management[190](index=190&type=chunk)[274](index=274&type=chunk) - The lawsuits allege false/misleading statements regarding the company's technology and business, relying on a Hindenburg Research report[190](index=190&type=chunk) - The company intends to vigorously defend the lawsuits and cannot reasonably estimate the potential loss at this stage[192](index=192&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could adversely affect PureCycle Technologies, Inc.'s business, financial condition, and results of operations, spanning its early commercial stage, operational challenges, and market acceptance [Risks Related to PCT's Status as an Early Commercial Stage Emerging Growth Company](index=50&type=section&id=Risks%20Related%20to%20PCT's%20Status%20as%20an%20Early%20Commercial%20Stage%20Emerging%20Growth%20Company) As an early commercial stage company, PCT faces risks related to achieving profitability, business diversification, license agreement compliance, substantial indebtedness, and litigation - PCT is an early commercial stage company with no revenue and may never achieve or sustain profitability, relying on commercialization of UPRP and technology licenses[277](index=277&type=chunk)[278](index=278&type=chunk) - The business is not diversified, relying solely on the Project (Phase I and Phase II Facilities) for initial commercial success[279](index=279&type=chunk) - Failure to meet performance and pricing targets in the P&G License Agreement could result in termination or conversion to a non-exclusive license[281](index=281&type=chunk) - Substantial secured and unsecured indebtedness (**$289.3 million** as of March 31, 2021) and associated covenants could impair financing ability and operations[282](index=282&type=chunk)[283](index=283&type=chunk) - The company faces risks from litigation, including recently filed securities class action complaints, which could incur significant expenses and reputational damage[284](index=284&type=chunk)[285](index=285&type=chunk)[286](index=286&type=chunk) [Risks Related to PCT's Operations](index=52&type=section&id=Risks%20Related%20to%20PCT's%20Operations) PCT's operations face risks from the COVID-19 pandemic, construction delays and cost overruns for the Phase II Facility, reliance on a single facility, cyber threats, and intellectual property protection - The COVID-19 pandemic poses risks to business operations, financial condition, and results, potentially impacting suppliers, contractors, and customer demand[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk) - Construction of the Phase II Facility may face delays, cost overruns, or failure to complete due to unforeseen issues, impacting production and financial performance[292](index=292&type=chunk)[293](index=293&type=chunk) - Initial reliance on a single facility (the Project) makes the company vulnerable to adverse changes, disruptions, or equipment failures[294](index=294&type=chunk) - Cyber risks and failures in operational or security systems could lead to data breaches, financial losses, and reputational damage[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Inability to sufficiently protect proprietary intellectual property or disputes over third-party IP rights could harm competitive position and incur significant costs[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) [Risks Related to PCT's Production of UPRP](index=54&type=section&id=Risks%20Related%20to%20PCT's%20Production%20of%20UPRP) Risks related to UPRP production include scalability of purification technology, securing future strategic partners, procuring sufficient feedstock, and impacts from international trade agreements - There is no guarantee that the purification technology is scalable to commercial-scale operation, and performance targets (e.g., odor reduction) may not be achieved[303](index=303&type=chunk)[304](index=304&type=chunk) - Failure to secure future strategic partners for feedstock and offtake opportunities could curtail UPRP development and commercialization[305](index=305&type=chunk)[306](index=306&type=chunk) - Inability to procure sufficient quantity and quality of waste polypropylene feedstock due to pricing changes, supply shortages, or new regulations could negatively impact the business[307](index=307&type=chunk) - Changes to international trade agreements, tariffs, and duties could adversely affect feedstock sourcing costs and profitability[308](index=308&type=chunk) [Risks Related to the Market for UPRP](index=56&type=section&id=Risks%20Related%20to%20the%20Market%20for%20UPRP) The market for UPRP faces risks from uncertain customer acceptance, fluctuations in index pricing for offtake agreements, competition, and potential increased supply from P&G's sublicense rights - The market for UPRP is in development, and customer approval and acceptance of the product are not guaranteed, potentially leading to delays or reduced demand[310](index=310&type=chunk) - Offtake agreements are subject to index pricing, and fluctuations in these index prices could adversely impact financial results, despite expectations of a premium over virgin resin[311](index=311&type=chunk) - Competition from existing players or new entrants developing alternative products or technologies could reduce demand for UPRP or negatively affect sales and pricing[312](index=312&type=chunk)[313](index=313&type=chunk) - P&G's sublicense rights (Grant Back) could lead to increased UPRP production and supply by competitors, adversely impacting PCT's market position[314](index=314&type=chunk) [Risks Related to Regulatory Developments](index=57&type=section&id=Risks%20Related%20to%20Regulatory%20Developments) PCT faces risks from not meeting FDA requirements for food-grade UPRP, ongoing compliance with evolving environmental and safety regulations, and potential delays or cost increases from governmental permitting - PCT may not meet FDA regulatory requirements for UPRP in food-grade applications (e.g., obtaining Letters of No Objection), which would adversely affect its business[316](index=316&type=chunk)[317](index=317&type=chunk) - Ongoing compliance with numerous and evolving regulatory requirements (environmental, workplace safety, international) will be time-consuming and costly, with potential for fines or plant shutdowns for non-compliance[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[324](index=324&type=chunk) - Construction and operation of the Project are subject to governmental regulation, and delays or failure to obtain/maintain permits could increase costs or reduce revenues[321](index=321&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) [Risks Related to Human Capital Management](index=58&type=section&id=Risks%20Related%20to%20Human%20Capital%20Management) PCT's success depends on retaining its specialized management and key personnel, attracting qualified talent in a competitive market, and managing the challenges of operating as a public company - PCT's success is highly dependent on retaining its specialized management team and key operating personnel, and failure to do so could adversely affect the business[326](index=326&type=chunk) - The company's future success relies on its ability to attract, develop, and retain highly qualified personnel in a competitive market, which may lead to increased labor expenses[327](index=327&type=chunk) - PCT's management has limited experience operating a public company, which could divert time and resources from business growth to regulatory compliance[328](index=328&type=chunk)[329](index=329&type=chunk) [Risks Related to PCT's common stock](index=59&type=section&id=Risks%20Related%20to%20PCT's%20common%20stock) Risks related to PCT's common stock include the potential for an illiquid trading market, delisting from NASDAQ, high price volatility, lack of dividends, dilution from future offerings, and anti-takeover provisions - An active trading market for PCT's common stock may not develop or be sustained, making it difficult for investors to sell shares at an attractive price[331](index=331&type=chunk) - Failure to comply with NASDAQ's continued listing standards could lead to delisting, resulting in reduced liquidity, limited market quotations, and decreased ability to raise capital[332](index=332&type=chunk)[334](index=334&type=chunk) - The market price of PCT's common stock is likely to be highly volatile due to various factors, including COVID-19 impact, business combination benefits, regulatory changes, and general market conditions[333](index=333&type=chunk)[334](index=334&type=chunk) - PCT does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of gain for investors[337](index=337&type=chunk) - The exercise of registration rights by IRA Holders and Magnetar Investors for approximately **94.3 million shares** could lead to sales of a substantial amount of common stock, adversely affecting the market price[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - Future offerings of debt or equity securities could dilute existing stockholders' economic and voting rights or reduce the market price of common stock[342](index=342&type=chunk)[343](index=343&type=chunk) - Certain provisions in the company's Amended and Restated Certificate of Incorporation and Bylaws could hinder, delay, or prevent a change in control, potentially affecting the stock price[344](index=344&type=chunk)[345](index=345&type=chunk) [General Risk Factors](index=62&type=section&id=General%20Risk%20Factors) General risks include inability to obtain additional financing, reliance on EGC exemptions, failure to remediate internal control weaknesses, increased public company expenses, and fair value changes in warrant liabilities - Inability to obtain additional financing for operations and growth could materially adversely affect the company, potentially leading to dilution or restrictive debt covenants[347](index=347&type=chunk) - As an emerging growth company, reliance on exemptions from reporting requirements might make its shares less attractive to some investors, potentially increasing stock price volatility[348](index=348&type=chunk)[351](index=351&type=chunk) - Failure to remediate identified material weaknesses in internal control over financial reporting could lead to inaccurate financial reporting, adverse regulatory consequences, and harm to reputation and stock price[353](index=353&type=chunk)[354](index=354&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) - Operating as a public company incurs significant increased expenses and administrative burdens, diverting resources from business expansion[358](index=358&type=chunk) - Certain private warrants are accounted for as a warrant liability, and changes in their fair value reported in earnings may adversely affect the market price of common stock[359](index=359&type=chunk) - Failure to timely and effectively implement Section 404(a) controls could harm investor confidence and the market price of securities[360](index=360&type=chunk)[361](index=361&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the PIPE Placement, where ROCH sold 25 million shares of common stock at $10.00 per share for an aggregate of $250.0 million to certain investors, exempt from registration - ROCH sold **25 million shares** of common stock at **$10.00 per share** for an aggregate of **$250.0 million** in a PIPE Placement[362](index=362&type=chunk) - The PIPE Placement closed immediately prior to the Business Combination on the Closing Date[363](index=363&type=chunk) - The shares were issued pursuant to an exemption from registration under Section 4(a)(2) and/or Regulation D of the Securities Act[364](index=364&type=chunk) [Item 3. Defaults Upon Senior Securities](index=65&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[365](index=365&type=chunk) [Item 4. Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to PureCycle Technologies, Inc - This item is not applicable[366](index=366&type=chunk) [Item 5. Other Information](index=65&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period - There is no other information to report[367](index=367&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including merger agreements, organizational documents, warrant agreements, and certifications - The report includes various exhibits such as the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation and Bylaws, Specimen Common Stock and Warrant Certificates, and the 2021 Equity and Incentive Compensation Plan[368](index=368&type=chunk)[369](index=369&type=chunk) - Key exhibits filed herewith include the Amended and Restated Guaranty of Completion, Magnetar Registration Rights Agreement, and certifications by the CEO and CFO[369](index=369&type=chunk)[372](index=372&type=chunk) [Signatures](index=69&type=section&id=Signatures) The report is duly signed on behalf of PureCycle Technologies Inc. by Michael Otworth, Chief Executive Officer, and Michael Dee, Chief Financial Officer, as of May 19, 2021 - The report was signed by Michael Otworth, Chief Executive Officer, and Michael Dee, Chief Financial Officer, on May 19, 2021[376](index=376&type=chunk)

Company Overview - Less than 1% of polypropylene (PP) is mechanically recycled, compared to nearly 20% of polyethylene terephthalate (PET)[5] - Polypropylene represents 28% of the world's polymer demand, with over 160 billion pounds produced annually[5] Technology and Operations - The company has conducted over 350 tests at lab scale, evaluating over 170 feedstocks[11] - Plant 1 is on track to begin operations in Q4 2022[28] - The annual plant capacity for Cluster 1 and Cluster 2 is 130 million pounds each[33] - Purification of feedstocks with up to 25% contamination has been successful[27] Financial Status - The company raised $732 million since Q4 2020[42] - Total cash available as of March 31, 2021, was $570 million[22, 43]

PureCycle Technologies, Inc. (NASDAQ:PCT) Q1 2021 Earnings Conference Call May 17, 2021 11:00 AM ET Company Participants David Brenner - Chief Commercial Officer Mike Otworth - Chairman and CEO Michael Dee - Chief Financial Officer Dustin Olson - Chief Manufacturing Officer Tamsin Ettefagh - Chief Sustainability Officer Conference Call Participants Noah Kaye - Oppenheimer Eric Stine - Craig-Hallum Gerry Sweeney - ROTH Capital Barry Haimes - Sage Asset Management Operator Good morning, everyone, and thank yo ...