Filing summary
Entity and period: The supplied filing is Pivotal Investment Corporation II’s unaudited Form 10-Q for the quarter ended June 30, 2020, filed August 14, 2020. This does not match the request metadata naming Spruce Power Holding Corp.; the filing describes a blank-check company, not an operating power business.
Business context and financial results
Pivotal was formed to pursue a business combination and had not commenced operations by June 30, 2020. It was searching for a target, with a stated focus on North American companies affected by digital technology and changing consumer distribution and purchasing patterns. It did not report operating revenue and expected none until after a business combination.
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Operating costs | $216,022 | $347,286 |
| Trust-account interest income | $86,754 | $865,346 |
| Net income (loss) | ($102,121) | $409,268 |
| Basic and diluted net loss per share | ($0.02) | ($0.03) |
| Cash used in operating activities | Not stated for quarter | $392,140 |
The six-month profit reflected trust interest, rather than operating activity. For comparison, the three and six months ended June 30, 2019 reported net losses of $79 and $454, respectively; the company’s 2019 comparison period began at its March 20, 2019 inception. Margins are not meaningful because the company reported no operating revenue.
Liquidity, assets and obligations
- At June 30, 2020, cash outside the trust was $752,835; trust-account marketable securities were $232.3 million, including approximately $2.265 million of interest income. The filing reports $520,032 withdrawn from trust interest to pay franchise and income taxes.
- Total current assets were $826,882 and current liabilities were $237,511. Total liabilities were $8.29 million, including an $8.05 million deferred underwriting fee. The fee is payable upon a business combination and is forfeited if the company fails to complete one, subject to the underwriting agreement.
- There was no long-term debt reported. Stock subject to possible redemption, presented outside stockholders’ equity, totaled $219.8 million for 21,775,816 shares. Stockholders’ equity was $5.0 million.
- Six-month cash flow included $520,032 of cash provided by withdrawals from the trust account for taxes, offset by operating cash use; cash increased by $127,892 from year-end 2019.
- A forward purchase agreement provides for a Sponsor affiliate to purchase up to $150 million of securities at the time of a business combination, but the amount and terms were not set, and the affiliate may decline to purchase. The company may need alternative financing.
Changes, outlook and risks
- Versus December 31, 2019, trust assets rose from $231.9 million to $232.3 million, while outside cash increased from $624,943 to $752,835. Shares subject to possible redemption and their recorded value rose slightly. Current liabilities increased to $237,511 from $214,393.
- The company had until January 16, 2021 to complete a business combination unless stockholders approved an extension. It required a target with fair market value of at least 80% of trust assets, subject to the filing’s stated exclusions, and at least $5,000,001 in net tangible assets upon completion.
- If no combination is completed within the period, the company would cease operations and redeem public shares from the trust, subject to applicable law and specified deductions. Warrants would expire worthless. The filing cautions that trust investments could bear negative interest, potentially reducing public stockholders’ per-share redemption amount below $10.
- Management said it did not expect to need additional funds for pre-combination operating expenditures, but acknowledged that higher-than-estimated search and transaction costs, significant redemptions, or insufficient financing could impede a transaction. No specific transaction guidance or target was disclosed.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no off-balance-sheet arrangements and no material market or interest-rate risk as of June 30, 2020.
Key facts for investors to verify
- Confirm the issuer: this filing is for Pivotal Investment Corporation II, not Spruce Power Holding Corp.
- Check whether a business combination was identified, completed, or extended before the January 16, 2021 deadline.
- Review available trust funds, taxes and withdrawals, redemption levels, and the potential effect of negative yields on redemption value.
- Verify whether the up-to-$150 million forward purchase commitment was exercised and whether alternative financing or additional securities were needed.
- Assess the deferred underwriting fee, warrant terms, and dilution implications alongside any proposed transaction.