UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange On Which Registered | ||
| Units, each consisting of one share of Class A common stock, $0.0001 par value per share, and one-half of one redeemable warrant | XPDBU | The Nasdaq Stock Market LLC | ||
| Warrants included as part of the units, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 | XPDBW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 12,
2022, there were
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
Quarterly Report on Form 10-Q
Table of Contents
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
CONDENSED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investments held in Trust Account | ||||||||
| Non-current prepaid expenses | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Franchise tax payable | ||||||||
| Total current liabilities | ||||||||
| Deferred underwriting commissions | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A common stock; | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For The Three Months Ended June 30, 2022 | For The Three Months Ended June 30, 2021 | For The Six Months Ended June 30, 2022 | For The Period From March 23, 2021 (inception) through June 30, 2021 | |||||||||||||
| General and administrative expenses | $ | $ | $ | $ | - | |||||||||||
| General and administrative expenses - related party | - | - | ||||||||||||||
| Formation expenses | ||||||||||||||||
| Franchise tax expenses | - | |||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Income from investments held in Trust Account | - | |||||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| (1) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Remeasurement of redemption value of Class A common stock subject to possible redemption | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2022 | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
FOR THE PERIOD FROM MARCH 23, 2021 (INCEPTION) THROUGH JUNE 30, 2021
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance - March 23, 2021 (inception) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B common stock to Sponsor | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - March 31, 2021 | - | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
| For The Six Months Ended June 30, 2022 | For The Period From March 23, 2021 (inception) through June 30, 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Income from investments held in Trust Account | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Income tax payable | - | |||||||
| Franchise tax payable | ||||||||
| Net cash used in operating activities | ( | ) | ||||||
| Net increase in cash | ( | ) | ||||||
| Cash - beginning of the period | ||||||||
| Cash - end of the period | $ | $ | ||||||
| Supplemental disclosure of noncash activities: | ||||||||
| Deferred offering costs paid by Sponsor in exchange for issuance of Class B common stock | $ | $ | ||||||
| Remeasurement adjustment on Class A common stock subject to possible redemption | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 - Description of Organization and Business Operations
Power & Digital Infrastructure Acquisition II Corp. (the “Company”) is a blank check company incorporated in Delaware on March 23, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of June 30, 2022, the Company had not commenced any operations. All activity for the period from March 23, 2021 (inception) through June 30, 2022 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), as described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor
is XPDI Sponsor II LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s
Initial Public Offering was declared effective on December 9, 2021. On December 14, 2021, the Company consummated its Initial Public Offering
of
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of the Initial
Public Offering and the Private Placement, approximately $
While the Company’s
management has broad discretion with respect to the specific application of the cash held outside of the Trust Account, substantially
all of the net proceeds from the Initial Public Offering and the sale of the Private Placement Warrants, which are placed in the Trust
Account, are intended to be applied generally toward completing a Business Combination. There is no assurance that the Company will be
able to complete a Business Combination successfully. The Company must complete one or more initial Business Combinations having an aggregate
fair market value of at least
5
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company will provide
the holders (the “Public Stockholders”) of the Company’s Public Shares with the opportunity to redeem all or a portion
of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve
the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of
a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The Public Stockholders will be
entitled to redeem their Public Shares for a pro rata portion of the amount then held in the Trust Account (initially at $10.10 per Public
Share). The per-share amount to be distributed to Public Stockholders who redeem their Public Shares will not be reduced by the deferred
underwriting commissions the Company will pay to the underwriters (as discussed in Note 5). All of the Public Shares contain a redemption
feature which allows for the redemption of such Public Shares in connection with the liquidation, if there is a stockholder vote or tender
offer in connection with the initial Business Combination and in connection with certain amendments to the Amended and Restated Certificate
of Incorporation (the “Amended and Restated Certificate of Incorporation”). These Public Shares were recorded at a redemption
value and classified as temporary equity in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”). The
Company will proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination. The
Company will not redeem the Public Shares in an amount that would cause its net tangible assets to be less than $
If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem the Public Shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each Public Stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder approval in connection with a Business Combination, the initial stockholders (as defined below) agreed to vote their Founder Shares (as defined below in Note 4) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the initial stockholders agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection with the completion of a Business Combination.
The Amended and Restated
Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with
whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate
of
The Company will have until 18 months from the closing of the Initial Public Offering, or June 14, 2023 (the “Combination Period”), to complete the initial Business Combination. However, if the Company anticipates that it may not be able to complete the initial Business Combination within 18 months, the Company may, but is not obligated to, extend the period of time it will have to complete an initial Business Combination by up to two additional three-month periods (for a total of up to 24 months from the closing of the Initial Public Offering to complete a Business Combination), subject to the Sponsor or its affiliates or designees contributing, for each such three-month extension, $0.10 per share of Class A common stock to the Trust Account (or approximately $2.9 million in the aggregate). In connection with each such additional deposit, the Sponsor or its affiliates or designees will receive an additional 2,875,000 private placement warrants, with the same terms as the original Private Placement Warrants. The Public Stockholders will not be entitled to vote on, or redeem their shares in connection with, any such extension.
6
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
If the Company is unable to complete a Business Combination within the Combination Period, or such later date as approved by holders of a majority of the voting power of the Company’s then outstanding shares of common stock that are voted at a meeting to extend such Combination Period, voting together as a single class, the Company will (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable by us), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any); and (3) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, liquidate and dissolve, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
The holders of the Founder
Shares (the “initial stockholders”) agreed not to propose an amendment to the Amended and Restated Certificate of Incorporation
(A) to modify the substance or timing of the Company’s obligation to allow redemption in connection with its initial business combination
or to redeem
The initial stockholders
and Anchor Investors agreed to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares
if the Company fails to complete a Business Combination within the Combination Period. However, if the initial stockholders and Anchor
Investors acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust
Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The
underwriters agreed to waive their rights to the deferred underwriting commission (see Note 5) held in the Trust Account in the event
the Company does not complete a Business Combination within in the Combination Period and, in such event, such amounts will be included
with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares.
7
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and Article 8 of Regulation S-X. Accordingly, certain disclosures included in the annual financial statements have been condensed or omitted from these financial statements as they are not required for interim financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 13, 2022, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2021, is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 13, 2022.
Liquidity and Going Concern
As of June 30, 2022, the
Company had approximately $
The Company’s liquidity
needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $
In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s founding team or any of their affiliates may, but are not obligated to, loan the Company funds under the Working Capital Loans (as defined and described in Note 4).
In connection with the Company’s assessment of going concern considerations in accordance with 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 liquidity needs, mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be one year from the issuance of these financial statements. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after June 14, 2023. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. The Company intends to complete a Business Combination before the mandatory liquidation date. Over this time period, the Company will be using the funds outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
8
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through one year from the issuance date of these condensed consolidated financial statements. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements.
Emerging Growth Company
The Company is 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 it 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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, 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 (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting 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 an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
9
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times,
may exceed the Federal Depository Insurance Corporation coverage of $
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of June 30, 2022 and December 31, 2021.
Investments Held in Trust Account
The Company’s portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the condensed balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income from investments held in Trust Account in the accompanying statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the condensed balance sheets, primarily due to their short-term nature.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
10
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The warrants issued in the Initial Public Offering (“Public Warrants”) and the Private Placement Warrants are not precluded from equity classification, based on the guidance in ASC 480 and ASC 815. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the Initial Public Offering. Upon completion of the Initial Public Offering, offering costs were allocated to the separable financial instruments issued in the Initial Public Offering on a relative fair value basis, compared to total proceeds received. Offering costs associated with the Class A common stock were charged to the carrying value of Class A common stock subject to possible redemption upon the completion of the Initial Public Offering. Offering costs associated with the Public Warrants and the Private Placement Warrants were recognized net in equity.
Class A Common Stock Subject to Possible Redemption
The Company accounts for
its Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A common stock subject
to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable shares
of Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control of
the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified
as temporary equity. At all other times, shares of Class A common stock are classified as stockholders’ equity. Shares of Class
A common stock of the Company feature certain redemption rights that are considered to be outside of the Company’s control and subject
to the occurrence of uncertain future events. Accordingly, as of June 30, 2022 and December 31, 2021,
Under ASC 480, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of the reporting period. This method would view the end of the reporting period as if it were also the redemption date of the security. Effective with the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
11
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Income Taxes
The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes” (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC Topic 740 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For
those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There
were no unrecognized tax benefits as of June 30, 2022 and December 31, 2021. The Company recognizes accrued interest and penalties related
to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of June 30, 2022
and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals
or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Our effective tax rate was
Net Loss per Common Share
The Company complies with accounting
and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has
The calculation of diluted net
loss does not consider the effect of the Public Warrants and the Private Placement Warrants to purchase an aggregate of
12
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
| For The Six Months Ended June 30, 2022 | For The Period From March 23, 2021 (inception) through June 30, 2021 | |||||||||||
| Class A | Class B | Class B | ||||||||||
| Basic and diluted net loss per common stock: | ||||||||||||
| Numerator: | ||||||||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Denominator: | ||||||||||||
| Basic and diluted weighted average common stock outstanding (1) | ||||||||||||
| Basic and diluted net loss per common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| For The Three Months Ended June 30, 2022 | For The Three Months Ended June 30, 2021 | |||||||||||
| Class A | Class B | Class B | ||||||||||
| Basic and diluted net loss per common stock: | ||||||||||||
| Numerator: | ||||||||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | $ | |||||
| Denominator: | ||||||||||||
| Basic and diluted weighted average common stock outstanding (1) | ||||||||||||
| Basic and diluted net loss per common stock | $ | ( | ) | $ | ( | ) | $ | - | ||||
| (1) | This number excludes an aggregate
of up to |
13
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
Note 3 - Initial Public Offering
On December 14, 2021, the
Company consummated its Initial Public Offering of
Each Unit consists of one share of Class A common stock, and one-half of one redeemable warrant (each, a “Public Warrant”). Each Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 7).
Note 4 - Related Party Transactions
Founder Shares
On March 30, 2021, the Sponsor
paid $
In July 2021, the Sponsor
transferred
In exchange for the Anchor
Investors participating in the Initial Public Offering and the Private Placement, the Company agreed sell
14
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The initial stockholders
and the Anchor Investors agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier
to occur of: (A) one year after the completion of the initial Business Combination; and (B) subsequent to the initial Business Combination
(x) if the last reported sale price of the Class A common stock equals or exceeds $
Private Placement Warrants
Simultaneously with the
closing of the Initial Public Offering, the Company consummated the Private Placement of
The purchasers of the Private Placement Warrants agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants (except to permitted transferees) until 30 days after the completion of the initial Business Combination.
Related Party Loans
On March 30, 2021, the Sponsor
agreed to loan the Company an aggregate of up to $
In addition, in order to
finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s
officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).
If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the
event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the
Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital
Loans would either be repaid upon completion of a Business Combination or, at the lender’s discretion, up to $
Administrative Services Agreement
Commencing on December 9,
2021 through the earlier of consummation of the initial Business Combination and the Company’s liquidation, the Company agreed
to pay affiliates of the Sponsor a total of $
15
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 5 - Commitments and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares), were entitled to registration rights pursuant to a registration rights agreement to be signed prior to the consummation of the Initial Public Offering. These holders are entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that the Company will not be required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters were entitled
to an underwriting discount of $0.20 per Unit on all Units sold in the Initial Public Offering, except for the Units purchased by the
Anchor Investors, or approximately $
Note 6 - Class A Common Stock Subject to Possible Redemption
The Company’s Class A common stock feature certain redemption
rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. The Company is
authorized to issue
The Class A common stock subject to possible redemption reflected on the condensed balance sheets is reconciled on the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Proceeds allocated to Public Warrants | ( | ) | ||
| Issuance costs allocated to Class A common stock | ( | ) | ||
| Plus: | ||||
| Adjust carrying value to initial redemption value | ||||
| Class A common stock subject to possible redemption as of March 31, 2022 | ||||
| Remeasurement of carrying value to initial redemption value | ||||
| Class A common stock subject to possible redemption as of June 30, 2022 | $ |
Note 7 - Stockholders’ Deficit
Preferred Stock -
The Company is authorized to issue
Class A Common Stock
- The Company is authorized to issue
16
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Class B Common Stock
- The Company is authorized to issue
Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders and vote together as a single class, except as required by law; provided, that, prior to the Company’s initial Business Combination, holders of the Class B common stock will have the right to appoint all of the Company’s directors and remove members of the board of directors for any reason, and holders of the Class A common stock will not be entitled to vote on the appointment of directors during such time.
The Class B common stock
will automatically convert into Class A common stock at the time of the initial Business Combination, or earlier at the option of the
holder, on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like,
and subject to further adjustment as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities,
are issued or deemed issued in excess of the amounts issued in the Initial Public Offering and related to the closing of the initial
Business Combination, the ratio at which the shares of Class B common stock will convert into shares of Class A common stock will be
adjusted (unless the holders of a majority of the issued and outstanding shares of the Class B common stock agree to waive such anti-dilution
adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion
of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis,
Warrants -
As of June 30, 2022 and December 31, 2021, the Company had an aggregate of
The warrants have an exercise
price of $
17
POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Private Placement Warrants will be non-redeemable and will be exercisable on a cashless basis at the option of the holder.
Redemption of Public Warrants when the price per share of Class A common stock equals or exceeds $18.00: Once the warrants become exercisable, the Company may call the outstanding warrants for redemption (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and |
Unless the Company has elected to require Public Warrant holders to exercise such warrants on a cashless basis, the Company will not redeem the Public Warrants as described above unless a registration statement under the Securities Act covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period. If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Note 8 - Fair Value Measurements
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
| Description | Level 1 | Level 2 | Level 3 | |||||||||
| June 30, 2022 - Assets: | ||||||||||||
| Investments held in Trust Account | $ | $ | $ | |||||||||
| December 31, 2021 - Assets: | ||||||||||||
| Investments held in Trust Account | $ | $ | $ | |||||||||
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers between levels for the period from March 23, 2021 (inception) through June 30, 2022.
Level 1 assets include investments in money market funds or U.S. Treasury securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
Note 9 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to Power & Digital Infrastructure Acquisition II Corp. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed financial statements and related notes included in Part I, Item 1 of this Quarterly Report. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
We are a blank check company incorporated in Delaware on March 23, 2021. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Our sponsor is XPDI Sponsor II LLC, a Delaware limited liability company. The registration statement for our IPO was declared effective on December 9, 2021. On December 14, 2021, we consummated our IPO of 28,750,000 units, which included the exercise of the underwriters’ option to purchase an additional 3,750,000 units at the initial public offering price to cover over-allotments (the “over-allotment units”), at $10.00 per unit, generating gross proceeds of $287.5 million, and incurring offering costs of approximately $20.7 million, of which approximately $10.1 million was for deferred underwriting fees.
Simultaneously with the closing of our IPO, we completed the private placement (the “private placement”) of 11,125,000 private placement warrants, at a price of $1.00 per private placement warrant to our sponsor and Anchor Investors, generating proceeds of approximately $11.1 million.
Upon the closing of the IPO and the private placement, approximately $290.4 million ($10.10 per unit) of the net proceeds of the sale of the units in the IPO and of the private placement warrants in the private placement were placed in a trust account (the “trust account”) located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act 1940, as amended (the “Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act, which invest only in direct U.S. government treasury obligations, as determined by the company, until the earlier of: (i) the completion of an initial Business Combination and (ii) the distribution of the trust account as described below.
19
Our management has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of private placement warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating an initial Business Combination. There is no assurance that we will be able to complete an initial Business Combination successfully. We must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of the net assets held in the trust account (net of amounts disbursed to management for working capital purposes and excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at the time of the agreement to enter into the initial Business Combination. However, we will only complete an initial Business Combination if the post-transaction company owns or acquires 50% or more of the voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
We will have until 18 months from the closing of the IPO, or June 14, 2023 (the “Combination Period”), to complete the initial Business Combination. However, if we anticipate that it may not be able to complete the initial Business Combination within 18 months, we may, but are not obligated to, extend the period of time we will have to complete an initial Business Combination by up to two additional three-month periods (for a total of up to 24 months from the closing of the IPO to complete an initial Business Combination), subject to the sponsor or its affiliates or designees contributing, for each such three-month extension, $0.10 per share of Class A common stock to the trust account (or approximately $2.9 million in the aggregate). In connection with each such additional deposit, the sponsor or its affiliates or designees will receive an additional 2,875,000 private placement warrants, with the same terms as the original private placement warrants. The Public Stockholders will not be entitled to vote on, or redeem their shares in connection with, any such extension.
Liquidity and Going Concern
Our liquidity needs to date have been satisfied through a capital contribution of $25,000 from our sponsor to purchase our Class B common stock (the “founder shares”), the related party loan under a promissory note of approximately $115,000 from, our sponsor, which was repaid in full on December 17, 2021, and the net proceeds from the consummation of the private placement not held in the trust account. In addition, in order to finance transaction costs in connection with an initial Business Combination, our officers, directors and initial stockholders may, but are not obligated to, provide working capital loans. As of June 30, 2022, there were no amounts outstanding under any working capital loans.
In connection with the Company’s assessment of going concern considerations in accordance with 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 liquidity needs, mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be one year from the issuance of these financial statements. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after June 14, 2023. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. The Company intends to complete a Business Combination before the mandatory liquidation date. Over this time period, the Company will be using the funds outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through one year from the issuance date of these condensed consolidated financial statements. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
We continue to evaluate the impact of the COVID-19 pandemic on the industry and have concluded that while it is reasonably possible that the virus could have a negative effect on our financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements.
20
Results of Operations
Our entire activity since inception up to June 30, 2022 related to our formation, the preparation for the Initial Public Offering, and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination. We will not be generating any operating revenues until the closing and completion of our initial Business Combination, at the earliest.
For the three months ended June 30, 2022, we had a net loss of approximately $47,000, which consisted of approximately $401,000 in operating expenses and approximately $31,000 in income tax expenses, partially offset by approximately $385,000 of income from investments held in the trust account. Operating expenses were comprised of approximately $276,000 of general and administrative expenses, $60,000 of general and administrative expenses - related party, and $65,000 of franchise tax expense.
For the three months ended June 30, 2021, there was no activity.
For the six months ended June 30, 2022, we had a net loss of approximately $473,000, which consisted of approximately $854,000 in operating expenses and approximately $31,000 in income tax expenses, partially offset by approximately $412,000 of income from investments held in the trust account. Operating expenses were comprised of approximately $619,000 of general and administrative expenses, $120,000 of general and administrative expenses - related party, and $115,000 of franchise tax expense.
For the period from March 23, 2021 (inception) through June 30, 2021, we had net loss of $973 which consisted entirely of formation costs and general and administrative expenses.
Commitments and Contingencies
Registration Rights
The holders of founder shares, private placement warrants and warrants that may be issued upon conversion of working capital loans, if any (and any shares of common stock issuable upon the exercise of the private placement warrants or warrants issued upon conversion of the working capital loans and upon conversion of the founder shares), were entitled to registration rights pursuant to a registration rights agreement to be signed prior to the consummation of the IPO. These holders are entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that we will not be required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up period. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter was entitled to an underwriting discount of $0.20 per unit on all units sold in the IPO, except for the units purchased by the Anchor Investors, or approximately $5.3 million in the aggregate, paid upon the closing of the IPO.
The underwriter received an additional fee of $0.35 per unit, or approximately $10.1 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the trust account solely in the event that we complete an initial Business Combination, subject to the terms of the underwriting agreement.
Administrative Support Services
Commencing on December 9, 2021, we have agreed to pay affiliates of our sponsor a total of $20,000 per month for office space and administrative support services. Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. In connection with our initial Business Combination, we may potentially make a cash payment to affiliates of our sponsor or anchor investor for any financial advisory, placement agency or other similar investment banking or consulting services that affiliates of our sponsor or anchor investor may provide to us in connection with our initial Business Combination, and may reimburse to affiliates of our sponsor or anchor investor for any out-of-pocket expenses incurred by it in connection with the performance of such services
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 2 to our condensed financial statements in Part I, Item 1 of this Quarterly Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2021 Annual Report on Form 10-K filed with the SEC on April 13, 2022. There have been no significant changes in the application of our critical accounting policies during the six months ended June 30, 2022. We have identified the following as our critical accounting policies:
21
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Stock” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be classified as liabilities or as equity, is re-assessed at the end of each reporting period.
The warrants issued in the IPO (“public warrants”) and the private placement warrants are not precluded from equity classification, based on the guidance in ASC 480 and ASC 815. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
Class A Common Shares Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Class A common stock subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, Class A common stock is classified as stockholders’ equity. Our Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, all of our outstanding shares of Class A common stock is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our balance sheet.
Under ASC 480, we have elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of the reporting period. This method would view the end of the reporting period as if it were also the redemption date of the security. Effective with the closing of the IPO, we recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Loss per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net loss per common share is calculated by dividing the net loss by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net loss does not consider the effect of the public warrants and the private placement warrants to purchase an aggregate of 25,500,000 shares of Class A common stock in the calculation of diluted income (loss) per share, because their exercise is contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net loss per share is the same as basic net loss per share for the three and six months ended June 30, 2022, the three months ended June 30, 2021 and for period from March 23, 2021 (inception) through June 30, 2021. Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
22
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial and accounting officer, to allow timely decisions regarding required disclosure.
As of June 30, 2022, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our principal executive officer and principal financial and accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors.
Our material risk factors are disclosed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K. There have been no material changes from the risk factors previously disclosed in such filing.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
In March 2021, our sponsor paid $25,000 to cover for certain offering costs on behalf of us in exchange for issuance of 5,750,000 shares of our Class B common stock. In November 2021, we effected a stock dividend of 1,437,500 shares of our Class B common stock, resulting in there being an aggregate of 7,187,500 shares of our Class B common stock outstanding. We have agreed to sell to the Anchor Investors 1,078,125 founder shares, and the Anchor Investors agreed to purchase from our sponsor on the date of the initial Business Combination an aggregate of 1,078,125 founder shares for an aggregate purchase price of approximately $3,750, or approximately $0.004 per share. Our sponsor has also agreed that in the event of such purchase by the Anchor Investors, our sponsor will forfeit to us for no consideration a number of Founder shares equal to the number of founder shares purchased by the Anchor Investors.
In July 2021, our sponsor transferred 30,000 shares of Class B common stock to each of the four independent director nominees, a total of 120,000 shares of Class B common stock. In November 2021, our sponsor repurchased 30,000 shares of Class B common stock from a former independent director nominee.
On December 14, 2021 the company consummated its IPO of 28,750,000 units, which included the exercise of the underwriters’ option to purchase an additional 3,750,000 units at the initial public offering price to cover over-allotments. Each unit consists of one share of Class A common stock and one-half of one warrant (the “public warrants”), each whole public warrant entitling the holder thereof to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $287,500,000.
Simultaneously with the closing of our IPO and the issuance and sale of the units, we completed the private placement of an aggregate of 11,125,000 private placement warrants at a price of $1.00 per private placement warrant, generating total proceeds of $11,125,000. The purchase price of the private placement warrants was added to the net proceeds of our initial public offering and placed in the trust account such that the trust account held $290,375,000 at the time of closing of our initial public offering. Each whole private placement warrant entitles the holder thereof to purchase one (1) share of Class A common stock at a price of $11.50 per share, subject to certain adjustments.
For a description of the use of the proceeds generated in our IPO, see Part I, Item 2 of this Quarterly Report.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits.
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: August 12, 2022 | POWER & DIGITAL INFRASTRUCTURE ACQUISITION II CORP. | |
| By: | /s/ Patrick C. Eilers | |
| Name: | Patrick C. Eilers | |
| Title: | Chief Executive Officer and Director | |
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