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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 June 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
pct-20210630_g1.jpg
PureCycle Technologies, Inc.
(Exact name of registrant as specified in its charter)
State86-2293091
Delaware
(I.R.S. Employer
Identification Number)
5950 Hazeltine National Drive, Suite 650
Orlando, Florida 32822
(877) 648-3565
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Common Stock, par value $0.001 per sharePCTThe 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 sharePCTTWThe Nasdaq Stock Market LLC
Units, each consisting of one share of common stock, $0.001 par value, and three quarters of one warrantPCTTUThe Nasdaq Stock Market LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No ☒
As of August 12, 2021, there were approximately 117,356,725 shares of the registrant's common stock outstanding, par value $0.001 per share, outstanding.
1

PureCycle Technologies, Inc.
QUARTERLY REPORT on FORM 10-Q
TABLE OF CONTENTS


Page
PART I - Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six months ended June 30, 2021 and 2020
Unaudited Condensed Consolidated Statements of Stockholders Equity for the Three and Six months ended June 30, 2021 and 2020
Unaudited Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 2021 and 2020
2

PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION (CONTINUED)
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains 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 proceedings to which PCT is, or may become a party, and the financial condition, results of operations, earnings outlook and prospects of PCT. Forward-looking statements generally relate to future events or PCT’s future financial or operating performance and may refer to projections and forecasts. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions (or the negative versions of such words or expressions), but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements are based on the current expectations of the management of PCT and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of this Quarterly Report on Form 10-Q. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors,” those discussed and identified in public filings made with the U.S. Securities and Exchange Commission (the “SEC”) by PCT and the following:
•    PCT's ability to meet, and to continue to meet, applicable regulatory requirements for the use of PCT’s UPRP (as defined below) in food grade applications (both in the United States and abroad);

•    PCT's ability to comply on an ongoing basis with the numerous regulatory requirements applicable to the UPRP and PCT’s facilities (both in the United States and abroad);

•    Expectations and changes regarding PCT’s strategies and future financial performance, including its future business plans, expansion plans or objectives, prospective performance and opportunities and competitors, revenues, products and services, pricing, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures, and PCT’s ability to invest in growth initiatives;

•    PCT’s ability to scale and build the Ironton plant in a timely and cost-effective manner;

•    PCT’s ability to build its first U.S. cluster facility, located in Augusta, Georgia (the “Augusta Facility”), in a timely and cost-effective manner.

•    PCT’s ability to maintain exclusivity under the P&G license (as described below);

•    the implementation, market acceptance and success of PCT’s business model and growth strategy;

•    the success or profitability of PCT’s offtake arrangements;

•    the ability to source feedstock with a high polypropylene content;

•    PCT’s future capital requirements and sources and uses of cash;

•    PCT’s ability to obtain funding for its operations and future growth;

•    developments and projections relating to PCT’s competitors and industry;

•    the outcome of any legal proceedings to which PCT is, or may become, a party including recently filed
3

PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION (CONTINUED)
securities class action cases;

•    the ability to recognize the anticipated benefits of the Business Combination;

•    unexpected costs related to the Business Combination;

•    geopolitical risk and changes in applicable laws or regulations;

•    the possibility that PCT may be adversely affected by other economic, business, and/or competitive factors;

•    operational risk; and

•    the risk that the COVID-19 pandemic, including any variants and the efficacy and distribution of vaccines, and local, state, federal and international responses to addressing the pandemic may have an adverse effect on PCT’s business operations, as well as PCT’s financial condition and results of operations.

We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

Should one or more of these risks or uncertainties materialize or should any of the assumptions made prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.
















4

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS


ASSETS
(Unaudited)
(in thousands except per share data)June 30, 2021December 31, 2020
CURRENT ASSETS
Cash$37,703 $64,492 
Debt securities available for sale200,432  
Prepaid expenses and other current assets3,345 446 
Total current assets241,480 64,938 
Restricted cash300,871 266,082 
Prepaid royalties and licenses4,375 2,890 
Property, plant and equipment, net138,411 70,218 
TOTAL ASSETS$685,137 $404,128 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable$601 $1,058 
Accrued expenses40,266 26,944 
Accrued interest2,297 4,951 
Notes payable – current36 122 
Total current liabilities43,200 33,075 
NON-CURRENT LIABILITIES
Deferred research and development obligation1,000 1,000 
Deferred revenue5,000  
Notes payable59,203 26,477 
Bonds payable232,037 235,676 
Warrant liability17,899  
TOTAL LIABILITIES$358,339 $296,228 
COMMITMENT AND CONTINGENCIES  
STOCKHOLDERS' EQUITY
Common shares - $0.001 par value, 250,000 shares authorized; 117,339 and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020
117  
Class A Units - no par value; 0 and 3,981 units authorized; 0 and 3,612 units issued and outstanding as of June 30, 2021 and December 31, 2020
 38 
Class B Preferred Units - no par value; 0 and 1,938 units authorized; 0 and 1,938 units issued and outstanding as of June 30, 2021 and December 31, 2020
 21 
Class B-1 Preferred Units - no par value; 0 and 1,146 units authorized, 0 and 1,105 units issued and outstanding as of June 30, 2021 and December 31, 2020
 16 
5

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
Class C Units – no par value; 0 and 1,069 units authorized, 0 and 865 units issued and 0 and 775 units outstanding as of June 30, 2021 and December 31, 2020
 7 
Additional paid-in capital456,310 192,381 
Accumulated other comprehensive loss(106) 
Accumulated deficit(129,523)(84,563)
TOTAL STOCKHOLDERS' EQUITY326,798 107,900 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$685,137 $404,128 
The accompanying notes are an integral part of these financial statements.
6

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

Three months ended June 30,Six months ended June 30,
2021202020212020
(in thousands except per share data)
Costs and expenses
Operating costs$2,411 $1,793 $4,541 $3,476 
Research and development224 9 771 357 
Selling, general and administrative7,259 1,048 14,883 2,286 
Total operating costs and expenses9,894 2,850 20,195 6,119 
Interest expense6,054 597 12,143 1,185 
Change in fair value of warrants(359)1,120 13,262 1,775 
Other expense(312)(152)(203)(100)
Total other expense5,383 1,565 25,202 2,860 
Net loss$(15,277)$(4,415)$(45,397)$(8,979)
Loss per share
Basic and diluted$(0.13)$(0.19)$(0.54)$(0.48)
Weighted average common shares
Basic and diluted117,346 27,156 84,284 27,156 
Other comprehensive loss:
Unrealized loss on debt securities available for sale$(106)$ $(106)$ 
Total comprehensive loss$(15,383)$(4,415)$(45,503)$(8,979)
The accompanying notes are an integral part of these financial statements.
7

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended June 30, 2021
Common stockClass AClass B PreferredClass B-1 PreferredClass C
(in thousands)SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
Balance, December 31, 2020 $ 3,612 $88,081 1,938 $20,071 1,105 $41,162 775 $11,967 $31,182 $ $(84,563)$107,900 
Conversion of stock— — 34,386 (88,043)18,690 (20,050)15,217 (41,146)5,936 (11,960)161,199 — — $ 
Balance at December 31, 2020, effect of reverse recapitalization conversion $ 37,998 $38 20,628 $21 16,322 $16 6,711 $7 $192,381 $ $(84,563)$107,900 
Issuance of units upon vesting of Legacy PCT profits interests— — — — — — — — 116 — 239 — — 239 
Redemption of vested profit units— — — — — — — — (5)— (36)— — (36)
Removal of beneficial conversion feature upon adoption of ASU 2020-06— — — — — — — — — — (31,075)— 437 (30,638)
Merger Recapitalization81,754 82 (37,998)(38)(20,628)(21)(16,322)(16)(6,822)(7)— — —  
ROCH Shares Recapitalized, Net of Redemptions, Warrant Liability and Issuance Costs of $27.9 million
34,823 35 — — — — — — — — 293,931 — — 293,966 
Issuance of restricted stock awards775 1 — — — — — — — — (1)— —  
Forfeiture of restricted stock(3)(1)— — — — — — — — 1 — —  
Reclassification of redeemable warrant to liability— — — — — — — — — — (33)— — (33)
Equity based compensation— — — — — — — — — — 68 — — 68 
Net loss— — — — — — — — — — — — (30,120)(30,120)
Balance, March 31, 2021117,349 $117  $  $  $  $ $455,475 $ $(114,246)$341,346 
Forfeiture of restricted stock(10)— — — — — — — — — — — —  
Equity based compensation— — — — — — — — — — 835 — — 835 
Unrealized loss on available for sale debt securities— — — — — — — — — — — (106)— (106)
Net loss— — — — — — — — — — — — (15,277)(15,277)
Balance, June 30, 2021117,339 $117  $  $  $  $ $456,310 $(106)$(129,523)$326,798 
8

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended June 30, 2020
Common stockClass AClass B PreferredClass B-1 PreferredClass C
(in thousands)SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountAdditional paid-in capitalAccumulated other comprehensive lossAccumulated deficitTotal stockholders' equity
Balance, December 31, 2019 $ 2,581 $387 1,728 $1,898 630 $23,656 436 $4,054 $107 $ $(27,722)$2,380 
Conversion of stock— — 24,575 (360)16,660 (1,880)8,670 (23,647)3,625 (4,050)29,937 — —  
Balance at December 31, 2019, effect of reverse recapitalization conversion  27,156 $27 18,388 $18 9,300 $9 4,061 $4 $30,044 $ $(27,722)$2,380 
Issuance of units— — — — — — 4,578 5 — — 11,569 — — 11,574 
Issuance of units upon vesting of Legacy PCT profits interests— — — — — — — — 362 — 417 — — 417 
Net loss— — — — — — — — — — — — (4,564)(4,564)
Balance, March 31, 2020 $ 27,156 $27 18,388 $18 13,878 $14 4,423 $4 $42,030 $ $(32,286)$9,807 
Issuance of units — — — — — 393 — — — — 920 — — 920 
Issuance of units upon vesting of Legacy PCT profits interests — — — — — — — 147 1 172 — — 173 
Net loss — — — — — — — — — — — (4,415)(4,415)
Balance, June 30, 2020 $ 27,156 $27 18,388 $18 14,271 $14 4,570 $5 $43,122 $ $(36,701)$6,485 
The accompanying notes are an integral part of these financial statements.
9

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
(in thousands)20212020
Cash flows from operating activities
Net loss$(45,397)$(8,979)
Adjustments to reconcile net loss to net cash used in operating activities

Equity-based compensation1,142 590 
Fair value change of warrants13,262 1,775 
Depreciation expense985 934 
Accretion of debt instrument discounts112  
Amortization of debt issuance costs1,396  
Issuance costs attributable to warrants109  
Amortization of premium on debt securities165  
Gain on extinguishment of secured term loan(314) 
Changes in operating assets and liabilities
Prepaid expenses and other current assets(2,899)(22)
Prepaid royalties and licenses(1,485)(40)
Accounts payable(725)(1,187)
Accrued expenses(13,082)476 
Accrued interest(1,251)(737)
Deferred revenue5,000  
Net cash used in operating activities$(42,982)$(7,190)
Cash flows from investing activities
Construction of plant(42,229)(1,557)
Purchase of debt securities, available for sale(200,703) 
Net cash used in investing activities$(242,932)$(1,557)
Cash flows from financing activities
Proceeds from secured term loan 314 
Proceeds from promissory note91  
Payments on promissory note from related parties (600)
Payments on advances from related parties (2,333)
Payments on promissory notes(55) 
Proceeds from ROCH and PIPE financing, net of issuance costs298,461  
Convertible notes issuance costs(480) 
Bond issuance costs(4,067) 
Proceeds from issuance of units  12,493 
Payments on redemption of vested Legacy PCT profit interests(36) 
Net cash provided by financing activities$293,914 $9,874 
Net increase in cash and restricted cash8,000 1,127 
Cash and restricted cash, beginning of period330,574 150 
Cash and restricted cash, end of period$338,574 $1,277 
Supplemental disclosure of cash flow information
Non-cash operating activities
Interest paid during the period, net of capitalized interest $11,948 $1,120 
Non-cash investing activities
Additions to property, plant, and equipment in accrued expenses$26,404 $ 
Additions to property, plant, and equipment in accounts payable$268 $1,062 
Additions to property, plant, and equipment in accrued interest$277 $30 
10

PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Non-cash financing activities
Conversion of accounts payable to promissory notes$ $945 
PIK interest on convertible notes$1,680 $ 
Initial fair value of acquired warrant liability$4,604 $ 
Capitalization of bond issuance costs — additions to accrued expense$ $1,418 
The accompanying notes are an integral part of these financial statements.
@

11

PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
NOTE 1 - ORGANIZATION
Formation and Organization
PureCycle Technologies, Inc. (“PureCycle,” “PCT” or the “Company”) is headquartered in Orlando, Florida, and its planned principal operation is to conduct business as a plastics recycler using PureCycle’s patented recycling process. Developed and licensed by The Procter & Gamble Company (“P&G”), the patented recycling process separates color, odor and other contaminants from plastic waste feedstock to transform it into virgin-like resin. The Company is currently constructing its first planned facility and conducting research and development activities to operationalize the licensed technology.
PureCycle Technologies LLC was formed as a Delaware limited liability company on September 15, 2015 as Advanced Resin Technologies, LLC. In November 2016, Advanced Resin Technologies, LLC changed its name to PureCycle Technologies LLC.
Business Combination
On March 17, 2021, PureCycle consummated the previously announced business combination (“Business Combination”) by and among Roth CH Acquisition I Co., a Delaware corporation (“ROCH”), Roth CH Acquisition I Co. Parent Corp., a Delaware corporation and wholly owned direct subsidiary of ROCH (“ParentCo”), Roth CH Merger Sub LLC, a Delaware limited liability company and wholly owned direct subsidiary of Parent Co, Roth CH Merger Sub Corp., a Delaware corporation and wholly owned direct subsidiary of ParentCo and PureCycle Technologies LLC (“PCT LLC”) pursuant to the Agreement and Plan of Merger dated as of November 16, 2020, as amended from time to time (the “Merger Agreement”).
Upon the completion of the Business Combination and the other transactions contemplated by the Merger Agreement (the “Transactions”, and such completion, the “Closing”), ROCH changed its name to PureCycle Technologies Holdings Corp. and became a wholly owned direct subsidiary of ParentCo, PCT LLC became a wholly owned direct subsidiary of PureCycle Technologies Holdings Corp. and a wholly owned indirect subsidiary of ParentCo, and ParentCo changed its name to PureCycle Technologies, Inc. The Company’s common stock, units and warrants are now listed on the Nasdaq Capital Market (“NASDAQ”) under the symbols “PCT,” “PCTTU” and “PCTTW,” respectively.
In connection with the Business Combination, ROCH entered into subscription agreements with certain investors (the “PIPE Investors”), whereby it issued 25.0 million shares of common stock at $10.00 per share (the “PIPE Shares”) for an aggregate purchase price of $250.0 million (the “PIPE Financing”), which closed simultaneously with the consummation of the Business Combination. Upon the Closing of the Business Combination, the PIPE Investors were issued shares of the Company’s common stock.

Legacy PCT unitholders will be issued up to 4.0 million additional shares of the Company’s common stock if certain conditions are met (“the Earnout”). The Legacy PCT unitholders will be entitled to 2.0 million shares if after six months after the Closing and prior to or as of the third anniversary of the Closing, the closing price of the common stock is greater than or equal to $18.00 over any 20 trading days within any 30-trading day period. The Legacy PCT unitholders will be entitled to 2.0 million shares upon the commercial-scale plant in Ironton, Ohio (the “Phase II Facility”) becoming operational, as certified by Leidos Engineering, LLC (“Leidos”), an independent engineering firm, in accordance with criteria established in agreements in connection with construction of the plant.
In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $27.9 million related to the equity issuance, consisting primarily of investment banking and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds.
The Company incurred approximately $5.2 million of expenses primarily related to advisory, legal, and accounting fees in conjunction with the Business Combination. Of this, $3.2 million was recorded in general and administrative expenses on the consolidated statement of comprehensive loss for the six months ended June 30, 2021.
Unless the context otherwise requires, “Registrant,” “PureCycle,” “Company,” “PCT,” “we,” “us,” and “our” refer to PureCycle Technologies, Inc., and its subsidiaries at and after the Closing and give effect to the Closing. “Legacy
12

PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
PCT”, “ROCH” and “ParentCo” refer to PureCycle Technologies LLC, ROCH and ParentCo, respectively, prior to the Closing.
The aggregate consideration for the Business Combination was $1,156.9 million, payable in the form of shares of the ParentCo Common Stock and assumed indebtedness.
The following summarizes the merger consideration (in thousands except per share information):
Total shares transferred83,500 
Value per share$10.00 
Total Share Consideration$835,000 
Assumed indebtedness
Revenue Bonds249,600 
The Convertible Notes60,000 
Term Loan314 
Related Party Promissory Note12,000 
Total merger consideration$1,156,914 
The following table reconciles the elements of the Business Combination to the condensed consolidated statement of cash flows for the six months ended June 30, 2021 (in thousands):
Cash - ROCH Trust and cash (net of redemptions)$76,510 
Cash - PIPE250,000 
Less transaction costs(28,049)
Net Business Combination and PIPE financing$298,461 
In addition to cash received by the Company at the Close of the Business Combination, the Company assumed a warrant liability from ROCH measured at $4.6 million at March 18, 2021.
Refer to Note 6 – Warrants for further information.
Basis of Presentation
The accompanying condensed consolidated interim financial statements include the accounts of the Company. The condensed consolidated interim financial statements are presented in U.S. Dollars. Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and transactions were eliminated upon consolidation. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes of Legacy PCT for the fiscal year ended December 31, 2020 as filed on July 1, 2021 in our prospectus filed pursuant to Rule 424(b)(3) of the Securities Act. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2021. The accompanying condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with the report classifications of the six months ended June 30, 2021, noting the Company has reflected the reverse recapitalization pursuant to the Business
13

PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Combination for all periods presented within the unaudited condensed consolidated balance sheets and statements of stockholders’ equity.
Reverse Recapitalization
The Business Combination was accounted for as a reverse recapitalization and ROCH was treated as the “acquired” company for accounting purposes. The Business Combination was accounted for as the equivalent of Legacy PCT issuing stock for the net assets of ROCH, accompanied by a recapitalization. Accordingly, all historical financial information presented in these condensed consolidated interim financial statements represents the accounts of Legacy PCT “as if” Legacy PCT is the predecessor to the Company. The units and net loss per unit, prior to the Business Combination, have been adjusted to share amounts reflecting the exchange ratio established in the Business Combination.
Potential Impact of COVID-19 on the Company’s Business
With the global spread of the COVID-19 pandemic and the local, state and federal responses to the pandemic applicable to the Company’s corporate headquarters, its Ironton, Ohio plant operations, and employees and potentially the Augusta Facility, the Company has implemented policies and procedures to continue its operations under minimum business operations guidelines. The extent to which the COVID-19 pandemic and the restrictions resulting from the pandemic impact the Company’s business, financial condition or results of operations will depend on future developments, which are highly uncertain and cannot be accurately predicted.
Liquidity
The Company has sustained recurring losses and negative cash flows from operations since its inception. As reflected in the accompanying condensed consolidated interim financial statements, the Company has not yet begun commercial operations and does not have any sources of revenue. In prior periods, substantial doubt was raised about the ability of Legacy PCT to continue as a going concern. The Company believes that the total capital raised through the Business Combination is sufficient to adequately fund its future obligations for at least one year from the date the condensed consolidated interim financial statements are available to be issued. As of June 30, 2021, and December 31, 2020, the Company had an unrestricted cash balance of $37.7 million and $64.5 million, respectively, working capital of $198.3 million and $31.9 million, respectively, and an accumulated deficit of $129.5 million and $84.6 million, respectively. For the six months ended June 30, 2021 and 2020, the Company incurred a net loss of $45.4 million and $9.0 million, respectively.
Emerging Growth Company
At June 30, 2021, we qualified as an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we have taken and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have opted to take advantage of such extended transition period available to emerging growth companies which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard.


14

PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at date of inception to be cash and cash equivalents. As of June 30, 2021, the Company’s cash and cash equivalents balance represents cash and money market funds deposited with financial institutions, as well as commercial paper with maturities of 90 days or less at acquisition. As of December 31, 2020, the Company’s cash and cash equivalents balance represents cash deposited with financial institutions. These balances may exceed federally insured limits; however, the Company believes the risk of loss is low.
Investments

The Company accounts for its investment in Debt Securities in accordance with ASC 320, Investments – Debt Securities. The fair value for fixed-rate debt securities is based on quoted market prices for the same or similar debt instruments and is classified as Level 2. All investment holdings as of June 30, 2021 have been classified as Available for Sale. The Company did not hold any investments in Debt Securities as of December 31, 2020. The Company classifies its Debt Securities investments as current assets as they are highly liquid and the related funds are available for use in current operations.

Income Taxes
To calculate the interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate and applies that to its ordinary quarterly earnings. The effect of changes in the enacted tax laws or rates is recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and judgments including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in other jurisdictions, permanent differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or the tax environment changes.
Furthermore, in December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new guidance affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The Company adopted the ASU during the first quarter of 2021 using a prospective approach. The adoption of the ASU did not have a material impact on the Company’s condensed consolidated financial statements.
Warrants

The Company evaluates all of its financial instruments, including issued warrants, to determine if such instruments are liability classified, pursuant to ASC 480 - Distinguishing Liabilities from Equity (“ASC 480”) or derivatives or contain features that qualify as embedded derivatives pursuant to ASC 815 – Derivatives and Hedging (“ASC 815”). The classification of instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Issuance costs incurred with the Business Combination that are attributable to liability classified warrants are expensed as incurred.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In July 2018, ASU 2018-10, Codification Improvements to Topic 842, Leases, was issued to provide more detailed guidance and additional clarification for implementing ASU 2016-02. Furthermore, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method in addition to the existing modified retrospective transition method by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Furthermore, on June 3, 2020, the FASB deferred by one year the effective date of the new leases standard for private companies, private not-for-profits (“NFPs”) and public NFPs that have not yet issued (or made available for
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PureCycle Technologies, Inc.
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(Unaudited)
issuance) financial statements reflecting the new standard. These new leasing standards are effective for the Company beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the effect of the adoption of this guidance on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”), which, together with subsequent amendments, amends the requirement on the measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company beginning December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of evaluating the effects of this pronouncement on the Company's financial statements and does not expect it to have a material impact on the consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. Two methods of transition were permitted upon adoption: full retrospective and modified retrospective. The Company elected to apply the modified retrospective adoption approach to all contracts. Under this approach, prior periods were not restated. Rather, convertible notes and other disclosures for prior periods were provided in the notes to the financial statements as previously reported under ASC 470-20, and the cumulative effect of initially applying the guidance was recognized as an adjustment to Notes payable, Additional paid-in-capital (“APIC”), and Accumulated deficit.
As a result of applying the modified retrospective method to adopt ASU 2020-06, adjustments were made to the consolidated balance sheets as of December 31, 2020 and the below illustrates how the notes payable, APIC, and accumulated deficit balances would be effected as of January 1, 2021 (in thousands, as adjusted to show the effect of the reverse recapitalization as described in Note 1):
December 31, 2020January 1, 2021
As reportedAdjustmentsAs adjusted
Notes payable$26,599 $30,638 $57,237 
APIC192,381 (31,075)161,306 
Accumulated deficit$84,563 $437 $85,000 
NOTE 3 – NOTES PAYABLE AND DEBT INSTRUMENTS
Secured Term Loan
Enhanced Capital Ohio Rural Fund, LLC
On February 28, 2019, Legacy PCT entered into a subordinated debt agreement with Enhanced Capital Ohio Rural Fund, LLC. The agreement provides for principal of $1.0 million with an interest rate of the U.S. Federal prime rate per annum.
As of June 30, 2021, and December 31, 2020, the outstanding balance of the loan is $0. On October 7, 2020, upon the closing of the revenue bond offering, the full outstanding balance was paid off. Legacy PCT incurred $8 thousand and $20 thousand of interest cost during the three and six months ended June 30, 2020, respectively.




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PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Promissory Notes
Koch Modular Process Systems Secured Promissory Note
On December 20, 2019, Legacy PCT entered into an agreement with Koch Modular Process Systems LLC (“KMPS”) to convert the current balance of Account Payable due to KMPS into a promissory note. Legacy PCT issued a Secured Promissory Note for a principal amount of $1.7 million with a maximum advance of funds up to $3.0 million. During the six months ended June 30, 2020, Legacy PCT converted $945 thousand of Accounts Payable into the note. The rate of interest on the loan balance is 21% per annum through the month of November 2019 and 24% per annum for December 2019 and thereafter.
As of June 30, 2021, and December 31, 2020, the outstanding balance on the promissory note is $0. On October 7, 2020, upon the closing of the revenue bond offering, the full outstanding balance was paid off. Legacy PCT incurred $134 thousand and $235 thousand of interest cost during the three and six months ended June 30, 2020, respectively.
Denham-Blythe Company, Inc. Secured Promissory Note
On December 20, 2019, Legacy PCT and Denham-Blythe Company, Inc. (“DB”) entered into an agreement to convert the current balance of Account Payable due to DB into a promissory note. Legacy PCT issued a Secured Promissory Note for a principal amount of $2.0 million. The rate of interest on the loan balance is 24% per annum for December 2019 and thereafter with interest on the loan payable monthly.
As of June 30, 2021 and December 31, 2020, the outstanding balance on the promissory note is $0. On October 7, 2020, upon the closing of the revenue bond offering, the full outstanding balance was paid off. Legacy PCT incurred $122 thousand and $243 thousand of interest cost during the three and six months ended June 30, 2020, respectively. As the promissory note was used to construct the Company’s property, plant and equipment, a portion of the interest cost incurred was capitalized within Property, Plant and Equipment.
Promissory Note to Related Party
Innventus Fund I, LP
On July 19, 2019, Legacy PCT entered into a Note and Warrant Financing agreement with Innventus Fund I, LP (now known as Innventus ESG Fund I L.P.) to obtain a $600 thousand loan and warrant financing. The Negotiable Promissory Note had a maturity date of October 21, 2019, and an interest rate of 1-month LIBOR plus 8.0%. The aggregate unpaid principal amount of the loan and all accrued and unpaid interest is due on the maturity date. Legacy PCT repaid the principal and all accrued and unpaid interest on February 5, 2020. Legacy PCT incurred $0 and $5 thousand of interest cost during three and six months ended June 30, 2020, respectively.
Auto Now Acceptance Company, LLC
On May 5, 2017, Legacy PCT entered into a revolving line of credit facility (the “Credit Agreement”) with Auto Now Acceptance Company, LLC, a related party.
On May 3, 2018, the Credit Agreement was amended and restated in its entirety and secured by a Security Agreement dated May 3, 2018. The credit facility was increased to $14.0 million, bearing interest at a rate of LIBOR plus 6.12% per annum, payable monthly. The maturity date was extended to August 15, 2018.
On July 31, 2018, the Credit Agreement was amended to extend the maturity date to February 15, 2019. Under the agreement, the Auto Now’s advances of funds to Legacy PCT ceased on July 31, 2018.
On May 29, 2020, Legacy PCT executed a Second Amended and Restated the Security Agreement and entered into a Third Amended and Restated Promissory Note agreement to extend the financing on the loan from Auto Now Acceptance Company, LLC. The agreement extended the maturity date of the loan to June 30, 2021 and adjusted the interest rate on the third amended loan agreement. The security interests include inventory, equipment, accounts receivables and all the Company’s assets. The interest rate within the amendment increased as follows:
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PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
The annual rate of the 1-month LIBOR in U.S. dollars plus 6.12% adjusted daily, from May 3, 2018 through May 18, 2020
12% per annum from May 19, 2020 through August 31, 2020
16% per annum from September 1, 2020 through December 31, 2020
24% per annum from January 1, 2021 through June 30, 2021
As of June 30, 2021 and December 31, 2020, the outstanding balance on the credit facility is $0. On December 21, 2020, Legacy PCT repaid the outstanding balance on the note. Legacy PCT incurred $351 thousand and $705 thousand of interest cost during the three and six months ended June 30, 2020, respectively. As the promissory note was used to construct the Company’s property, plant and equipment, a portion of the interest cost incurred was capitalized within Property, Plant and Equipment.
Advances from Related Parties
During 2019 and 2020, Legacy PCT received $746 thousand of funding and support services from Innventure1 LLC (formerly Innventure LLC) and Wasson Enterprises. On March 26, 2020, $375 thousand of the balance was repaid. The remaining balance of $371 thousand was assigned from Wasson Enterprise to Innventure LLC (Formerly WE-Innventure LLC).
Convertible Notes
On October 6, 2020, Legacy PCT entered into a Senior Notes Purchase Agreement (the “Agreement”) with certain investors. The Agreement provides for the issuance of Senior Convertible Notes (the “Notes”), which have an interest rate of 5.875% and mature on October 15, 2022 (the “Maturity Date”) and are subject to a six-month maturity extension at the Company’s option with respect to 50% of the then outstanding Notes on a pro rata basis, unless repurchased or converted prior to such date (“Maturity Date Extension”). The initial closing took place on the date of the Indenture on October 7, 2020 (the “First Closing”), upon which $48.0 million in aggregate principal of Notes were issued to the Investors (“the Magnetar Investors”). The Agreement also includes an obligation for the Company to issue and sell, and for each of the Magnetar Investors to purchase, Notes in the principal amount of $12.0 million within 45 days after the Company enters into the Merger Agreement as defined in Note 1 (“Second Closing Obligation”). On December 29, 2020, the remaining Notes were purchased in accordance with the Agreement. On April 15, 2021, the first interest payment of $1.7 million was paid entirely in kind, which increased the principal amount of the Convertible Notes by $1.7 million (“PIK Interest”). The Notes are convertible through the Maturity Date at the option of the holder. Following the consummation of the Business Combination, however, each holder was required to agree not to convert its Notes (except in connection with a Change of Control or Fundamental Change (each as defined in the Indenture) for a period not to exceed one hundred eighty (180) days following the consummation of the Business Combination, or September 13, 2021). As of June 30, 2021 and December 31, 2020, none of the Notes were converted into shares of common stock. The Notes are recorded within notes payable in the condensed consolidated balance sheet. As the Notes were used to construct the Company’s property, plant and equipment, a portion of the interest costs incurred were capitalized within property, plant and equipment.
The following provides a summary of the interest expense of PCT’s convertible debt instruments (in thousands):
Three months ended June 30,Six months ended June 30,
2021202020212020
Contractual interest expense$902 $ $1,783 $ 
Amortization of deferred financing costs439  1,080  
Effective interest rate9.0 % %9.0 % %
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PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
The following provides a summary of the convertible notes (in thousands):
As of
June 30, 2021December 31, 2020
Unamortized deferred issuance costs$2,477 $3,288 
Net carrying amount59,203 56,712 
Fair value$215,543 $123,532 
Fair value levelLevel 3Level 3
As of June 30, 2021, as a result of the Business Combination, the conversion price of the notes changed to the quotient of (A) $1,000 and (B) the SPAC transaction PIPE valuation; provided that if the Equity Value of the Company in connection with the SPAC Transaction is greater than $775.0 million, the conversion rate shall equal the product of (1) the amount that would otherwise be calculated pursuant to this clause set forth above and (2) a fraction equal to the Equity Value of the Company divided by $775.0 million (as such terms are defined in the indenture governing the Notes). The conversion price is $6.93 for potential conversion into approximately 8.9 million shares of common stock.
As of December 31, 2020 the conversion price of the notes was the quotient of $1,000 and the quotient of (A) 80% of the Adjusted Equity Value of the Company as determined based upon the sale of approximately 684 thousand Legacy PCT Class A Units at $87.69 per unit (the “November Investment”) and (B) the number of outstanding shares of Capital Stock of the Company on a Fully-Diluted Basis immediately prior to the November Investment (as such terms are defined in the indenture governing the Notes).
Revenue Bonds
On October 7, 2020, the Southern Ohio Port Authority (“SOPA”) issued certain revenue bonds (“Bonds”) and loaned the proceeds from their sale to PureCycle: Ohio LLC, an Ohio limited liability company (“PCO”), pursuant to a loan agreement dated as of October 1, 2020 between SOPA and PCO (“Loan Agreement”), to be used to (i) acquire, construct and equip the Phase II Facility; (ii) fund a debt service reserve fund for the Series 2020A Bonds; (iii) finance capitalized interest; and (iv) pay the costs of issuing the Bonds. The Bonds were offered in three series, including (i) Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020A (“Series 2020A Bonds”); (ii) Subordinate Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020B (“Series 2020B Bonds”); and (iii) Subordinated Exempt Facility Revenue Bonds (PureCycle Project), Taxable Series 2020C (“Series 2020C Bonds”), each series in the aggregate principal amount, bearing interest and maturing as shown in the table below. The Series 2020A Bonds were issued at a total discount of $5.5 million. The discount is amortized over the term of the Bonds using the effective interest method. The purchase price of the Bonds was paid and immediately available to SOPA on October 7, 2020, the date of delivery of the Bonds to their original purchaser. PureCycle is not a direct obligor on the Bonds and is not a party to the Loan Agreement or the indenture of trust dated as of October 1, 2020 (“Indenture”), between SOPA and UMB Bank, N.A as trustee (“Trustee”), pursuant to which the Bonds have been issued. Legacy PCT has executed a guaranty of completion dated as of October 7, 2020 (“Completion Guaranty”), with respect to the full and complete performance by PCO of PCO’s obligations with respect to construction and completion of the Project, including construction by the Completion Date, free and clear of any liens (other than permitted liens), and the payment of all Project costs incurred prior to completion of the Project, and all claims, liabilities, losses and damages owed by PCO to each counterparty under the Project Documents (as such terms are defined in the Indenture). In addition, pursuant to the Guaranty, PureCycle is obligated to fund and maintain a liquidity reserve for the Project during the term of the Guaranty in the amount of $