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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 March 31, 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-20210331_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 May 19, 2021, there were approximately 117,349,281 shares of the registrant's common stock outstanding, par value $0.001 per share, outstanding.


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 March 31, 2021 and December 31, 2020
Unaudited Condensed Consolidated statements of operations for the Three months ended March 31, 2021 and 2020
Unaudited Condensed Consolidated statements of stockholders equity for the Three months ended March 31, 2021 and 2020
Unaudited Condensed Consolidated statements of cash flows for the Three months ended March 31, 2021 and 2020


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; the anticipated benefits of the Business Combination, and the financial condition, results of operations, earnings outlook and prospects of PCT. Forward-looking statements generally relate to future events or our 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 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 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
securities class action cases;

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



PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION (CONTINUED)
•    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, 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.




















PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
(in thousands except per share data)March 31, 2021December 31, 2020
CURRENT ASSETS
Cash$252,549 $64,492 
Prepaid royalties and licenses4,575 2,890 
Prepaid expenses and other current assets2,216 446 
Total current assets259,340 67,828 
Restricted cash317,535 266,082 
Property, plant and equipment, net108,388 70,218 
TOTAL ASSETS$685,263 $404,128 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable$1,481 $1,058 
Accrued expenses18,452 26,944 
Accrued interest10,428 4,951 
Notes payable – current265 122 
Total current liabilities30,626 33,075 
NON-CURRENT LIABILITIES
Deferred research and development obligation1,000 1,000 
Deferred revenue5,000  
Notes payable57,224 26,477 
Bonds payable231,809 235,676 
Warrant liability18,258  
TOTAL LIABILITIES$343,917 $296,228 
COMMITMENT AND CONTINGENCIES  
STOCKHOLDERS' EQUITY
Common shares - $0.001 par value, 250,000 shares authorized; 117,349 and 0 shares issued and outstanding as of March 31, 2021 and 2020, respectively
117  
Class A Units - no par value; 0 and 3,981 units authorized; 0 and 3,612 units issued and outstanding as of March 31, 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 March 31, 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 March 31, 2021 and December 31, 2020
 16 
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 March 31, 2021 and December 31, 2020
 7 
Additional paid-in capital455,475 192,381 
Accumulated deficit(114,246)(84,563)


PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
TOTAL STOCKHOLDERS' EQUITY341,346 107,900 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$685,263 $404,128 
The accompanying notes are an integral part of these financial statements.


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

Three months ended March 31,
20212020
(in thousands except per share data)
Costs and expenses
Operating costs$2,130 $1,683 
Research and development547 348 
Selling, general and administrative7,624 1,238 
Total operating costs and expenses10,301 3,269 
Interest expense6,089 588 
Change in fair value of warrants13,621 655 
Other expense109 52 
Total other expense19,819 1,295 
Net loss$(30,120)$(4,564)
Loss per share
Basic and diluted$(0.59)$(0.19)
Weighted average common shares
Basic and diluted51,223 27,156 
The accompanying notes are an integral part of these financial statements.


PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three Months Ended March 31, 2021
Common stockClass AClass B PreferredClass B-1 PreferredClass C
(in thousands)SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountAdditional paid-in capitalAccumulated 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 


PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three Months Ended March 31, 2020
Common stockClass AClass B PreferredClass B-1 PreferredClass C
(in thousands)SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountAdditional paid-in capitalAccumulated 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 — — 11,569 — 11,574 
Issuance of units upon vesting of 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 
The accompanying notes are an integral part of these financial statements.


PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
(in thousands)20212020
Cash flows from operating activities
Net loss$(30,120)$(4,564)
Adjustments to reconcile net loss to net cash used in operating activities

Equity-based compensation307 417 
Fair value change of warrants13,621 655 
Depreciation expense490 465 
Accretion of debt instrument discounts57  
Amortization of debt issuance costs784  
Issuance costs attributable to warrants109  
Changes in operating assets and liabilities
Prepaid expenses and other current assets(1,770)(69)
Prepaid royalties and licenses(1,685) 
Accounts payable423 (987)
Accrued expenses(13,037)(78)
Accrued interest5,253 (758)
Deferred revenue5,000  
Net cash used in operating activities$(20,568)$(4,919)
Cash flows from investing activities
Construction of plant(33,891)(763)
Net cash used in investing activities$(33,891)$(763)
Cash flows from financing activities
Proceeds from secured term loan  
Proceeds from promissory note91  
Payments on promissory note from related parties (600)
Payments on advances from related parties (2,333)
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  11,574 
Payments on redemption of vested Legacy PCT profit interests(36) 
Net cash provided by financing activities$293,969 $8,641 
Net increase in cash239,510 2,959 
Cash, beginning of period330,574 150 
Cash, end of period$570,084 $3,109 
Supplemental disclosure of cash flow information
Non-cash operating activities
Interest paid during the period, net of capitalized interest $ $456 
Non-cash investing activities
Additions to property, plant, and equipment in accrued expenses$16,437 $280 
Additions to property, plant, and equipment in accrued interest$224 $12 
Non-cash financing activities
Conversion of accounts payable to promissory notes$ $661 
Initial fair value of acquired warrant liability$4,604 $ 
The accompanying notes are an integral part of these financial statements.


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 Procter & Gamble (“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.
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 (“Merger Sub LLC”), Roth CH Merger Sub Corp., a Delaware corporation and wholly owned direct subsidiary of Parent Co (“Merger Sub Corp”) 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”).
Immediately 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 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 operations for the three months ended March 31, 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 PCT”, “ROCH” and “ParentCo” refer to PureCycle Technologies LLC, ROCH and ParentCo, respectively, prior to the Closing.


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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.
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 three months ended March 31, 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 March 22, 2021 in our prospectus filed pursuant to Rule 424(b)(3) of the Securities Act. The results of operations for the three months ended March 31, 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


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Certain amounts in prior periods have been reclassified to conform with the report classifications of the three months ended March 31, 2021, noting the Company has reflected the reverse recapitalization pursuant to the Business 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 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 resulting shelter-in-place orders covering the Company’s corporate headquarters, its Ohio plant operations, and employees, the Company has implemented policies and procedures to continue its operations under minimum business operations guidelines. The extent to which the COVID-19 pandemic impacts 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 March 31, 2021, and December 31, 2020, the Company had an unrestricted cash balance of $252.5 million and $64.5 million, respectively, working capital of $228.7 million and $34.8 million, respectively, and an accumulated deficit of $114.2 million and $84.6 million, respectively. For the three months ended March 31, 2021 and 2020, the Company incurred a net loss of $30.1 million and $4.6 million.
Emerging Growth Company
At March 31, 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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 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


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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 March 31, 2021, and December 31, 2020, the outstanding balance of the loan is $0. On October 7, 2020, upon the closing of the bond offering, the full outstanding balance was paid off. Legacy PCT incurred $12 thousand of interest cost during the three months ended March 31, 2020.
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 three months ended March 31, 2020, Legacy PCT converted $661 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 March 31, 2021, and December 31, 2020, the outstanding balance on the promissory note is $0. On October 7, 2020, upon the closing of the bond offering, the full outstanding balance was paid off. Legacy PCT incurred $102 thousand of interest cost during the three months ended March 31, 2020.
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 March 31, 2021 and December 31, 2020, the outstanding balance on the promissory note is $0. On October 7, 2020, upon the closing of the bond offering, the full outstanding balance was paid off. Legacy PCT incurred $121 thousand of interest cost during the three months ended March 31, 2020. As the promissory note was used to


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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 to obtain a $600 thousand loan and warrant financing. The Negotiable Promissory Note has 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 $5 thousand of interest cost during the three months ended March 31, 2020.
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 31, 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:
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 March 31, 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 $355 thousand of interest cost during the three months ended March 31, 2020. 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 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


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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 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. The Notes are convertible through the Maturity Date at the option of the holder. As of March 31, 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 March 31,
20212020
Contractual interest expense$881 $ 
Amortization of deferred financing costs641  
Effective interest rate9.1 % %
The following provides a summary of the convertible notes (in thousands):
As of
March 31, 2021December 31, 2020
Unamortized deferred issuance costs$2,916 $3,288 
Net carrying amount57,084 56,712 
Fair value$231,916 $123,532 
Fair value levelLevel 3Level 3
As of March 31, 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 Convertible Notes). The conversion price is $6.93 for potential conversion into approximately 8.66 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 Convertible 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,


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
construct and equip the Ohio Plant; (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. PureCycle has executed a guaranty of completion dated as of October 7, 2020, 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 Loan Agreement). 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 $50.0 million to be held in an escrow account with U.S. Bank, N.A., as escrow agent (“Liquidity Reserve”). Pursuant to the terms of the Loan Agreement PCO executed promissory notes, one in the aggregate principal amount of each series of Bonds, in favor of SOPA, which were assigned to the Trustee on October 7, 2020.
(in thousands)
Bond SeriesTermPrincipal AmountInterest RateMaturity Date
2020AA1$12,370 6.25 %December 1, 2025
2020AA2$38,700 6.50 %December 1, 2030
2020AA3$168,480 7.00 %December 1, 2042
2020BB1$10,000 10.00 %December 1, 2025
2020BB2$10,000 10.00 %December 1, 2027
2020CC1$10,000 13.00 %December 1, 2027
The proceeds of the Bonds and certain equity contributions have been placed in various trust funds and non-interest-bearing accounts established and administered by the Trustee under the Indenture. Before each disbursement of amounts in the Project Fund held by the Trustee under the Indenture, PCO is required to submit to the Trustee a requisition for funds to be disbursed outlining the specified purpose of the disbursement and substantiating the expenditure. In addition, 100% of revenue attributable to the production of commercial-scale plant in Ironton, Ohio (the “Phase II Facility”) must be deposited into an operating revenue escrow fund held by U.S. Bank National Association, as escrow agent. Funds in the trust accounts and operating revenue escrow account will be disbursed by the Trustee when certain conditions are met, and will be used to pay costs and expenditures related to the development of the Phase II Facility, make required interest and principal payments (including sinking fund redemption amounts) and any premium, in certain circumstances required under the Indenture, to redeem the Bonds.
As conditions for closing the Bonds, PureCycle and certain affiliates contributed $60.0 million in equity at closing and contributed an additional $40.0 million in equity upon the Closing of the Business Combination. PureCycle provided the Liquidity Reserve for the Ohio Plant construction of $50.0 million and deposited the amount upon the Closing of the Business Combination. In addition, PureCycle must maintain at least $75.0 million of cash on its balance sheet as of July 31, 2021 and $100.0 million of cash on its balance sheet as of January 31, 2022, in each case, including the Liquidity Reserve.


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
The Bonds are recorded within Bonds payable in the condensed consolidated balance sheet. The Company incurred $4.8 million and $0, respectively, of interest cost during the three months ended March 31, 2021 and 2020. As the Bond proceeds will be used to construct the Company’s property, plant and equipment, a portion of the interest costs incurred was capitalized within Property, Plant and Equipment.
Paycheck Protection Program
On May 4, 2020, Legacy PCT entered into a Paycheck Protection Program (the “Program”, or “PPP loan”) Term Note with PNC Bank to obtain principal of approximately $314 thousand. This Note is issued pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (the “CARES Act”) (P.L. 116-136) Paycheck Protection Program. During a period from May 4, 2020 until the forgiveness amount is known, (“Deferral Period”), interest on the outstanding principal balance will accrue at the Fixed Rate of 1% per annum, but neither principal nor interest shall be due during the Deferral Period. Legacy PCT has applied for loan forgiveness as of December 31, 2020 but as of March 31, 2021 has not yet received the forgiveness amount. All or a portion of this PPP loan may be forgiven in accordance with the program requirements. The amount of forgiveness shall be calculated in accordance with the requirements of the Program, including provisions of Section 1106 of the CARES Act. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first ten months.
As of March 31, 2021 and December 31, 2020, the outstanding balance on the loan is approximately $314 thousand. $174 thousand and $122 thousand are recorded as notes payable – current and $140 thousand and $192 thousand are recorded as notes payable in the condensed consolidated balance sheets.
NOTE 4 - STOCKHOLDERS’ EQUITY
The condensed consolidated statements of stockholders’ equity reflect the reverse recapitalization as discussed in Note 1 as of March 17, 2021. As Legacy PCT was deemed the accounting acquirer in the reverse recapitalization with ROCH, all periods prior to the consummation date reflect the balances and activity of Legacy PCT. The consolidated balances and the audited consolidated financial statements of Legacy PCT, as of December 31, 2020, and the share activity and per share amounts in these condensed consolidated statements of equity were retroactively adjusted, where applicable, using the recapitalization exchange ratio of 10.52 for Legacy PCT Class A Units. Legacy PCT Class B Preferred Units were converted into shares of PCT common stock at a share conversion factor of 10.642 whereas Legacy PCT Class B-1 Preferred Units were converted into shares of PCT common stock at a share conversion factor of 14.768 as a result of the reverse recapitalization. Legacy PCT Class C Units were converted into shares of PCT common stock at a share conversion factor of 9.32, 7.40, or 2.747, based on the distribution threshold of the Class C Unit.
Common Stock
Holders of PCT common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. The holders do not have cumulative voting rights in the election of directors. Upon the Company’s liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of the Company’s common stock will be entitled to receive pro rata the Company’s remaining assets available for distribution. Holders of the Company’s common stock do not have preemptive, subscription, redemption or conversion rights. All shares of the Company’s common stock are fully paid and non-assessable. The Company is authorized to issue 250.0 million shares of common stock with a par value of $0.001. As of March 31, 2021 and December 31, 2020, 117.35 million and 0 shares are issued and outstanding, respectively.
Preferred Stock
As of March 31, 2021, the Company is authorized to issue 25.0 million shares of preferred stock with a par value of $0.001, of which no shares are issued and outstanding.
NOTE 5 - EQUITY-BASED COMPENSATION
2021 Equity Incentive Plan


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
In connection with the Business Combination, on March 17, 2021, our stockholders approved the PureCycle Technologies, Inc. 2021 Equity and Incentive Compensation Plan (the “Plan”).
The Plan provides for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents, and certain other awards. As of March 31, 2021, approximately 8.28 million shares of common stock are reserved for issuance under the Plan.
Restricted Stock Agreements
In connection with the Closing, on March 17, 2021, PCT entered into restricted stock agreements with various PureCycle employees who held unvested Legacy PCT Class C Units at the Closing (the “Restricted Stock Agreements”). The outstanding unvested Legacy PCT Class C Units, issued pursuant to the PCT Technologies LLC Amended and Restated Equity Incentive Plan, were converted to PCT’s restricted shares, subject to the same vesting schedule and forfeiture restrictions as the unvested Legacy PCT Class C Units they replace.
The shares issued pursuant to the Restricted Stock Agreements are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the agreement. The Company has the option to repurchase all vested shares upon a stockholder’s termination of employment or service with the Company.
The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the stock is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
20212020
Expected annual dividend yield % %
Expected volatility49.1 %
42.1 - 63.3%
Risk-free rate of return0.1 %
1.6 - 1.7%
Expected option term (years)0.2
1.0 - 4.4
The expected term of the shares granted is determined based on the period of time the shares are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s shares is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares for the three months ended March 31, 2021 was determined using an initial public offering scenario. The fair value of the underlying Company shares for the three months ended March 31, 2020 was determined using a hybrid method consisting of an option pricing method and an initial public offering scenario.
A summary of restricted stock activity for the three months ended March 31, 2021 and 2020 is as follows (in thousands except per share data):


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Number of RSU'sWeighted average grant date fair valueWeighted average remaining recognition period
Non-vested at December 31, 201973 $2.21 
Recapitalized607 (1.97)
Non-vested at December 31, 2019 (after effect of recapitalization)680 0.24 
Granted426 1.95 
Vested(352)1.10 
Forfeited  
Non-vested at March 31, 2020754 $0.80 1.84
Number of RSU'sWeighted average grant date fair valueWeighted average remaining recognition period
Non-vested at December 31, 202091 $11.58 
Recapitalization671 (10.19)
Non-vested at December 31, 2020 (after effect of recapitalization)762 1.39 
Granted143 11.90 
Vested(116)1.10 
Forfeited(17)3.13 
Non-vested at March 31, 2021772 $1.98 2.44
Total equity-based compensation cost for three months ended March 31, 2021 and 2020 totaled approximately $239 thousand and approximately $417 thousand, respectively, and is recorded within the selling, general and administrative expenses and operating costs in the condensed consolidated statements of operations.
Stock Options
The stock options issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan.
The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the stock is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
20212020
Expected annual dividend yield % %
Expected volatility47.5 % %
Risk-free rate of return0.7 % %
Expected option term (years)4.50


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
The expected term of the shares granted is determined based on the period of time the shares are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s shares is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares was determined using the Company’s closing stock price on the grant date.
A summary of stock option activity for the three months ended March 31, 2021 and 2020 is as follows (in thousands except per share data):
Number of OptionsWeighted Average Exercise PriceWeighted
Average
Remaining
Contractual
Term
(Years)
Balance, December 31, 2019 $ 
Granted  
Exercised  
Forfeited  
Balance, March 31, 2020 $ 
Number of OptionsWeighted Average Exercise PriceWeighted
Average
Remaining
Contractual
Term
(Years)
Balance, December 31, 2020 $ 
Granted613 28.90 7
Exercised  — 
Forfeited  — 
Balance, March 31, 2021613 $28.90 7
Exercisable  — 
Total equity-based compensation cost for three months ended March 31, 2021 and 2020 totaled approximately $68 thousand and $0, respectively, and is recorded within the selling, general and administrative expenses within the condensed consolidated statements of operations. The weighted average grant-date fair values of options granted during the three months ended March 31, 2021 and 2020 were $11.41 and $0, respectively. There were no stock options exercised during 2021 or 2020.


NOTE 6 - WARRANTS
Warrants issued to purchase Legacy PCT Class B Preferred Units
On October 16, 2015, Legacy PCT issued a unit purchase warrant to P&G in connection with the patent licensing agreement described in Note 10, for 211 thousand warrants at an aggregate exercise price of $1.00, allowing P&G to purchase a variable number of Legacy PCT Class B Preferred Units during the exercise period of April 15, 2019 through April 15, 2024. The warrants were determined to vest at the start of the exercise period. The number of warrants available to P&G to purchase is equal to an amount that initially represented 5% of all outstanding equity of Legacy PCT on a fully diluted basis. Additionally, the warrant agreement contains an anti-dilution provision, which


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
states that the number of warrants exercisable upon full exercise of the warrant will be subject to adjustment, such that the ownership percentage is not reduced below 2.5% sharing percentage in the Company, on a fully diluted basis.
Legacy PCT determined the warrants issued are liability classified under ASC 480. Accordingly, the warrants were held at their initial fair value and remeasured at fair value at each subsequent reporting date with changes in the fair value presented in the statements of operations.
On October 15, 2020, P&G exercised all 211 thousand of the warrants for total proceeds of $1. The fair value of the Legacy Class B Preferred Units on the date of exercise was $18.17 million and was recorded in APIC. In connection with the exercise, the Company recorded a loss of $211 thousand.
A summary of the Legacy PCT Class B warrant activity for Three months ended March 31, 2020 is as follows (in thousands except per share data):
Number of warrantsWeighted average exercise priceWeighted average grant date fair valueWeighted average remaining contractual term (years)
Outstanding at December 31, 2019211$1.00 $30.63 4.29
Granted   — 
Exercised   — 
Outstanding at March 31, 2020211$1.00 $30.63 4.04
Exercisable211
The Company recognized expense of $0 and $655 thousand for the three months ended March 31, 2021 and 2020, respectively, in connection with these warrants, which was recorded within the Change in fair value of warrants line item in the condensed consolidated statements of operations. The warrants were exercised in the fourth quarter of 2020, therefore there was no activity in the first quarter of 2021.
Warrants issued to purchase Legacy PCT Class B-1 Preferred Units
On June 5, 2019, in connection with a Legacy PCT Class B-1 Preferred Unit purchase agreement with a related party, Legacy PCT issued a unit purchase warrant for 8 thousand warrants at an exercise price of $37.61, allowing the related party to purchase a variable number of Legacy PCT Class B-1 Preferred Units during the exercise period of June 5, 2019 through June 4, 2024.
Legacy PCT determined the warrants are not a freestanding instrument under ASC 480. Also, the warrants are determined to be clearly and closely related to the Legacy PCT Class B-1 Preferred Units under ASC 815, Derivatives and Hedging. Accordingly, they are not recorded in the financial statements until exercised. On March 12, 2021, the warrants were cancelled prior to the closing of the Business Combination.
On July 22, 2019, in connection with a bridge note and warrant financing agreement with Innventus Fund I, L.P. (now known as Innventus ESG Fund I L.P.), Legacy PCT issued a unit purchase warrant for 5 thousand warrants at an exercise price of $37.61, allowing Innventus to purchase a variable number of Legacy PCT Class B-1 Preferred Units during the exercise period of July 22, 2019 through July 22, 2024.
Legacy PCT determined the warrants issued are equity classified under ASC 480. Accordingly, the warrants were held at their initial fair value with no subsequent remeasurement. On March 12, 2021, the warrants were cancelled prior to the closing of the Business Combination.
A summary of the Class B-1 warrant activity for the years ended December 31, 2020 and 2019 is as follows (in thousands except per share data):


PureCycle Technologies, Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Number of warrantsWeighted average exercise priceWeighted average grant date fair valueWeighted average remaining contractual term (years)
Outstanding at December 31, 20195$37.61 $15.52 4.56
Granted0
Exercised0
Outstanding at March 31, 20205$37.61 $15.52 4.31
Outstanding at December 31, 2020
5$37.61 $15.52 3.56
Granted