References to the "Company," "our," "us" or "we" refer to Power & Digital
Infrastructure Acquisition II Corp. The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with
the audited financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Cautionary Note
Regarding Forward-Looking Statements," "Item 1.A. Risk Factors" and elsewhere in
this Annual Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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.
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Overview
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 on December 14, 2021,
approximately $290.4 million ($10.10 per unit) of the net proceeds of the sale
of the units in the IPO, including proceeds from the sale of the Over-Allotment
Units and certain of the proceeds from the sale of the private placement
warrants, were deposited into a segregated trust account (the "Trust Account")
located in the United States with Continental Stock Transfer & Trust Company
acting as trustee and approximately $1.7 million of such net proceeds were
deposited in our operating account to pay expenses in connection with the
closing of the IPO and for working capital following the IPO. The proceeds held
in the Trust Account have been invested 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.
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.
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We will have until 18 months from the closing of the IPO, or June 14, 2023, 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 Capital Resources
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
December 31, 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 the Financial Accounting Standards Board's ("FASB's") Accounting
Standards Codification ("ASC") Topic 205-40, "Presentation of Financial
Statements - 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, as it may be extended. 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 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 Company and
have concluded that while it is reasonably possible that the virus could have a
negative effect on our financial position, results of the Company's operations
and/or search for a target company, the specific impact is not readily
determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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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.
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax. Any share redemption or other share repurchase that occurs after December
31, 2022, in connection with a Business Combination, extension vote or
otherwise, may be subject to the excise tax. Whether and to what extent we would
be subject to the excise tax in connection with a Business Combination,
extension vote or otherwise will depend on a number of factors, including (i)
the fair market value of the redemptions and repurchases in connection with the
Business Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by us
and not by the redeeming holder, the mechanics of any required payment of the
excise tax have not been determined. The foregoing could cause a reduction in
the cash available on hand to complete a Business Combination and in our ability
to complete a Business Combination. Further, the application of the excise tax
in the event of a liquidation is uncertain.
Results of Operations
Our entire activity since inception up to December 31, 2022 related to our
formation, the preparation for the IPO, and since the closing of the IPO, the
search for a prospective initial Business Combination. We will not generate any
operating revenues until after the completion of our initial Business
Combination. We generate non-operating income in the form of investment income
from the trust account. We will continue to incur increased expenses as a result
of being a public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence expenses.
For the year ended December 31, 2022, we had a net income of approximately $2.0
million, which consisted of approximately $4.2 million of income from
investments held in the trust account, partially offset by approximately $1.3
million in operating expenses and approximately $802,000 in income tax expenses.
Operating expenses were comprised of approximately $888,000 of general and
administrative expenses, $240,000 of general and administrative expenses -
related party, and $215,000 of franchise tax expense.
For the period from March 23, 2021 (inception) through December 31, 2021, we had
a net loss of approximately $544,000, which consisted of approximately $392,000
in general and administrative expenses and approximately $152,000 in franchise
tax expense, partially offset by approximately $900 in income from investments
held in the trust account.
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Contractual Obligations
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 and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have identified the following as our critical
accounting policies:
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.
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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 sheets.
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 income (loss) per common shares
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 income (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 income (loss) per share is the same as basic net income
(loss) per share for the year ended December 31, 2022 and for the period from
March 23, 2021 (inception) through December 31, 2021. Accretion associated with
the redeemable Class A common stock is excluded from earnings per share as the
redemption value approximates fair value.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update ("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): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"),
which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. The ASU also removes certain
settlement conditions that are required for equity-linked contracts to qualify
for the derivative scope exception, and it simplifies the diluted earnings per
share calculation in certain areas. We adopted ASU 2020-06 on March 23, 2021
(inception). Adoption of the ASU did not impact our financial position, results
of operations or cash flows.
Our management does not believe that there are any recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on our balance sheets.
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Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
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.
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