Zalatoris II Acquisition (ZLS) - 2022 Q3 - Quarterly Report

Front Matter / General Information Registrant Information and Filing Status XPAC Acquisition Corp. filed Form 10-Q, classified as a non-accelerated, smaller reporting, emerging growth, and shell company - Filing Type: Quarterly Report (Form 10-Q) for the quarterly period ended September 30, 2022[2] - Registrant: XPAC ACQUISITION CORP., incorporated in the Cayman Islands[2] Filer Status | Filer Status | | | | :--- | :--- | :--- | | Large Accelerated Filer | ☐ | | | Accelerated Filer | ☐ | | | Non-Accelerated Filer | ☒ | | | Smaller Reporting Company | ☒ | | | Emerging Growth Company | ☒ | | | Shell Company | ☒ | | Shares Outstanding | Share Class | Shares Outstanding (as of Nov 10, 2022) | | :--- | :--- | | Class A ordinary shares | 21,961,131 | | Class B ordinary shares | 5,490,283 | PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents XPAC Acquisition Corp.'s unaudited condensed financial statements, including balance sheets, statements of operations, changes in equity, cash flows, and notes Condensed Balance Sheets Condensed balance sheets show XPAC Acquisition Corp.'s financial position, with slight asset increase and significant current liability rise Key Balance Sheet Data | Metric | Sep 30, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Total assets | 221,471,083 | 220,614,902 | | Investments held in Trust Account | 220,891,656 | 219,617,731 | | Total current liabilities | 4,819,009 | 1,139,725 | | Warrant liabilities | 1,679,455 | 5,825,972 | | Total shareholders' deficit | (13,905,433) | (13,739,334) | Condensed Statements of Operations Statements of operations show a net loss for the three months ended September 30, 2022, primarily due to warrant liability changes and operating costs Net Income (Loss) and Key Drivers | Metric | 3 months ended Sep 30, 2022 ($) | 3 months ended Sep 30, 2021 ($) | 9 months ended Sep 30, 2022 ($) | Inception through Sep 30, 2021 ($) | | :--- | :--- | :--- | :--- | :--- | | Formation and operating costs | 1,697,156 | 589,667 | 4,338,159 | 600,920 | | Change in fair value of warrant liabilities | 158,804 | 5,553,385 | 4,146,517 | 5,553,385 | | Gain on securities held in trust | 971,818 | 2,008 | 1,273,925 | 2,008 | | Net income (loss) | (551,852) | 4,446,228 | 1,107,826 | 4,434,975 | | Basic and diluted net income (loss) per share, redeemable Class A ordinary shares | (0.02) | 0.23 | 0.04 | 0.38 | Condensed Statements of Changes In Shareholders' Equity (Deficit) Shareholders' deficit decreased from $(13.7 million) to $(13.9 million) due to net losses and Class A share remeasurement Shareholders' Deficit | Date | Total Shareholders' Deficit ($) | | :--- | :--- | | Sep 30, 2022 | (13,905,433) | | Dec 31, 2021 | (13,739,334) | | Sep 30, 2021 | (15,159,057) | - The accumulated deficit increased from $(13,739,883) at December 31, 2021, to $(13,905,982) at September 30, 2022[17] Condensed Statements of Cash Flows Cash flow statements show net cash used in operating activities, with negative net cash change for the nine months ended September 30, 2022 Cash Flow Summary | Metric | 9 months ended Sep 30, 2022 ($) | Inception through Sep 30, 2021 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (336,768) | (799,135) | | Net cash used by investing activities | — | (219,611,310) | | Net cash provided by financing activities | 215,588 | 221,416,571 | | Net change in cash | (121,180) | 1,006,126 | | Cash at end of period | 231,010 | 1,006,126 | Notes To Condensed Financial Statements (Unaudited) Notes detail SPAC organization, accounting policies, financial instruments, proposed SuperBac business combination, and going concern considerations NOTE 1 — ORGANIZATION AND BUSINESS BACKGROUND XPAC Acquisition Corp., a SPAC formed on March 11, 2021, for a business combination, faces going concern issues due to costs and deadlines - Company Formation: Incorporated March 11, 2021, as a SPAC for the purpose of entering into a business combination[22] - Initial Public Offering (IPO): Consummated on August 3, 2021, selling 20,000,000 Units at $10.00 per Unit, generating gross proceeds of $200,000,000[25] - Proposed Business Combination: Entered into a Business Combination Agreement with SuperBac on April 25, 2022, which would result in PubCo becoming a publicly-traded company listed on the Nasdaq Capital Market[39] - Going Concern: Substantial doubt exists about the Company's ability to continue as a going concern due to significant acquisition costs and the requirement to complete a Business Combination by August 3, 2023, or face automatic winding up and liquidation[55][56] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines GAAP-compliant accounting principles, the company's emerging growth status, and policies for warrant liabilities as derivatives - Basis of Presentation: Unaudited condensed financial statements prepared in accordance with GAAP for interim financial information and SEC rules[59] - Emerging Growth Company: The Company is an "emerging growth company" and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[60][61] - Warrant Liabilities: Warrants for ordinary shares not indexed to its own shares are accounted for as liabilities at fair value, subject to remeasurement at each balance sheet date[76] NOTE 3 — INITIAL PUBLIC OFFERING Details the IPO, including the sale of 20,000,000 Units at $10.00 each, partial over-allotment exercise, and proceeds deposited into the Trust Account - IPO Date: August 3, 2021, selling 20,000,000 Units at $10.00 per Unit[85] - Over-Allotment: Underwriter purchased an additional 1,961,131 Units on August 19, 2021, for $19,611,310[86] - Trust Account: An aggregate of $10.00 per Unit sold in the IPO was held in the Trust Account, invested in U.S. government securities or money market funds[87] NOTE 4 — PRIVATE PLACEMENT The Sponsor purchased 4,000,000 Private Warrants for $6,000,000 and an additional 261,485 Private Warrants for $392,228, with proceeds added to the Trust Account - Private Warrants Purchased: Sponsor purchased 4,000,000 Private Warrants for $6,000,000, and an additional 261,485 Private Warrants for $392,228[88] - Proceeds from Private Warrants: Added to the Trust Account[88] - Expiration: Private Warrants will expire worthless if the Company does not complete a Business Combination within the Combination Period[90] NOTE 5 — RELATED PARTY TRANSACTIONS This note details related party transactions, including Founder Shares, a promissory note from the Sponsor, and an advisory fee to an affiliate - Founder Shares: Sponsor purchased 5,750,000 Class B ordinary shares for $25,000; 259,717 shares were forfeited, resulting in 5,490,283 Class B shares outstanding[91] - Promissory Note: An unsecured, non-interest bearing promissory note from the Sponsor, with $300,000 outstanding as of September 30, 2022[94] - Advisory Fee: XP Investimentos (an affiliate of the Sponsor) is entitled to $2,690,239 upon the consummation of the Business Combination[99] NOTE 6 — SHAREHOLDERS' DEFICIT Outlines authorized and outstanding share capital, including preference, Class A, and Class B ordinary shares, with Class B converting to Class A upon a Business Combination - Authorized Shares: 1,000,000 preference shares, 200,000,000 Class A ordinary shares, and 20,000,000 Class B ordinary shares[100][101][102] - Outstanding Shares (Sep 30, 2022): 21,961,131 Class A ordinary shares (excluding those subject to redemption) and 5,490,283 Class B ordinary shares[101][102] - Class B Conversion: Class B ordinary shares will automatically convert into Class A ordinary shares on a one-for-one basis at the time of a Business Combination, subject to adjustment[104] NOTE 7 — WARRANT LIABILITIES Describes Public and Private Warrants, their exercisability, redemption conditions, and classification as derivative liabilities at fair value - Public Warrants Exercisability: Later of 12 months from IPO closing or 30 days after the completion of a Business Combination[106] - Redemption of Public Warrants: Redeemable at $0.01 per warrant if Class A ordinary share price equals or exceeds $18.00, or at $0.10 per warrant if price equals or exceeds $10.00 (with cashless exercise option)[109][114] - Private Warrants: Identical to Public Warrants but non-transferable/assignable for 30 days post-Business Combination (with exceptions), exercisable for cash or cashless, and non-redeemable while held by initial purchasers/permitted transferees[113] - Warrant Classification: Both Public and Private Warrants are classified as derivative liabilities at fair value, subject to re-measurement at each balance sheet date[114][115] NOTE 8 — COMMITMENTS AND CONTINGENCIES Covers registration rights for certain shareholders and a deferred underwriting fee of $7,686,396 held in the Trust Account, released upon Business Combination completion or waived - Registration Rights: Holders of Founder Shares and Private Warrants are entitled to registration rights[116] - Deferred Underwriting Fee: $7,686,396 (or $0.35 per Unit) is held in the Trust Account and will be released upon completion of a Business Combination, or waived if not completed[118] NOTE 9 — RECURRING FAIR VALUE MEASUREMENTS Details fair value measurements of warrant liabilities, totaling $1,679,455 as of September 30, 2022, with Public Warrants as Level 1 and Private Warrants as Level 3 Warrant Liabilities Fair Value | Date | Amount ($) | | :--- | :--- | | Sep 30, 2022 | 1,679,455 | | Dec 31, 2021 | 5,825,972 | - Fair Value Hierarchy: Public Warrants are Level 1 (based on market trade price), and Private Warrants are Level 3 (valued using a Monte Carlo simulation model)[122][123][126] Key Inputs for Private Warrant Valuation (Monte Carlo Model) | Input | Sep 30, 2022 | | :--- | :--- | | Share price ($) | 9.69 | | Exercise price ($) | 11.50 | | Risk-free rate (%) | 4.01 | | Expected term of warrants (years) | 5.25 | | Volatility (%) | 0.001 | NOTE 10 — SUBSEQUENT EVENTS The company identified no subsequent events as of the date the financial statements were issued - No subsequent events identified as of the financial statement issuance date[130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operations, liquidity, capital resources, and going concern considerations Overview XPAC Acquisition Corp. is a blank check company formed for a Business Combination, completing its IPO and private placement in August 2021, placing $219,611,310 in a Trust Account - Company Purpose: Blank check company (SPAC) incorporated on March 11, 2021, for a Business Combination, with an initial focus on Brazil[134] - IPO and Private Placement: Consummated on August 3, 2021, raising $200,000,000 from IPO Units and $6,000,000 from Private Warrants, with an additional $19,611,310 from over-allotment units[136][137][138] - Trust Account: $219,611,310 from IPO and Private Warrants proceeds placed in a Trust Account, invested in interest-bearing U.S. government securities[140] Recent Developments XPAC entered a Business Combination Agreement with SuperBac on April 25, 2022, aiming for PubCo to become a Nasdaq-listed company, subject to a $150,000,000 minimum cash condition - Business Combination Agreement: Entered with SuperBac on April 25, 2022, to combine, leading to PubCo becoming a Nasdaq-listed company[143][146] - Sponsor Support Agreement: Sponsor agreed to vote in favor of the Mergers, waive anti-dilution rights, not redeem shares, and a lock-up of PubCo shares/warrants[147] - Minimum Cash Condition: The Post-Redemption Trust Account Balance plus PIPE Gross Proceeds must be at least $150,000,000 for SuperBac to consummate the Transactions[153] - SuperBac Profile: A pioneering Brazilian biotechnology company focused on sustainable, biologically-based alternatives for various applications[157] Results of Operations The company reported no operating revenues, a net loss of $551,852 for the three months ended September 30, 2022, but a net income of $1,107,826 for the nine months - No Operating Revenues: The company has not engaged in significant business operations or generated operating revenues to date[159] Net Income (Loss) Summary | Period | Net Income (Loss) ($) | | :--- | :--- | | 3 months ended Sep 30, 2022 | (551,852) | | 9 months ended Sep 30, 2022 | 1,107,826 | | 3 months ended Sep 30, 2021 | 4,446,228 | | Inception through Sep 30, 2021 | 4,434,975 | - Key Drivers (3 months ended Sep 30, 2022): $1,697,156 in operating expenses, offset by a $158,804 gain on warrant fair value and a $971,818 gain on trust account investments[160] Liquidity, Capital Resources and Going Concern As of September 30, 2022, the company had $231,010 cash outside the Trust Account and faces substantial doubt about its going concern ability due to acquisition costs and the August 3, 2023, Business Combination deadline - Cash Outside Trust Account (Sep 30, 2022): $231,010 available for working capital needs[162] - Promissory Note: $300,000 outstanding under a promissory note from the Sponsor as of September 30, 2022[166] - Going Concern: Substantial doubt about the Company's ability to continue as a going concern due to significant acquisition costs and the deadline to complete a Business Combination by August 3, 2023[167] Estimated Liquidity Requirements (Prior to Business Combination) | Expense Category | Estimated Amount ($) | | :--- | :--- | | Legal, accounting, due diligence, travel for Business Combination | 350,000 | | Legal and accounting for regulatory reporting | 150,000 | | Nasdaq continued listing fees | 58,000 | | General working capital | 442,000 | Off-Balance Sheet Arrangements As of September 30, 2022, the company did not have any off-balance sheet arrangements - No off-balance sheet arrangements as of September 30, 2022[175] Contractual Obligations The company had no long-term debt, capital, or operating lease obligations as of September 30, 2022, and the Sponsor does not intend to charge for administrative services - No long-term debt, capital, or operating lease obligations as of September 30, 2022[176] - Administrative Services Agreement: Sponsor may charge $10,000 per month for services, but has not charged and does not intend to[176] Critical Accounting Policies Management's discussion is based on unaudited condensed financial statements prepared in accordance with U.S. GAAP, requiring significant judgments and estimates, with ASU No. 2020-06 under evaluation - Financial statements prepared in accordance with U.S. GAAP, requiring significant management judgments and estimates[177] - Evaluating ASU No. 2020-06, Debt with Conversion and other Options, for its effect on financial position, results of operations, or disclosures[178] JOBS Act As an "emerging growth company" under the JOBS Act, the company elects to delay new accounting standard adoption and evaluates reduced reporting requirements - Emerging Growth Company: Qualifies under the JOBS Act[180] - Accounting Standards Adoption: Elects to delay the adoption of new or revised accounting standards to align with private companies' effective dates[180] - Reduced Reporting Requirements: Evaluating benefits of relying on exemptions from independent registered public accounting firm attestation, certain compensation disclosures, and PCAOB requirements[182] Item 3. Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2022, XPAC Acquisition Corp. was not subject to any material market or interest rate risk, with Trust Account investments minimizing exposure - No Material Market or Interest Rate Risk: As of September 30, 2022[183] - Trust Account Investments: Invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds, minimizing interest rate risk[183] - No Hedging Activities: The company has not engaged in and does not expect to engage in any hedging activities[184] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to identified material weaknesses, necessitating additional analysis for fair financial statement presentation - Disclosure Controls Effectiveness: Not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting[186] - Mitigation: Management performed additional analysis to ensure financial statements were prepared in accordance with GAAP[186] Changes in Internal Control over Financial Reporting Material weaknesses were identified concerning Class A redeemable ordinary shares classification and Business Combination Costs recognition, leading to restatements and ongoing remediation plans - Material Weakness 1: Improper classification of Class A redeemable ordinary shares[190][191] - Material Weakness 2: Improper recognition of Business Combination Costs as liabilities and expenses[192] - Restatements: Previously issued audited financial statements (Form 10-K and 10-Q) were restated due to these material weaknesses[193] - Remediation Plan: Includes enhanced access to accounting literature, research materials, industry best practices, and increased communication among personnel and third-party accounting professionals[194] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings - No legal proceedings reported[195] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported, with reference to prior filings and the Form F-4 for SuperBac Business Combination risks - No material changes to risk factors disclosed in previous filings (10-K/A, 10-Q/A)[196] - For risks related to the proposed SuperBac Business Combination, refer to the "Risk Factors" section of the preliminary prospectus/proxy statement in the Registration Statement on Form F-4[196] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the unregistered sale of Class B ordinary shares (Founder Shares) to the Sponsor in March 2021 for $25,000, and subsequent transfers to independent directors, exempt under Section 4(a)(2) of the Securities Act - Founder Shares Sale: Sponsor purchased 5,750,000 Class B ordinary shares for $25,000 in March 2021[197] - Director Shares Transfer: 90,000 Founder Shares were transferred to independent directors in May 2021[197] - Exemption: Securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act[197] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities reported[199] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[200] Item 5. Other Information The company reported no other information - No other information reported[201] Item 6. Exhibits Provides a list of exhibits filed with the Form 10-Q, including the Business Combination Agreement, Sponsor Support Agreement, Lock-up Agreement, and various certifications - Key Exhibits include the Business Combination Agreement, Sponsor Support Agreement, Voting and Support Agreement, Lock-up Agreement, Investment Agreement, and various certifications (e.g., 31.1, 31.2, 32.1, 32.2)[203] SIGNATURES Signatures The report is duly signed on behalf of XPAC Acquisition Corp. by its Chief Executive Officer, Chu Chiu Kong, and Chief Financial Officer, Fabio Kann, on November 10, 2022 - Report signed by Chu Chiu Kong (Chief Executive Officer) and Fabio Kann (Chief Financial Officer) on November 10, 2022[208]