Business context and reporting period
Filing identity mismatch: Although the request names Core Scientific, this June 30, 2021 Form 10-Q is filed by Power & Digital Infrastructure Acquisition Corp. (XPDI), a blank-check SPAC. It contains no operating results for Core Scientific. XPDI had not commenced operations; its activity related to formation, its February 2021 IPO, and searching for a business combination. Figures below are XPDI’s unaudited results for the three and six months ended June 30, 2021.
On July 20, 2021, after the quarter, XPDI agreed to acquire Core Scientific in a transaction valuing Core Scientific at approximately $4.0 billion. The transaction remained subject to conditions and approvals; the filing provides no assurance it would close.
Financial results and position
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 / June 30 balance |
|---|---|---|
| Operating revenue | $0; no operating revenue before a business combination | $0; no operating revenue before a business combination |
| Net loss | $5.56 million | $593,205 |
| Operating expenses / loss from operations | $1.46 million | $1.89 million |
| Trust-account investment income | $12,521 | $22,807 |
| Warrant fair-value change | $3.83 million loss | $2.33 million gain |
| Cash and trust investments | — | $2.04 million operating cash; $345.02 million held in trust |
| Cash flow | — | $798,200 used in operations; $345.00 million used in investing; $347.84 million provided by financing |
| Working capital | — | Approximately $0.5 million |
| Debt and other obligations | — | No working-capital loans outstanding; $12.08 million deferred underwriting commissions and $20.70 million derivative warrant liabilities |
Total assets were $347.61 million and total liabilities were $34.91 million. Public shares subject to possible redemption, totaling $307.70 million, were classified as temporary equity. The filing reports no meaningful operating margin because XPDI had no operating revenue. No prior-year comparable-period results are presented; the company was formed in December 2020.
Material changes, outlook and risks
- The quarter’s net loss was driven principally by a $3.83 million noncash loss from changes in warrant fair value, alongside operating expenses. For the six-month period, a $2.33 million warrant fair-value gain partly offset expenses and offering costs.
- In April 2021, XPDI corrected its accounting for warrants, reclassifying them from equity to liabilities. It deemed the prior-period error immaterial; the correction increased derivative liabilities and reduced redeemable Class A shares by approximately $23 million in the February 12 balance sheet, with no effect on cash flows or net loss.
- Management reported substantial doubt about XPDI’s ability to continue as a going concern through a business combination or its February 12, 2023 liquidation deadline. It said additional financing might be needed, but sponsor and insider loans were not committed.
- Disclosure controls were ineffective because of a material weakness in warrant accounting. Management said it performed additional analysis and believed the financial statements were fairly stated. The filing reports no material change in internal control during the quarter.
- XPDI’s agreement contemplated a $4.0 billion equity value for Core Scientific, subject to transaction terms. Core Scientific stockholders holding more than a majority of its voting power had agreed to support the transaction. Closing was subject to conditions, with a termination right if not completed by March 21, 2022.
- COVID-19 and emerging variants could adversely affect XPDI’s finances or target search, but the impact was not determinable. Other key SPAC risks include share redemptions, the possibility of failing to complete a combination by the deadline, and warrants expiring worthless if no combination closes.
Most important facts to verify
- Confirm the intended filing: this is XPDI’s 10-Q, not a Core Scientific 10-Q, and contains no Core Scientific operating or financial metrics.
- Review the July 20, 2021 merger agreement and subsequent filings for transaction consideration, financing, redemptions, approvals, and ultimate closing status.
- Assess the going-concern disclosure against XPDI’s unrestricted cash, expected transaction costs, and any financing commitments.
- Review the warrant accounting correction and remediation of the disclosed material weakness, including whether controls were subsequently deemed effective.
- Confirm the status and terms of the $12.08 million deferred underwriting commission and the potential dilution from public and private warrants.
- Note that the cover page checks “No” for having filed all required reports during the preceding 12 months; verify the reporting-compliance context.