Zalatoris II Acquisition (ZLS) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed financial statements for September 30, 2021, including balance sheet, operations, equity, cash flows, and notes Condensed Balance Sheet as of September 30, 2021 (unaudited) Condensed Balance Sheet | Assets/Liabilities/Equity | Amount ($) | | :------------------------ | :--------- | | Assets | | | Cash | 1,006,126 | | Total Current Assets | 1,420,376 | | Cash & marketable securities in trust account | 219,613,318 | | Total Noncurrent Assets | 219,946,860 | | Total Assets | 221,367,236 | | Liabilities | | | Total Current Liabilities | 1,007,165 | | Promissory note payable - related party | 84,412 | | Deferred underwriter's commission fee | 7,686,396 | | Warrant liability | 8,135,002 | | Total Liabilities | 16,912,975 | | Shareholders' Deficit | | | Class A ordinary shares subject to possible redemption | 219,613,318 | | Total Shareholders' Deficit | (15,159,057) | | Total Liabilities and Shareholders' Deficit | 221,367,236 | Condensed Statements of Operations for the Three Months Ended September 30, 2021 and for the Period from March 11, 2021 (Inception) Through September 30, 2021 (unaudited) Condensed Statements of Operations | Metric | Three Months Ended Sep 30, 2021 ($) | Inception Through Sep 30, 2021 ($) | | :-------------------------- | :---------------------------------- | :--------------------------------- | | Formation and operating costs | (589,667) | (600,920) | | Loss from operations | (589,667) | (600,920) | | Total Other Income | 5,035,895 | 5,035,895 | | Net Income | 4,446,228 | 4,434,975 | | Basic and diluted net income per share, Redeemable Class A ordinary shares | 0.23 | 0.38 | | Basic and diluted net income per share, Non-Redeemable Class B ordinary shares | 0.23 | 0.38 | Condensed Statement of Changes in Shareholders' Deficit for the Period from March 11, 2021 (Inception) Through September 30, 2021 (unaudited) Condensed Statement of Changes in Shareholders' Deficit | Item | Class A Shares | Class B Shares | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders' Deficit | | :------------------------ | :------------- | :------------- | :------------------------- | :------------------ | :-------------------------- | | Balance - March 11, 2021 (inception) | — | — | — | — | — | | Issuance of founder shares | — | 575,000 ($575) | $24,425 | — | $25,000 | | Net loss (March 31, 2021) | — | — | — | $(11,069) | $(11,069) | | Balance - March 31, 2021 | — | 575,000 ($575) | $24,425 | $(11,069) | $13,931 | | Net loss (June 30, 2021) | — | — | — | $(183) | $(183) | | Balance - June 30, 2021 | — | 575,000 ($575) | $24,425 | $(11,252) | $13,748 | | Forfeiture of founder shares | — | (259,717) ($(26)) | $26 | — | — | | Redeemable Share accretion | — | — | $(24,451) | $(19,594,582) | $(19,619,033) | | Net income (Sep 30, 2021) | — | — | — | $4,446,228 | $4,446,228 | | Balance - September 30, 2021 | — ($—) | 5,490,283 ($549) | $— | $(15,159,606) | $(15,159,057) | Condensed Statement of Cash Flows for the Period from March 11, 2021 (Inception) Through September 30, 2021 (unaudited) Condensed Statement of Cash Flows | Cash Flow Activity | Amount ($) | | :-------------------------- | :--------- | | Net cash used in operating activities | (799,135) | | Net cash used in investing activities | (219,611,310) | | Net cash provided by financing activities | 221,416,571 | | Net change in cash | 1,006,126 | | Cash at beginning of period | — | | Cash at end of period | 1,006,126 | Notes to Condensed Financial Statements (unaudited) NOTE 1 — ORGANIZATION AND BUSINESS BACKGROUND - XPAC Acquisition Corp. was incorporated on March 11, 2021, as a blank check company to effect a Business Combination, without limiting itself to a particular industry or sector[20][21] - 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 on August 19, 2021, from an over-allotment option, generating $19,611,310[23][24] - Substantially all net proceeds from the Public Offering and Private Placement Warrants are held in a Trust Account, invested in U.S. government treasury bills or money market funds, to be used for a Business Combination or distributed to shareholders if no combination is completed within 24 months[26][33] - As of September 30, 2021, the Company had $1,006,126 in cash and working capital of $413,211, but expects to incur significant costs, raising substantial doubt about its ability to continue as a going concern[36] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are presented in conformity with GAAP for interim financial information and in accordance with SEC rules for interim reporting, with certain disclosures condensed or omitted[39] - The Company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards, meaning it will adopt new standards at the time private companies do[40][41] - The Company is considered 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 for the period[46] - Offering costs totaling $11,761,739 from the IPO were recognized, with $477,711 allocated to accumulated deficit for warrants and $11,284,028 to additional paid-in capital. An additional $1,078,624 in offering costs from the over-allotment was similarly allocated[47][48] - The Company applies the two-class method for calculating net income per share, allocating net income pro-rata between Class A redeemable and Class B non-redeemable shares[49] - Warrants not indexed to the Company's own shares are accounted for as liabilities at fair value, subject to remeasurement at each balance sheet date, with changes recognized in the statement of operations[54] - Class A ordinary shares subject to possible redemption are classified as temporary equity at redemption value, outside of the shareholder's equity section[58] NOTE 3 — INITIAL PUBLIC OFFERING - 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[62] - On August 19, 2021, an additional 1,961,131 Over-Allotment Units were purchased, generating gross proceeds of $19,611,310[63] - 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[64] NOTE 4 — PRIVATE PLACEMENT - Simultaneously with the IPO, the Sponsor purchased 4,000,000 Private Placement Warrants at $1.50 each, totaling $6,000,000. An additional 261,485 Private Placement Warrants were sold for $392,228 with the over-allotment[65] - Proceeds from Private Placement Warrants were added to the Trust Account. If a Business Combination is not completed, these warrants will expire worthless[65] NOTE 5 — RELATED PARTY TRANSACTIONS - The Sponsor purchased 5,750,000 Class B ordinary shares (Founder Shares) for $25,000 in March 2021. Due to partial exercise of the over-allotment option, the Sponsor forfeited 259,717 Class B ordinary shares, resulting in 5,490,283 Class B shares outstanding[66] - The Sponsor issued an unsecured promissory note to the Company, allowing borrowing up to $300,000. As of September 30, 2021, $84,412 was drawn down for offering expenses and remains owed, non-interest bearing[68] - The Company has an administrative support agreement to pay an affiliate of the Sponsor $10,000 per month for office space and administrative support, but no expenses were incurred or accrued as of September 30, 2021[70] - XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., an affiliate of the Sponsor, received a financial consulting fee of $1,725,443.24 for advisory services related to the offering[71] NOTE 6 — SHAREHOLDER'S EQUITY - The Company is authorized to issue 1,000,000 preference shares (none issued) and 200,000,000 Class A ordinary shares (21,961,131 issued, none outstanding excluding those subject to redemption)[72][73] - 20,000,000 Class B ordinary shares are authorized, with 5,490,283 shares issued and outstanding as of September 30, 2021, representing 20% of outstanding ordinary shares after the IPO[74] - Class B ordinary shares automatically convert into Class A ordinary shares on a one-for-one basis at the time of a Business Combination, subject to adjustment to maintain a 20% ownership stake[75] NOTE 7 — WARRANT LIABILITIES - Public Warrants become exercisable on the later of 12 months from the IPO closing or 30 days after a Business Combination, entitling holders to purchase one Class A ordinary share at $11.50[77] - The Company may redeem Public Warrants in whole at $0.01 per warrant if the Class A ordinary share price equals or exceeds $18.00 for 20 trading days within a 30-day period[80] - The Company may also redeem Public Warrants at $0.10 per warrant if the Class A ordinary share price equals or exceeds $10.00, provided holders can exercise on a cashless basis prior to redemption[82] - Private Placement Warrants are identical to Public Warrants but are non-transferable, non-assignable, and non-saleable until 30 days after a Business Combination, and are exercisable for cash or on a cashless basis, and non-redeemable as long as held by initial purchasers or permitted transferees[82] - As of September 30, 2021, there were 7,320,377 Public Warrants and 4,261,485 Private Placement Warrants outstanding. Both are classified as derivative liabilities at fair value due to potential net cash settlement[83][84] NOTE 8 — COMMITMENTS AND CONTINGENCIES - Holders of Founder Shares and Private Placement Warrants are entitled to registration rights, requiring the Company to register such securities for resale after conversion to Class A ordinary shares[85] - Underwriters received a cash underwriting discount of $4,392,226 and are entitled to a deferred fee of $7,686,396, which is held in the Trust Account and released upon completion of a Business Combination, or waived if no combination occurs[87] NOTE 9 — RECURRING FAIR VALUE MEASUREMENTS - As of September 30, 2021, the Company's warrant liability was valued at $8,135,002, with Public Warrants reclassified from Level 3 to Level 1 due to observable trading prices, and Private Placement Warrants remaining Level 3[88][89] Fair Value Measurements | Assets/Liabilities | Level 1 ($) | Level 2 ($) | Level 3 ($) | | :----------------- | :---------- | :---------- | :---------- | | Assets | | | | | Cash and marketable securities held in trust account | 219,613,318 | — | — | | Liabilities | | | | | Public Warrants | 5,124,264 | — | — | | Private Placement Warrants | — | — | 3,010,738 | - The initial fair value for warrants on August 3, 2021, was established using a Black-Scholes-Merton formula model. As of September 30, 2021, Public Warrants were valued based on publicly traded prices, while Private Warrants were estimated using a Monte Carlo simulation model[91][92] Fair Value Measurements | Metric | Private Warrant | Public Warrant | | :-------------------------- | :-------------- | :------------- | | Fair Value as of August 3, 2021 (IPO date) | $4,770,000 | $7,838,000 | | Change in fair value of warrant liabilities | $311,820 | $768,567 | | Fair Value as of August 19, 2021 (over-allotment date) | $5,081,820 | $8,606,567 | | Transfer out of Level 3 | — | $(8,606,567) | | Change in fair value of warrant liabilities | $(2,071,081) | — | | Fair Value as of September 30, 2021 | $3,010,738 | $— | NOTE 10 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS - Management identified errors in the August 3, 2021 Balance Sheet and Pro Forma Balance Sheet related to the classification of Class A ordinary shares subject to possible redemption[95][97] - The reclassification error resulted in an adjustment to the initial carrying value of Class A ordinary shares subject to possible redemption, with an offset to Class A ordinary shares and additional paid-in capital[97] Restatement of Financial Statements | Balance Sheet Item (August 3, 2021) | As Previously Reported ($) | Adjustment ($) | As Restated ($) | | :---------------------------------- | :------------------------- | :------------- | :-------------- | | Class A ordinary shares subject to possible redemption | 176,643,160 | 23,356,840 | 200,000,000 | | Class A ordinary shares | 237 | (237) | — | | Additional paid-in capital | 5,489,003 | (5,489,003) | — | | Accumulated deficit | (489,807) | (17,867,600) | (18,357,407) | | Total Shareholders' Equity (Deficit) | 5,000,005 | (23,356,840) | (18,356,835) | NOTE 11 — SUBSEQUENT EVENTS - The Company identified no subsequent events as of the date the financial statements were issued[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition, operations, liquidity, capital, accounting policies, and JOBS Act impact Overview - XPAC Acquisition Corp. was formed on March 11, 2021, as a blank check company to pursue a Business Combination, with an initial focus on high-growth target businesses[102] - The Company expects to incur significant costs in pursuit of its initial Business Combination and cannot assure success in raising capital or completing the combination[103] Results of Operations and Known Trends or Future Events - The Company has not generated any operating revenues to date, with all activities related to its formation and initial public offering. Operating revenues are not expected until after a Business Combination[104] - For the period from inception (March 11, 2021) through September 30, 2021, the Company reported a net income of $4,434,975, primarily from a gain on the fair value of warrant liabilities and securities held in trust, offset by formation and operating costs[105] Liquidity and Capital Resources Cash Flow Activity | Cash Flow Activity (Inception through Sep 30, 2021) | Amount ($) | | :-------------------------------------------------- | :--------- | | Net cash used in operating activities | (799,135) | | Net cash used in investing activities | (219,611,310) | | Net cash provided by financing activities | 221,416,571 | | Net change in cash | 1,006,126 | - The Company intends to use substantially all funds in the Trust Account to complete its initial Business Combination, with interest income (less taxes) potentially used for income taxes[113] - As of September 30, 2021, the Company had $1,006,126 cash and working capital of $413,211. The expectation of significant future costs raises substantial doubt about the Company's ability to continue as a going concern[119] Off-Balance Sheet Arrangements - The Company did not have any off-balance sheet arrangements as of September 30, 2021[120] Contractual Obligations - As of September 30, 2021, the Company had no long-term debt, capital, or operating lease obligations. It has an administrative services agreement to pay an affiliate of a director up to $10,000 per month for office and administrative support[121] Critical Accounting Policies - Management's discussion and analysis are based on unaudited financial information prepared in accordance with U.S. GAAP, requiring significant judgments and estimates that could differ from actual results[122][124] Recent Accounting Standards - The Company is evaluating the effect of ASU No. 2020-06 (Debt with Conversion and other Options and Derivatives and Hedging – Contracts in Entity's Own Equity), effective January 1, 2022, on its financial position, results of operations, or disclosures[125] - The Company has concluded that no other new accounting pronouncements will have a material impact on its financial statements[126] JOBS Act - As an 'emerging growth company' under the JOBS Act, the Company has elected to delay the adoption of new or revised accounting standards, potentially making its financial statements not comparable to non-emerging growth companies[127] - The Company is evaluating other reduced reporting requirements provided by the JOBS Act, which could exempt it from certain Sarbanes-Oxley and Dodd-Frank provisions for up to five years[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk Addresses market risks, specifically interest rate risk, concluding no material exposure due to short-term government investments - The net proceeds held in the Trust Account are invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds, resulting in no material exposure to interest rate risk due to their short-term nature[129] Item 4. Controls and Procedures Discusses internal controls, disclosure controls evaluation, and remediation plan for identified material weakness in financial reporting Evaluation of Disclosure Controls and Procedures - As of September 30, 2021, the Company's disclosure controls and procedures were not effective due to a material weakness[134] Changes in Internal Control over Financial Reporting - A material weakness was identified in the internal control over financial reporting, specifically regarding the improper classification of Class A redeemable ordinary shares in previously issued balance sheets[139][140] - The Company plans to enhance its system for evaluating and implementing complex accounting standards, including improved access to accounting literature and increased communication among personnel and third-party professionals, to remediate this material weakness[141] PART II OTHER INFORMATION Item 1. Legal Proceedings Confirms the Company is not currently involved in any legal proceedings - The Company has no legal proceedings[144] Item 1A. Risk Factors Refers to previously disclosed risk factors, confirming no material changes as of the report date - There have been no material changes to the risk factors disclosed in the Company's S-1 filing as of the date of this report[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details unregistered sales of equity securities, including Class B ordinary shares to the sponsor and independent directors - In March 2021, the Sponsor purchased 5,750,000 Class B ordinary shares for $25,000. In May 2021, 30,000 founder shares were transferred to each of the independent directors[146] - These securities were issued under the exemption from registration in Section 4(a)(2) of the Securities Act, with no underwriting discounts or commissions paid[146][147] Item 3. Defaults Upon Senior Securities Confirms no defaults occurred upon senior securities - There were no defaults upon senior securities[148] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[149] Item 5. Other Information Indicates no other information to report - There is no other information to report[150] Item 6. Exhibits Provides a list of exhibits filed with Form 10-Q, including certifications and XBRL documents Exhibits List | Exhibit Number | Description | | :------------- | :---------- | | 31.1* | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. | | 31.2* | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. | | 32.1*(1) | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | 32.2*(1) | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant t o Section 906 of the Sarbanes-Oxley Act of 2002. | | 101.INS* | XBRL Instance Document | | 101.SCH* | XBRL Taxonomy Extension Schema Document | | 101.CAL* | SXRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Signatures Contains signatures of principal executive and financial officers, certifying the report - The report was signed by Chu Chiu Kong, Chief Executive Officer, and Fabio Kann, Chief Financial Officer, on November 12, 2021[158]