Zalatoris II Acquisition (ZLS) - 2023 Q2 - Quarterly Report

FORM 10-Q This Quarterly Report (Form 10-Q) for Zalatoris II Acquisition Corp. covers the period ended June 30, 2023, outlining its regulatory classifications and share structure - The document is a Quarterly Report (Form 10-Q) for Zalatoris II Acquisition Corp. for the period ended June 30, 2023[2] - The registrant is classified as a non-accelerated filer, smaller reporting company, emerging growth company, and a shell company[3][4] Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :---------------------------------------------------------------- | :---------------- | :--------------------------------------- | | Units, each consisting of one Class A ordinary share and one-third of one redeemable warrant | ZLSWU | The Nasdaq Stock Market LLC | | Class A ordinary share, par value $0.0001 per share | ZLS | The Nasdaq Stock Market LLC | | Redeemable warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 per whole share | ZLSWW | The Nasdaq Stock Market LLC | - As of September 1, 2023, there were 6,514,674 Class A ordinary shares and 5,490,283 Class B ordinary shares issued and outstanding[4] PART I. FINANCIAL INFORMATION This section presents the unaudited financial statements, management's discussion and analysis, and disclosures on market risk and controls for Zalatoris II Acquisition Corp. Item 1. Financial Statements (Unaudited) This item provides the unaudited condensed financial statements of Zalatoris II Acquisition Corp. for the quarter ended June 30, 2023, compared to prior periods, along with detailed notes explaining the company's organization, accounting policies, and significant transactions Condensed Balance Sheets This section presents the unaudited condensed balance sheets, detailing assets, liabilities, and shareholders' deficit as of June 30, 2023, and December 31, 2022 Condensed Balance Sheet Summary | Item | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Total Assets | $227,848,209 | $223,004,418 | | Investments held in Trust Account | $227,731,980 | $222,726,270 | | Total Liabilities | $8,034,396 | $15,214,566 | | Total Shareholders' Deficit | $(7,918,167) | $(14,936,418) | - Current liabilities significantly decreased from $5,353,733 at December 31, 2022, to $0 at June 30, 2023, primarily due to the reclassification of accounts payable, accrued expenses, and accrued offering costs to additional paid-in capital[10] Condensed Statements of Operations This section presents the unaudited condensed statements of operations, detailing net income and other comprehensive income for the three and six months ended June 30, 2023 and 2022 Condensed Statements of Operations Summary | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Formation and operating costs | $53,108 | $1,385,461 | $661,493 | $2,641,003 | | Loss from operations | $(53,108) | $(1,385,461) | $(661,493) | $(2,641,003) | | Change in fair value of warrant liabilities | $710,083 | $2,925,096 | $1,526,437 | $3,987,713 | | Gain on securities held in trust | $2,646,288 | $287,683 | $5,005,710 | $302,107 | | Total other income | $3,344,958 | $3,253,643 | $6,498,380 | $4,300,681 | | Net income | $3,291,850 | $1,868,182 | $5,836,887 | $1,659,678 | | Basic and diluted net income per share (Class A/B) | $0.12 | $0.07 | $0.21 | $0.06 | - Net income for the three months ended June 30, 2023, increased by 76.2% year-over-year, primarily driven by a significant gain on securities held in trust[12] - Net income for the six months ended June 30, 2023, increased by 251.7% year-over-year, largely due to a substantial increase in gain on securities held in trust, despite a decrease in the gain from warrant liabilities[12] Condensed Statements of Changes in Shareholders' Deficit This section presents the unaudited condensed statements of changes in shareholders' deficit, outlining movements in equity components for the six months ended June 30, 2023 and 2022 - Total shareholders' deficit improved from $(14,936,418) at December 31, 2022, to $(7,918,167) at June 30, 2023[14] - A capital contribution from the Sponsor of $6,187,074 was recorded in additional paid-in capital during the six months ended June 30, 2023[14] - Net income for the six months ended June 30, 2023, contributed $5,836,887 to the reduction of accumulated deficit[14] Condensed Statements of Cash Flows This section presents the unaudited condensed statements of cash flows, detailing cash movements from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Condensed Statements of Cash Flows Summary | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net income | $5,836,887 | $1,659,678 | | Gain on securities held in trust | $(5,005,710) | $(302,107) | | Change in fair value of warrant liabilities | $(1,526,437) | $(3,987,713) | | Net cash provided by operating activities | $3,206 | $(297,521) | | Net cash provided by financing activities | $0 | $215,588 | | Net change in cash | $3,206 | $(81,933) | | Cash at end of period | $47,865 | $270,257 | - The company generated positive net cash from operating activities of $3,206 for the six months ended June 30, 2023, a significant improvement from a net outflow of $(297,521) in the prior year[17] - Non-cash financing activities for the six months ended June 30, 2023, included a remeasurement of ordinary shares subject to possible redemption value of $5,005,710 and capital contributions from the Former Sponsor totaling $6,187,074[17] Notes To Condensed Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed financial statements, explaining the company's organization, significant accounting policies, and key transactions NOTE 1 — ORGANIZATION AND BUSINESS BACKGROUND This note details the company's formation as a blank check company, its IPO, the termination of a business combination, and subsequent sponsor changes and extension approvals - Zalatoris II Acquisition Corp. (formerly XPAC Acquisition Corp.) was incorporated on March 11, 2021, as a blank check company to effect a Business Combination[21] - The company consummated its Initial Public Offering (IPO) on August 3, 2021, raising $200,000,000, and an additional $19,611,310 from a partial over-allotment exercise, with $219,611,310 placed in a Trust Account[24][25][31] - On May 3, 2023, the company mutually agreed to terminate its Business Combination Agreement with SuperBac Biotechnology Solutions S.A.[45] - On July 10, 2023, J. Streicher Holdings, LLC became the new Sponsor, acquiring 4,400,283 Class B ordinary shares and 4,261,485 Private Warrants from the Former Sponsor for $250,000[46] - Shareholders approved an extension of the Business Combination deadline to August 3, 2024, and a name change to 'Zalatoris II Acquisition Corp.' on July 27, 2023[57][59][61] - In connection with the extension, 15,446,457 Class A Ordinary Shares were redeemed for approximately $160,732,917, leaving approximately $67,790,468 in the Trust Account[60] - The company's financial needs and significant costs raise substantial doubt about its ability to continue as a going concern for the next year, relying on potential funding from its Sponsor[61][62] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the significant accounting policies used in preparing the financial statements, including those for interim reporting, emerging growth companies, and warrant liabilities - The unaudited condensed financial statements are prepared in accordance with GAAP for interim financial information and SEC regulations[65] - As an 'emerging growth company,' the company has elected to delay the adoption of new or revised financial accounting standards until private companies are required to comply[66][67] - 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[72] - Offering costs totaling $11,761,739 (IPO) and $1,078,624 (over-allotment) were recognized, allocated between accumulated deficit and additional paid-in capital based on warrant values[73][74] - Warrants for ordinary shares not indexed to the company's own shares are accounted for as liabilities at fair value and remeasured at each balance sheet date, with changes recognized in the statement of operations[81] - 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[85] Class A Ordinary Shares Subject to Possible Redemption | Item | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Beginning Balance | $222,726,270 | $219,617,731 | | Plus: Remeasurement of carrying value to redemption value | $5,005,710 | $3,108,539 | | Class A ordinary shares subject to possible redemption | $227,731,980 | $222,726,270 | NOTE 3 — INITIAL PUBLIC OFFERING This note details the company's Initial Public Offering, including the number of units sold, proceeds raised, and the investment of funds 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[91] - On August 19, 2021, the underwriter partially exercised the over-allotment option, purchasing an additional 1,961,131 Units for $19,611,310[92] - 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[93] NOTE 4 — PRIVATE PLACEMENT This note describes the private placement of warrants to the Former Sponsor and their subsequent transfer to the new Sponsor - Simultaneously with the IPO closing, the Former Sponsor purchased 4,000,000 Private Warrants at $1.50 per warrant for $6,000,000[94] - An additional 261,485 Private Warrants were sold to the Former Sponsor in connection with the over-allotment option exercise[96] - On July 10, 2023, the Former Sponsor sold and assigned 4,261,485 Private Warrants to the new Sponsor as part of the Sponsor Handover transaction[97] NOTE 5 — RELATED PARTY TRANSACTIONS This note details transactions with related parties, including the Former Sponsor's founder shares, promissory notes, and capital contributions - The Former Sponsor initially purchased 5,750,000 Founder Shares for $25,000, with 5,490,283 shares remaining outstanding after forfeiture[98] - On July 10, 2023, 4,400,283 Founder Shares were sold by the Former Sponsor to the new Sponsor[100] - The Former Sponsor's $300,000 Promissory Note to the company was waived on July 27, 2023, and the balance was reclassified to additional paid-in capital as of June 30, 2023, due to expected reimbursement by Superbac or the Former Sponsor[102][103][105] - Superbac agreed to reimburse up to $13.5 million of Business Combination expenses to the Former Sponsor via a Reimbursement Agreement on May 16, 2023[112][114] - Outstanding accounts payable, accrued expenses, Promissory Note, and due to/from Former Sponsor amounts (approximately $6.2 million) were de-recognized and reclassed to additional paid-in capital as an in-substance capital contribution[115] NOTE 6 — SHAREHOLDERS' DEFICIT This note outlines the company's authorized and outstanding share capital, including Class A and Class B ordinary shares, and their characteristics - The company is authorized to issue 1,000,000 preference shares and 200,000,000 Class A ordinary shares, with 21,961,131 Class A shares issued (excluding those subject to redemption) as of June 30, 2023[117][118] - There are 5,490,283 Class B ordinary shares (Founder Shares) issued and outstanding, representing 20% of the company's ordinary shares, which automatically convert to Class A shares upon a Business Combination[119][120] - On July 10, 2023, 4,400,283 Founder Shares were sold by the Former Sponsor to the new Sponsor[121] NOTE 7 — WARRANT LIABILITIES This note describes the terms and accounting treatment of the company's public and private warrants, including their exercisability, redemption features, and fair value measurement - Public Warrants become exercisable on the later of 12 months from the IPO closing or 30 days after the completion of a Business Combination[122] - The company may redeem Public Warrants at $0.01 per warrant if the Class A ordinary share price equals or exceeds $18.00, or at $0.10 per warrant if it equals or exceeds $10.00 (with cashless exercise option)[126][127][135] - Private Warrants are identical to Public Warrants but are non-transferable/assignable for 30 days post-Business Combination (with exceptions) and non-redeemable if held by initial purchasers or permitted transferees[131] - As of June 30, 2023, there were 7,320,377 Public Warrants and 4,261,485 Private Warrants outstanding[132] - Both Public and Private Warrants are classified as derivative liabilities at fair value, subject to remeasurement at each balance sheet date, with changes recognized in the statement of operations[132][133] NOTE 8 — COMMITMENTS AND CONTINGENCIES This note details the company's commitments and contingencies, including registration rights for securities and the deferred underwriting fee - Holders of Founder Shares and Private Warrants are entitled to registration rights for resale of their securities[134] - The underwriter was paid a cash underwriting discount of $4,392,226 and was entitled to a deferred fee of $7,686,396[139] - On July 10, 2023, the underwriter formally waived the company's obligation to pay the deferred underwriting fee of $7,686,396[139] NOTE 9 — RECURRING FAIR VALUE MEASUREMENTS This note provides information on the fair value measurements of warrant liabilities and investments held in the Trust Account, including their classification within the fair value hierarchy Warrant Liabilities Fair Value | Item | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Warrant liabilities | $348,000 | $1,874,437 | Fair Value Hierarchy | Item | As of June 30, 2023 (Level 1) | As of June 30, 2023 (Level 2) | As of December 31, 2022 (Level 1) | As of December 31, 2022 (Level 3) | | :------------------------------------ | :---------------------------- | :---------------------------- | :-------------------------------- | :-------------------------------- | | Investments held in the Trust Account | $227,731,980 | — | $222,726,270 | — | | Public Warrants | $220,000 | — | $1,184,437 | — | | Private Warrants | — | $128,000 | — | $690,000 | - Private Warrants were reclassified from Level 3 to Level 2 in the fair value hierarchy for the period ended June 30, 2023, as their value aligned with Public Warrants due to a make-whole provision[144] Private Warrant Liabilities Rollforward | Item | Private Warrant Liabilities | | :-------------------------------- | :------------------------ | | Fair value as of December 31, 2021 | $2,160,000 | | Change in fair value of warrant liabilities | $(1,470,000) | | Fair value as of December 31, 2022 | $690,000 | | Change in fair value of warrant liabilities | $(301,000) | | Fair value of as of March 31, 2023 | $389,000 | | Transfer out of Level 3 | $(389,000) | | Fair value of as of June 30, 2023 | $0 | NOTE 10 — SUBSEQUENT EVENTS This note describes significant events occurring after the balance sheet date, including the waiver of underwriting fees, sponsor changes, and the extension of the business combination deadline - On July 10, 2023, the underwriter formally waived the $7,686,396 deferred underwriting fee and the related advisory fee[149] - On July 10, 2023, J. Streicher Holdings, LLC became the new Sponsor, purchasing 4,400,283 Founder Shares and 4,261,485 Private Warrants from the Former Sponsor for $250,000[149] - Effective July 27, 2023, new directors and management were appointed, including Paul Davis as CEO and Llewellyn Farquharson as CFO, replacing the previous team[157][158] - On July 27, 2023, the Former Sponsor waived its right to receive payment of the $300,000 principal balance under the Promissory Note[156] - Shareholders approved proposals on July 27, 2023, to extend the Business Combination deadline to August 3, 2024, eliminate a redemption limitation, change the company's name to 'Zalatoris II Acquisition Corp.', and amend the Letter Agreement to allow Sponsor share transfers[160][166][167][168][169] - In connection with the Extension Amendment, 15,446,457 Class A Ordinary Shares were redeemed for approximately $160,732,917, resulting in a Trust Account balance of approximately $67,790,468[173] - On July 29, 2023, the company entered into a $1,500,000 non-interest bearing Working Capital Promissory Note with the Sponsor, convertible into warrants[170] 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, results of operations, and liquidity, including an overview of its SPAC activities, recent developments such as the terminated SuperBac business combination and sponsor change, and a discussion of its going concern status Cautionary Note Regarding Forward-Looking Statements This section advises that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from expectations - The report includes forward-looking statements subject to risks and uncertainties, and actual results may differ materially from expectations[176] Overview This section provides an overview of the company's formation as a blank check company, its IPO, and the initial funding of its Trust Account - The company is a blank check company formed on March 11, 2021, to effect a Business Combination[178] - The IPO on August 3, 2021, raised $200,000,000 from 20,000,000 Units, and a private placement of 4,000,000 Private Warrants generated $6,000,000[179][180] - Following the IPO, $219,611,310 was placed in the Trust Account for public shareholders, invested in interest-bearing U.S. government securities[182] Recent Developments This section details recent significant events, including the termination of a business combination agreement, the change in sponsor, and shareholder approvals for extensions and name change - The Business Combination Agreement with SuperBac Biotechnology Solutions S.A., entered into on April 25, 2022, was mutually terminated on May 3, 2023[185][193] - SuperBac terminated the agreement due to unfavorable public market conditions, heightened volatility, and the failure to secure PIPE investments to meet the $150,000,000 Minimum Cash Condition[192] - On July 10, 2023, J. Streicher Holdings, LLC acquired Founder Shares and Private Warrants from the Former Sponsor for $250,000, becoming the new Sponsor[195] - Shareholders approved amendments on July 27, 2023, to extend the Business Combination deadline to August 3, 2024, eliminate a redemption limitation, change the company's name to 'Zalatoris II Acquisition Corp.', and allow Sponsor share transfers[204][206][207][208] - The Former Sponsor waived its $300,000 Promissory Note to the company on July 27, 2023[203] Results of Operations This section discusses the company's financial performance, highlighting net income drivers from trust account investments and warrant liability fair value changes - The company has not generated operating revenues; all activities relate to its formation, IPO, and search for a target business[208] Net Income Summary | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $3,291,850 | $1,868,182 | $5,836,887 | $1,659,678 | - Net income for the six months ended June 30, 2023, was primarily driven by a $5,005,710 gain on investments held in the Trust Account and a $1,526,437 gain on the fair value of warrant liabilities[209] Liquidity, Capital Resources and Going Concern This section assesses the company's liquidity, capital resources, and its ability to continue as a going concern, given its reliance on sponsor funding and the business combination deadline - As of June 30, 2023, the company had $47,865 in cash outside the Trust Account for working capital needs[211] - Significant costs incurred in acquisition plans and reliance on the Sponsor for potential working capital loans raise substantial doubt about the company's ability to continue as a going concern for the next year[215][222] - If a Business Combination is not completed by August 3, 2024, the company will commence winding up, dissolution, and liquidation[223] - The Sponsor or its affiliates may provide Working Capital Loans, up to $1,500,000 of which may be convertible into warrants, to fund deficiencies or transaction costs[218] Off-Balance Sheet Financing Arrangements This section confirms that the company had no off-balance sheet financing arrangements as of June 30, 2023 - The company did not have any off-balance sheet arrangements as of June 30, 2023[224] Contractual Obligations This section outlines the company's contractual obligations, noting no long-term debt or lease obligations and administrative service fees - As of June 30, 2023, the company had no long-term debt, capital, or operating lease obligations[225] - The Sponsor may charge a $10,000 per month fee for administrative services, but no amounts have been charged or accrued as of June 30, 2023[225] Critical Accounting Policies This section highlights the critical accounting policies that require significant management judgments and estimates in the preparation of financial statements - The preparation of financial statements requires management to make significant judgments and estimates, which are inherently uncertain and may differ from actual results[226] Recent Accounting Standards This section discusses the company's evaluation of recent accounting standards and their anticipated impact on its financial statements - The company is evaluating 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, for smaller reporting companies[228][229] - Based on current information, the company has concluded that no new accounting pronouncements will have a material impact on its results of operations, financial condition, or cash flows[230] JOBS Act This section explains the company's election as an 'emerging growth company' under the JOBS Act, allowing for delayed adoption of accounting standards and reduced reporting requirements - As an 'emerging growth company' under the JOBS Act, the company has elected to delay the adoption of new or revised accounting standards to align with private company effective dates[231] - The company may rely on other reduced reporting requirements, including exemptions from Section 404 attestation and certain executive compensation disclosures[232] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Zalatoris II Acquisition Corp. is not required to provide detailed quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[233] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2023, due to material weaknesses in internal control over financial reporting related to the classification of redeemable ordinary shares and the recognition of business combination costs. Remediation efforts are underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2023, due to material weaknesses in internal control over financial reporting[237] - Material weaknesses included improper classification of Class A redeemable ordinary shares and improper recognition of Business Combination Costs as liabilities and expenses[240][242] - Previously issued financial statements (as of December 31, 2021, and March 31, 2022) should no longer be relied upon and require restatement[245] - The company is implementing a remediation plan, including enhanced access to accounting literature and increased communication among personnel and third-party accounting professionals[246] PART II. OTHER INFORMATION This section provides additional information not covered in Part I, including legal proceedings, risk factors, unregistered sales of equity, and exhibits Item 1. Legal Proceedings The company reported no legal proceedings - There are no legal proceedings to report[248] Item 1A. Risk Factors The company refers to the risk factors described in its annual report on Form 10-K for the year ended December 31, 2022, noting no material changes as of the date of this Quarterly Report, except as disclosed - Risk factors are described in the annual report on Form 10-K for the year ended December 31, 2022[249] - No material changes to the risk factors have occurred as of the date of this Quarterly Report, except as disclosed[249] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item details the unregistered sale of Class B ordinary shares (Founder Shares) to the Former Sponsor in March 2021, which were issued to cover certain expenses - In March 2021, the Former Sponsor purchased 5,750,000 Class B ordinary shares for $25,000 to cover certain expenses[250] - These securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act[250] - In May 2021, the Former Sponsor transferred 30,000 Founder Shares to each of three independent directors[250] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There are no defaults upon senior securities to report[252] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[253] Item 5. Other Information The company reported no other information - There is no other information to report[254] Item 6. Exhibits This item lists all exhibits filed as part of the Form 10-Q, including amendments to the memorandum and articles of association, various agreements related to the Sponsor Handover, certifications, and XBRL documents - The exhibits include amendments to the Amended and Restated Memorandum and Articles of Association, the Purchase and Sponsor Handover Agreement, amendments and joinders to the Letter Agreement, a Waiver to the Promissory Note, CEO/CFO certifications, and XBRL Instance Documents[257] SIGNATURES This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed by Paul Davis, Chief Executive Officer, and Llewellyn Farquharson, Chief Financial Officer, on September 1, 2023[262]