Spectaire Holdings (SPEC) Risk Factors

Spectaire's operating results and financial condition have historically fluctuated, and Spectaire's operating results and financial condition are expected to continue to fluctuate, from quarter-to-quarter and year-to-year due to a number of factors, many of which will not be within Spectaire's control. Both Spectaire's business and air quality measurement systems industry are changing and evolving rapidly, and Spectaire's historical operating results may not be useful in predicting Spectaire's future operating results. If Spectaire's operating results do not meet the guidance that it provides to the marketplace or the expectations of securities analysts or investors, the market price of Spectaire's common stock will likely decline. Fluctuations in Spectaire's operating results and financial condition may be due to a number of factors, including: - the degree of market acceptance of its products and services;- its ability to compete with the competitors and new entrants into the markets in which it operates;- the mix of services that it sells during any period;- the timing of its sales and deliveries of its products to customers;- the geographic distribution of its sales;- changes in its pricing policies or those of its competitors, including its response to price competition;- changes in the amount that it spends to develop and manufacture new services or technologies;- changes in the amounts that it spends to promote its products and services;- changes in the cost of satisfying its warranty obligations and servicing its installed customer base;- expenses and/or liabilities resulting from litigation;- delays between its expenditures to develop and market new or enhanced technologies and services and the generation of revenue from those technologies and services;- unforeseen liabilities or difficulties in integrating its acquisitions or newly acquired businesses;- disruptions to its IT systems or third-party contract manufacturers;- general economic and industry conditions that affect customer demand; and - changes in accounting rules and tax laws. In addition, Spectaire's revenues and operating results may fluctuate from quarter-to-quarter and year-to-year due to its sales cycle and seasonality among its customers. Generally, Spectaire expects the air quality measurement systems market to be subject to the adoption and capital expenditure cycles of its customers. As a result, Spectaire expects to conduct a larger portion of its business during the first and fourth quarters of its fiscal year relative to the second and third quarters. Additionally, for more complex solutions, which may require additional facilities investment, potential customers may spend a substantial amount of time performing internal assessments prior to making a purchase decision. This may cause Spectaire to devote significant effort in advance of a potential sale without any guarantee of receiving any related revenues. As a result, revenues and operating results for future periods are difficult to predict with any significant degree of certainty, which could lead to adverse effects on Spectaire's inventory levels and overall financial condition. Due to the foregoing factors, and the other risks discussed in this Annual Report, you should not rely on Spectaire's historical operating results as an indicator of Spectaire's future performance.

Historically, Spectaire's primary sources of liquidity have been cash flows from contributions from founders or other investors. Spectaire reported operating losses for the years ended December 31, 2023 and 2022. The Company reported negative cash flows from operations of $7,374,497 and $365,813 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, Spectaire had an aggregate cash balance of $342,996 and a net working capital deficit of $25,370,057. As of December 31, 2023, the Company had approximately $0.3 million in cash and cash equivalents. The Company will utilize its existing cash balance and the proceeds, if any, from the exercise of the Warrants for its near-term liquidity and operating needs. However, in order to fund planned operations while meeting obligations as they come due, the Company will need to secure additional capital. The Company's future capital requirements will depend on many factors, including its revenue growth rate, the timing and extent of spending to support further sales and marketing and research and development efforts. In order to finance these opportunities, Spectaire will need to raise additional financing. While there can be no assurances, the Company intends to raise such capital through additional debt or equity financing transactions, including the sale of shares of Common Stock to Keystone pursuant to the Common Stock Purchase Agreement, subject to the terms and conditions therein. Although the Common Stock Purchase Agreement provides that the Company may, in its sole discretion, from time to time during the term of the Common Stock Purchase Agreement, and on the terms and subject to the conditions set forth therein, direct Keystone to purchase shares of Common Stock from the Company in one or more purchases under the Common Stock Purchase Agreement for a maximum aggregate purchase price of up to $20.0 million, the Company may not issue or sell any shares of Common Stock under the Common Stock Purchase Agreement if such issuance or sale would breach any applicable Nasdaq rules. Under the applicable Nasdaq rules, in no event may the Company issue to Keystone under the Common Stock Purchase Agreement more than the Exchange Cap, equal to 3,067,438 shares of Common Stock (representing 19.99% of the total number of our shares of Common Stock issued and outstanding immediately prior to the execution of the Common Stock Purchase Agreement), unless the Company obtains stockholder approval to issue shares of Common Stock in excess of the Exchange Cap or unless sales of Common Stock are made at a price equal to or greater than $2.23 per share, such that the Exchange Cap limitation would not apply under applicable Nasdaq rules. The Common Stock Purchase Agreement also prohibits the Company from directing Keystone to purchase any shares of our Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by Keystone (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder), would result in Keystone beneficially owning more than 4.99% of the outstanding Common Stock. Our inability to access a part or all of the amount available under the Common Stock Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business. We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders pursuant to this Annual Report. We will receive up to approximately $247.8 million from the exercise of the Warrants and the Arosa Warrant, assuming the exercise in full of all of the Warrants and the Arosa Warrant for cash, but not from the sale of the shares of Common Stock issuable upon such exercise. Each Warrant entitles the holder thereof to purchase one share of our Common Stock at a price of $11.50 per share. The Arosa Warrant entitles the holder thereof to purchase up to 2,194,453 shares of Common Stock at an exercise price of $0.01 per share. On March 27, 2024, the closing price for our Common Stock was $0.84. If the price of our Common Stock remains below $11.50 per share, we believe our warrant holders will be unlikely to cash exercise their Warrants, resulting in little or no cash proceeds to us. While the Company will continue to evaluate potential sources of funding, the Company may not be able to raise additional capital on terms acceptable to it or at all. If the Company is unable to raise additional capital when desired, the Company may be required to modify, delay, or abandon some of its planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on the Company's business, operating results, financial condition, and ability to achieve its intended business objectives. The Selling Securityholders can sell, under this Annual Report, up to (a) 24,469,671 shares of Common Stock constituting approximately 61.9% of our issued and outstanding shares of Common Stock and approximately 70.4% of our issued and outstanding shares of Common Stock held by non-affiliates (assuming, in each case, the exercise of all of our Warrants) and (b) 10,050,000 Warrants constituting approximately 46.6% of our issued and outstanding Warrants. Sales of a substantial number of our shares of Common Stock and/or Warrants in the public market by the Selling Securityholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our shares of Common Stock and Warrants and could impair our ability to raise capital through the sale of additional equity securities. The Sponsor beneficially owned (assuming exercise in full of its Warrants) approximately 62.2% of the number of shares of Common Stock issued and outstanding immediately following consummation of the Transactions, including the redemption of Class A Ordinary Shares as described above and the consummation of the PIPE Investment, which shares of Common Stock are registered for resale pursuant to this Annual Report. The Sponsor will be able to sell all such registered shares (subject to contractual lockups) for so long as the registration statement relating thereto is available for use. See "Beneficial Ownership" and "Selling Securityholders" for additional details on the Sponsor's beneficial ownership. We are unable to predict the effect that such sales may have on the prevailing market price of our shares of Common Stock and Warrants. As a result of the above, in connection with the Company's assessment of going concern considerations in accordance with Financial Accounting Standard Board's ("FASB") Accounting Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern," management has determined that the Company's liquidity condition raises substantial doubt about the Company's ability to continue as a going concern.

As a public company trading on the NASDAQ, we have significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that will require us to anticipate and react to changes in our business accounting, auditing and regulatory requirements and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company, and we are still early in the process of generating a mature system of internal controls and integration across business systems. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our financial statements, harm our operating results, and subject us to litigation and claims arising from material weaknesses in our internal controls and any resulting consequences, including restatements of our financial statements. Matters impacting our internal controls may cause us to be unable to report our financial information in an accurate manner or on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NASDAQ rules. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm continue to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our common stock.