Zalatoris II Acquisition (ZLS) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed financial statements and management's discussion and analysis for the period ended March 31, 2023 Item 1. Financial Statements (Unaudited) This section presents XPAC Acquisition Corp.'s unaudited condensed financial statements and comprehensive notes for Q1 2023 Condensed Balance Sheets Presents the company's financial position, including assets, liabilities, and shareholders' deficit, as of March 31, 2023, and December 31, 2022 | Metric | As of March 31, 2023 | As of December 31, 2022 | | :------------------------------------ | :------------------- | :---------------------- | | Assets | | | | Cash | $10,640 | $44,659 | | Investments held in Trust Account | $225,085,692 | $222,726,270 | | Total assets | $225,282,259 | $223,004,418 | | Liabilities | | | | Accounts payable | $122,721 | $295,328 | | Accrued expenses | $5,418,212 | $4,966,405 | | Total current liabilities | $5,902,891 | $5,353,733 | | Warrant liabilities | $1,058,083 | $1,874,437 | | Total liabilities | $14,947,370 | $15,214,566 | | Shareholders' Deficit | | | | Class A ordinary shares subject to possible redemption | $225,085,692 | $222,726,270 | | Total shareholders' deficit | $(14,750,803) | $(14,936,418) | | Total liabilities and shareholders' deficit | $225,282,259 | $223,004,418 | Condensed Statements of Operations Details the company's revenues, expenses, and net income or loss for the three months ended March 31, 2023 and 2022 | Metric | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Formation and operating costs | $(608,385) | $(1,255,542) | | Loss from operations | $(608,385) | $(1,255,542) | | Change in fair value of warrant liabilities | $816,354 | $1,062,617 | | Gain on securities held in trust | $2,359,422 | $14,424 | | Foreign exchange loss | $(22,366) | $(30,003) | | Total other income | $3,153,422 | $1,047,038 | | Net income (loss) | $2,545,037 | $(208,504) | | Basic and diluted net income (loss) per share, redeemable Class A ordinary shares | $0.09 | $(0.01) | | Basic and diluted net income (loss) per share, non-redeemable Class B ordinary shares | $0.09 | $(0.01) | Condensed Statements of Changes In Shareholders' Deficit Outlines changes in the company's shareholders' deficit, including net income/loss and remeasurement of Class A shares, for Q1 2023 and 2022 | Metric | Balance – December 31, 2022 | Remeasurement of Class A shares | Net income | Balance – March 31, 2023 | | :-------------------------------- | :-------------------------- | :------------------------------ | :--------- | :----------------------- | | Total Shareholders' Deficit | $(14,936,418) | $(2,359,422) | $2,545,037 | $(14,750,803) | | Metric | Balance – December 31, 2021 (Restated) | Remeasurement of Class A shares | Net loss | Balance – March 31, 2022 (Restated) | | :-------------------------------- | :------------------------------- | :------------------------------ | :--------- | :-------------------------------- | | Total Shareholders' Equity (Deficit) | $(13,739,334) | $(14,424) | $(208,504) | $(13,962,262) | Condensed Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 | Metric | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net cash used in operating activities | $(34,019) | $(259,788) | | Net cash provided by financing activities | — | $215,588 | | Net change in cash | $(34,019) | $(44,200) | | Cash at beginning of period | $44,659 | $352,190 | | Cash at end of period | $10,640 | $307,990 | | Non-cash financing activities: Remeasurement of ordinary shares subject to possible redemption value | $2,359,422 | $14,423 | Notes To Condensed Financial Statements (Unaudited) Detailed notes explain the company's organization, accounting policies, IPO, related party transactions, warrant liabilities, and subsequent events NOTE 1 — ORGANIZATION AND BUSINESS BACKGROUND XPAC Acquisition Corp. is a SPAC formed in March 2021 to pursue a business combination. It completed an IPO in August 2021, raising over $200 million, which is held in a Trust Account. The company recently terminated its proposed business combination with SuperBac and is now considering accelerating its liquidation - XPAC Acquisition Corp. was incorporated on March 11, 2021, as a blank check company for the purpose of entering into a business combination[20] - The company consummated its Initial Public Offering (IPO) on August 3, 2021, selling 20,000,000 Units at $10.00 per Unit, generating gross proceeds of $200,000,000. An additional 1,961,131 Units were purchased via over-allotment, generating $19,611,310[23][24] - An aggregate of $219,611,310 ($10.00 per Unit) from the IPO and private warrant sales was deposited into a Trust Account, invested in U.S. government treasury bills or money market funds[25][28] - The Business Combination Agreement with SuperBac Biotechnology Solutions S.A. was mutually terminated on May 3, 2023[41] - The company's board of directors determined it is very unlikely to complete an initial business combination and plans to accelerate the Original Termination Date, filing a preliminary Accelerated Liquidation Proxy Statement on May 8, 2023[42][45] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines accounting principles, including GAAP, emerging growth company status, and policies for estimates, taxes, and warrant liabilities - The unaudited condensed financial statements are prepared in accordance with GAAP for interim financial information and SEC rules[47] - 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[48][50] - The company is an exempted Cayman Islands company and is not subject to income taxes in the Cayman Islands or the United States, resulting in a zero tax provision[55] - Warrants for ordinary shares not indexed to its own shares are accounted for as liabilities at fair value and are subject to remeasurement at each balance sheet date[64] - Class A ordinary shares subject to possible redemption are classified as temporary equity at redemption value due to redemption rights outside the company's control[68] NOTE 3 — INITIAL PUBLIC OFFERING Details the Initial Public Offering (IPO) on August 3, 2021, where 20,000,000 Units were sold at $10.00 each, and a partial over-allotment option was exercised, bringing total proceeds to $219,611,310, which was placed in the Trust Account - On August 3, 2021, the Company sold 20,000,000 Units at $10.00 per Unit, each consisting of one Class A ordinary share and one-third of one Public Warrant[73] - On August 19, 2021, the underwriter partially exercised the over-allotment option, purchasing an additional 1,961,131 Units for $19,611,310[74] - 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[75] NOTE 4 — PRIVATE PLACEMENT The Sponsor purchased 4,000,000 Private Warrants for $6,000,000 simultaneously with the IPO, and an additional 261,485 Private Warrants for $392,228 with the over-allotment exercise. Proceeds from these sales were added to the Trust Account - The Sponsor purchased 4,000,000 Private Warrants at $1.50 per warrant for $6,000,000 simultaneously with the IPO[76] - An additional 261,485 Private Warrants were sold to the Sponsor for $392,228 with the over-allotment exercise[74][76] - Proceeds from the sale of Private Warrants were added to the Trust Account and will be used to fund Public Share redemption if no Business Combination is completed, otherwise Private Warrants expire worthless[76] NOTE 5 — RELATED PARTY TRANSACTIONS This note details various transactions and agreements with related parties, primarily the Sponsor, including Founder Shares, a promissory note, and advisory services - The Sponsor purchased 5,750,000 Class B ordinary shares (Founder Shares) for $25,000, with 259,717 shares forfeited, resulting in 5,490,283 outstanding[77] - A non-interest bearing promissory note from the Sponsor allows the Company to borrow up to $300,000, with $300,000 outstanding as of March 31, 2023[80] - XP Investimentos, an affiliate of the Sponsor, received a $1,725,443 fee for financial consulting services and is entitled to an additional $2,690,239 if a Business Combination is consummated[84][85] - The Sponsor or its affiliates may provide Working Capital Loans, up to $1,500,000 of which may be convertible into warrants, but no outstanding borrowings existed as of March 31, 2023[81] NOTE 6 — SHAREHOLDERS' DEFICIT The company is authorized to issue preference shares (none outstanding), Class A ordinary shares (21,961,131 issued, none outstanding excluding those subject to redemption), and Class B ordinary shares (5,490,283 issued and outstanding, representing 20% of total outstanding shares). Class B shares convert to Class A upon business combination - The Company is authorized to issue 1,000,000 preference shares, but none are issued or outstanding[88] - 200,000,000 Class A ordinary shares are authorized, with 21,961,131 issued and none outstanding (excluding those subject to possible redemption)[89] - 20,000,000 Class B ordinary shares are authorized, with 5,490,283 issued and outstanding, representing 20% of the Company's issued and outstanding ordinary shares[90] - 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[91] NOTE 7 — WARRANT LIABILITIES This note details the terms of Public and Private Warrants, including exercise conditions, registration requirements, and redemption triggers, with warrants accounted for as derivative liabilities at fair value - Public Warrants become exercisable on the later of 12 months from IPO closing or 30 days after the completion of a Business Combination[93] - The Company may redeem Public Warrants at $0.01 per warrant if the Class A ordinary share price equals or exceeds $18.00 for 20 trading days within a 30-trading day period[96] - The Company may also redeem Public Warrants at $0.10 per warrant if the Class A ordinary share price equals or exceeds $10.00, with holders able to exercise on a cashless basis[97] - Private Warrants are identical to Public Warrants but are non-transferable/assignable for 30 days post-Business Combination and are non-redeemable as long as held by initial purchasers or permitted transferees[99] - Both Public and Private Warrants are classified as derivative liabilities at fair value and are subject to re-measurement at each balance sheet date[100][101] NOTE 8 — COMMITMENTS AND CONTINGENCIES This note outlines commitments including registration rights for Founder Shares and Private Warrants, and the underwriting agreement, specifying cash discount paid and a deferred fee contingent on business combination completion - Holders of Founder Shares and Private Warrants are entitled to registration rights[102] - A cash underwriting discount of $4,392,226 was paid upon closing of the IPO and partial over-allotment exercise[104] - A deferred fee of $7,686,396 is held in the Trust Account, to be released to the underwriter only upon completion of a Business Combination, and will be waived if no Business Combination occurs[104] - Of the deferred fee, $2,690,239 will be paid to XP Investimentos, an affiliate, as an advisory fee[104] NOTE 9 — RECURRING FAIR VALUE MEASUREMENTS This note details the fair value measurement of warrant liabilities, classified as Level 1 (Public Warrants) and Level 3 (Private Warrants), with Level 3 estimated using a Monte Carlo simulation model | Metric | As of March 31, 2023 | As of December 31, 2022 | | :-------------------- | :------------------- | :---------------------- | | Warrant liabilities | $1,058,083 | $1,874,437 | - Public Warrants are classified as Level 1 (unadjusted, quoted prices on active market exchanges), while Private Warrants are classified as Level 3 (unobservable inputs, estimated using a Monte Carlo simulation model)[108][109][112] Key Inputs for Private Warrant Liabilities Valuation (Monte Carlo Model) | Input | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Share price | $10.20 | $10.00 | | Exercise price | $11.50 | $11.50 | | Risk-free rate | 3.57% | 3.95% | | Expected term of warrants | 5.08 years | 5.08 years | | Volatility | 0.001% | 0.001% | NOTE 10 — SUBSEQUENT EVENTS Subsequent to the balance sheet date, the Business Combination Agreement with SuperBac was mutually terminated on May 3, 2023. The board determined it is unlikely to complete another business combination and plans to accelerate the liquidation date, filing a preliminary proxy statement for shareholder approval on May 8, 2023 - Effective May 3, 2023, the Business Combination Agreement with SuperBac was mutually terminated[115] - The Company's board of directors determined it is very unlikely to complete an initial business combination and resolved to accelerate the Original Termination Date[115] - On May 8, 2023, the Company filed a preliminary Accelerated Liquidation Proxy Statement with the SEC for shareholder approval of the accelerated termination[115] 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 and operational results, covering its SPAC overview, recent developments, liquidity, and accounting policies Overview Provides a general overview of XPAC Acquisition Corp. as a blank check company, its IPO, and the recent decision to accelerate liquidation - XPAC Acquisition Corp. is a blank check company incorporated on March 11, 2021, for the purpose of effecting a Business Combination, with a focus on Brazil[118] - The company consummated its IPO on August 3, 2021, selling 20,000,000 Units at $10.00 per Unit, and completed a private placement of 4,000,000 Private Warrants to its Sponsor for $1.50 per warrant[120][121] - Following the IPO, $219,611,310 was placed in the Trust Account for the benefit of Public Shareholders[124] - On May 3, 2023, the board determined it is very unlikely to complete an initial business combination before the Original Termination Date[119] Recent Developments The proposed business combination with SuperBac was mutually terminated on May 3, 2023, due to unfavorable market conditions, leading the board to resolve to accelerate the company's liquidation Terminated SuperBac Business Combination Details the mutual termination of the SuperBac Business Combination Agreement on May 3, 2023, citing unfavorable market conditions and failure to meet the Minimum Cash Condition - The Business Combination Agreement with SuperBac, entered into on April 25, 2022, was mutually terminated on May 3, 2023[127][135] - Reasons for termination included prevailing unfavorable public market conditions, heightened volatility, and the fact that no PIPE investments had been secured to meet the $150,000,000 Minimum Cash Condition[134] - Upon termination, related agreements such as the Sponsor Support Agreement, Voting and Support Agreement, Lock-up Agreements, and Investment Agreement were automatically terminated[135] Proposed Extraordinary General Meeting to Consider the Accelerated Shareholder Termination Matters The board resolved to accelerate the termination date, and an Extraordinary General Meeting will be convened for shareholders to vote on amending governing documents and the Trust Agreement - On May 3, 2023, the Company's board of directors resolved to accelerate the Original Termination Date to a date to be determined in due course, deeming it unlikely to complete another business combination[137] - An Extraordinary General Meeting will be convened for shareholders to vote on amending the company's governing documents and the Trust Agreement to accelerate the termination date[139][141] - If approved, the company will cease operations, redeem Public Shares, liquidate, and voluntarily delist from Nasdaq; Public and Private Warrants would expire worthless[139] - A preliminary Accelerated Liquidation Proxy Statement was filed with the SEC on May 8, 2023[141] Results of Operations Analyzes the company's financial performance, noting no operating revenues and non-operating income from trust account interest and warrant fair value changes - The company has not generated any operating revenues to date, with activities focused on formation, IPO, and searching for a target business[145] - Non-operating income is generated from interest income from Trust Account proceeds and changes in the fair value of warrant liabilities[145] Net Income (Loss) Comparison | Metric | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income (loss) | $2,545,037 | $(208,504) | | Gain on fair value of warrant liabilities | $816,354 | $1,062,617 | | Gain on securities held in trust | $2,359,422 | $14,424 | | Foreign exchange loss | $(22,366) | $(30,003) | | Formation and operating costs | $(608,385) | $(1,255,542) | Liquidity, Capital Resources and Going Concern Assesses the company's liquidity, capital resources, and going concern status, highlighting limited cash and a significant working capital deficit Liquidity Snapshot (March 31, 2023) | Metric | Amount | | :-------------------------- | :------- | | Cash outside Trust Account | $10,640 | | Working Capital Deficit | $(5,706,324) | - The company's limited cash and significant working capital deficit, coupled with the terminated business combination, raise substantial doubt about its ability to continue as a going concern[152][159] - The Sponsor or its affiliates may provide Working Capital Loans, but are not obligated to do so[152][155] - If a Business Combination is not completed by August 3, 2023 (or an accelerated date), the company will commence winding up, dissolution, and liquidation[160] Off-Balance Sheet Financing Arrangements Confirms the absence of any off-balance sheet financing arrangements as of March 31, 2023 - The company did not have any off-balance sheet arrangements as of March 31, 2023[161] Contractual Obligations States that the company had no long-term debt, capital, or operating lease obligations as of March 31, 2023, and the Sponsor waived administrative service fees - As of March 31, 2023, the company had no long-term debt, capital, or operating lease obligations[162] - The Sponsor has not charged, and does not intend to charge, the $10,000 per month fee for administrative services under the administrative services agreement[162] Critical Accounting Policies Highlights that management's discussion and analysis are based on unaudited condensed financial statements prepared under U.S. GAAP, requiring significant judgments and estimates - Management's discussion and analysis are based on unaudited condensed financial statements prepared in accordance with U.S. GAAP, requiring significant judgments and estimates[163] Recent Accounting Standards Discusses the company's evaluation of new accounting standards, ASU No. 2020-06 and ASU 2022-03, and the expectation of no material impact from other pronouncements - The company is evaluating the effect of ASU No. 2020-06 (Debt with Conversion and other Options) and ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions), both effective for fiscal years beginning after December 15, 2023[164][165] - No other new accounting pronouncements are expected to have a material impact on the company's financial position, results of operations, or cash flows[166] JOBS Act Explains the company's status as an 'emerging growth company' under the JOBS Act, allowing for delayed adoption of accounting standards and reduced reporting requirements - The company qualifies as an 'emerging growth company' under the JOBS Act[167] - The company elects to delay the adoption of new or revised accounting standards, aligning with effective dates for private companies[167] - The company may rely on reduced reporting requirements, including exemptions from independent registered public accounting firm attestation reports on internal control and certain executive compensation disclosures[168] Item 3. Quantitative and Qualitative Disclosures About Market Risk As of March 31, 2023, the company was not subject to material market or interest rate risk, with Trust Account funds invested in short-term U.S. government treasury obligations or money market funds - As of March 31, 2023, the company was not subject to any material market or interest rate risk[169] - Net proceeds in the Trust Account are invested in short-term U.S. government treasury obligations or money market funds, resulting in no material exposure to interest rate risk[169] - The company has not engaged in, and does not expect to engage in, any hedging activities[170] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting related to share classification and business combination costs - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting[172] - Material weaknesses identified include improper classification of Class A redeemable ordinary shares and improper recognition of Business Combination Costs[175][177] - The company is devoting significant effort and resources to remediation, including enhanced access to accounting literature, research materials, and increased communication among personnel and third-party accounting professionals[180] PART II - OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company reported no legal proceedings - The company has no legal proceedings[182] Item 1A. Risk Factors The company's actual results could differ materially from forward-looking statements due to factors described in its 2022 Form 10-K, with a new significant risk being the high unlikelihood of completing an initial Business Combination, leading to expected accelerated liquidation - Actual results could differ materially from forward-looking statements due to risk factors described in the 2022 Form 10-K[183] - A key new risk factor is the high unlikelihood of completing an initial Business Combination before the Original Termination Date, leading to an expected accelerated liquidation[184] - If liquidation occurs, all Public Warrants and Private Warrants would expire worthless[185] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In March 2021, the Sponsor purchased 5,750,000 Class B ordinary shares for $25,000, and later transferred 90,000 Founder Shares to independent directors. These sales were exempt from registration under Section 4(a)(2) of the Securities Act - In March 2021, the Sponsor purchased 5,750,000 Class B ordinary shares for an aggregate price of $25,000[188] - The Sponsor transferred 90,000 Founder Shares to independent directors[188] - These securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act[188] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company has no defaults upon senior securities[190] Item 4. Mine Safety Disclosures Not applicable to the company - Mine Safety Disclosures are not applicable to the company[191] Item 5. Other Information The company reported no other information - The company has no other information to report[192] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the Business Combination Agreement, organizational documents, warrant agreement, trust agreement, and various certifications - Exhibits include the Business Combination Agreement and its amendments (2.1, 2.2, 2.3), Amended and Restated Memorandum and Articles of Association (3.1), and Warrant Agreement (4.1)[195] - Other exhibits include the Investment Management Trust Agreement (10.2), Registration Rights Agreement (10.3), Administrative Services Agreement (10.4), and the Termination Agreement (10.22)[195] - Certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) are also furnished[195] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the accuracy of the report - The report was signed by Chu Chiu Kong, Chief Executive Officer, and Fabio Kann, Chief Financial Officer, on May 11, 2023[203]