SEC Filing // Zapata AI

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-41218

Zapata Computing Holdings Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	98-1578373
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 Federal Street, Floor 20 Boston, MA	02110
(Address of principal executive offices)	(Zip Code)

(844) 492-7282

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ZPTA	The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Common Stock, each at an exercise price of $11.50 per share	ZPTAW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 8, 2024, the registrant had 38,630,827 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58

PART II.	OTHER INFORMATION	60

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	91
Item 3.	Defaults Upon Senior Securities	91
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	91
Item 6.	Exhibits	93
Signatures		95

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ZAPATA COMPUTING HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share amounts)


	June 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	7,164		$	3,332
Accounts receivable ($2,235 and $829 from related parties, respectively)		2,505			1,938
Prepaid expenses and other current assets		1,344			323
Total current assets		11,013			5,593
Property and equipment, net		106			156
Operating lease right-of-use assets		68			238
Deferred offering costs		—			1,943
Other non-current assets		—			137
Total assets	$	11,187		$	8,067
Liabilities, Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable ($4,083 and $1,500 to related parties, respectively)	$	11,575		$	6,452
Accrued expenses and other current liabilities		5,255			1,945
Deferred revenue		736			744
Deferred legal fees		2,953			—
Operating lease liability, current		75			252
Note payable - related party, current		2,305			—
Total current liabilities		22,899			9,393
Forward purchase agreement derivative liability		13,163			—
Senior secured notes		2,081			8,900
Total liabilities		38,143			18,293
Commitments and contingencies (Note 16)
Convertible preferred stock (Series Seed, A, B-1 and B-2), $0.0001 par value; 0 and 14,647,823 shares authorized at June 30, 2024 and December 31, 2023, respectively; 0 and 13,001,114 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		—			64,716
Stockholders’ deficit:
Common stock, $0.0001 par value; 600,000,000 and 23,500,000 shares authorized at June 30, 2024 and December 31, 2023, respectively; 35,255,013 and 4,678,950 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		4			—
Additional paid-in capital		100,545			14,633
Accumulated other comprehensive loss		(83	)		(49	)
Accumulated deficit		(127,422	)		(89,526	)
Total stockholders’ deficit		(26,956	)		(74,942	)
Total liabilities, convertible preferred stock and stockholders’ deficit	$	11,187		$	8,067

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZAPATA COMPUTING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands, except share and per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenue ($1,168, $494, $1,601 and $989 from related parties, respectively)	$	2,001		$	1,432		$	3,219		$	2,944
Cost of revenue		1,280			1,150			2,328			2,456
Gross profit		721			282			891			488
Operating expenses:
Sales and marketing ($696, $696, $1,391 and $1,391 from related parties, respectively)		2,193			1,648			3,841			3,349
Research and development		1,593			1,470			3,007			3,599
General and administrative		4,307			1,299			6,489			2,768
Total operating expenses		8,093			4,417			13,337			9,716
Loss from operations		(7,372	)		(4,135	)		(12,446	)		(9,228	)
Other income (expense):
Interest expense		(77	)		—			(862	)		—
Loss on issuance of forward purchase agreement derivative liability		—			—			(4,935	)		—
Change in fair value of forward purchase agreement derivative liability		(8,228	)		—			(8,228	)		—
Loss on issuance of senior secured notes		—			—			(9,776	)		—
Other income (expense), net		108			(558	)		(1,636	)		(529	)
Total other expense, net		(8,197	)		(558	)		(25,437	)		(529	)
Net loss before income taxes		(15,569	)		(4,693	)		(37,883	)		(9,757	)
Provision for income taxes		(7	)		(23	)		(13	)		(27	)
Net loss	$	(15,576	)	$	(4,716	)	$	(37,896	)	$	(9,784	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.48	)	$	(1.01	)	$	(2.06	)	$	(2.10	)
Weighted-average common shares outstanding, basic and diluted		32,182,440			4,661,256			18,383,203			4,659,269
Net loss	$	(15,576	)	$	(4,716	)	$	(37,896	)	$	(9,784	)
Foreign currency translation adjustment		(19	)		(6	)		(34	)		(7	)
Comprehensive loss	$	(15,595	)	$	(4,722	)	$	(37,930	)	$	(9,791	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZAPATA COMPUTING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(UNAUDITED)

For the Three and Six Months Ended June 30, 2024 and 2023

(In thousands, except share amounts)


	Convertible Preferred Stock ($0.0001 par value)					Common Stock ($0.0001 par value)					Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares			Amount		Shares			Amount		Capital		Loss			Deficit			Deficit
Balances at December 31, 2022		14,222,580		$	64,716	5,095,831			$	—	$	2,734	$	(25	)	$	(59,792	)	$	(57,083	)
Retroactive application of reverse recapitalization		(1,221,466	)		—		(439,603	)		—		—		—			—			—
Adjusted balance, beginning of period		13,001,114			64,716		4,656,228			—		2,734		(25	)		(59,792	)		(57,083	)
Issuance of common stock resulting from exercise of stock options		—			—		2,999			—		6		—			—			6
Stock-based compensation expense		—			—		—			—		45		—			—			45
Net loss		—			—		—			—		—		—			(5,068	)		(5,068	)
Cumulative translation adjustment		—			—		—			—		—		(1	)		—			(1	)
Balances at March 31, 2023		13,001,114		$	64,716		4,659,227		$	—	$	2,785	$	(26	)	$	(64,860	)	$	(62,101	)
Issuance of common stock resulting from exercise of stock options		—			—		2,742			—		3		—			—			3
Stock-based compensation expense		—			—		—			—		162		—			—			162
Net loss		—			—		—			—		—		—			(4,716	)		(4,716	)
Cumulative translation adjustment		—			—		—			—		—		(6	)		—			(6	)
Balances at June 30, 2023		13,001,114		$	64,716		4,661,969		$	—	$	2,950	$	(32	)	$	(69,576	)	$	(66,658	)


	Convertible Preferred Stock ($0.0001 par value)						Common Stock ($0.0001 par value)					Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares			Amount			Shares			Amount		Capital			Loss			Deficit			Deficit
Balances at December 31, 2023		14,222,580		$	64,716			5,118,553		$	—	$	14,633		$	(49	)	$	(89,526	)	$	(74,942	)
Retroactive application of reverse recapitalization		(1,221,466	)		—			(439,603	)		—		—			—			—			—

Adjusted balance, beginning of period		13,001,114			64,716			4,678,950			—		14,633			(49	)		(89,526	)		(74,942	)
Issuance of common stock resulting from exercise of stock options		—			—			47,183			—		68			—			—			68
Stock-based compensation expense		—			—			—			—		191			—			—			191
Loss on issuance of senior secured notes		—			—			—			—		9,776			—			—			9,776
Issuance of common stock pursuant to the forward purchase agreement		—			—			500,000			—		(10,986	)		—			—			(10,986	)
Issuance of common stock related to the conversion of Senior Secured Notes (856,202 shares or $3,853 to related parties)		—			—			3,257,876			—		14,660			—			—			14,660
Issuance of common stock in connection with debt issuance costs related to senior secured notes and capital markets advisory agreements		—			—			42,372			—		352			—			—			352
Conversion of redeemable convertible preferred stock into common stock in connection with the reverse recapitalization		(13,001,114	)		(64,716	)		13,001,114			1		64,715			—			—			64,716
Issuance of common stock upon the reverse recapitalization		—			—			7,596,206			1		4,477			—			—			4,478
Issuance costs in connection with the reverse recapitalization		—			—			—			—		(7,058	)		—			—			(7,058	)
Net loss		—			—			—			—		—			—			(22,320	)		(22,320	)
Cumulative translation adjustment		—			—			—			—		—			(15	)		—			(15	)
Balances at March 31, 2024		—		$	—			29,123,701		$	2	$	90,828		$	(64	)	$	(111,846	)	$	(21,080	)
Issuance of common stock pursuant to the equity line of credit		—			—			5,419,287			2		5,300			—			—			5,302
Commitment shares issued pursuant to the equity line of credit		—			—			712,025			—		1,688			—			—			1,688
Partial early termination of the forward purchase agreement		—			—			—			—		2,500			—			—			2,500
Stock-based compensation expense		—			—			—			—		229			—			—			229
Net loss		—			—			—			—		—			—			(15,576	)		(15,576	)
Cumulative translation adjustment		—			—			—			—		—			(19	)		—			(19	)
Balances at June 30, 2024		—		$	—			35,255,013		$	4	$	100,545		$	(83	)	$	(127,422	)	$	(26,956	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZAPATA COMPUTING HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	For the Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(37,896	)	$	(9,784	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		75			86
Non-cash interest expense		761			—
Non-cash vendor payments		150			—
Loss on issuance of senior secured notes		9,776			—
Loss on issuance of forward purchase agreement derivative liability		4,935			—
Change in fair value of senior notes		—			570
Change in fair value of forward purchase agreement derivative liability		8,228			—
Stock-based compensation		420			207
Non-cash lease expense		170			173
Equity line of credit commitment expense		1,688			—
Changes in operating assets and liabilities:
Accounts receivable (($1,405) and ($88) from related parties, respectively)		(568	)		280
Prepaid expenses and other current assets		(881	)		(482	)
Accounts payable ($2,583 and $758 from related parties, respectively)		5,457			1,721
Accrued expenses and other current liabilities and other non-current liabilities		(5	)		(1,250	)
Deferred revenue		(8	)		(279	)
Deferred legal fees		(378	)		—
Operating lease liabilities		(178	)		(179	)
Net cash used in operating activities		(8,254	)		(8,937	)
Cash flows from investing activities:
Purchases of property and equipment		(26	)		(2	)
Net cash used in investing activities		(26	)		(2	)
Cash flows from financing activities:
Payment of deferred offering costs		(2,929	)		—
Proceeds from the exercise of stock options		68			9
Issuances of common stock under equity line of credit		5,300			—
Proceeds from the reverse recapitalization		12,636			—
Proceeds from the partial early termination of the forward purchase agreement		2,500			—
Payment of note payable - related party		(315	)		—
Prepayment for forward purchase agreement		(10,986	)		—
Proceeds from senior and senior secured notes		5,878			4,875
Net cash provided by financing activities		12,152			4,884
Effect of exchange rate changes on cash and cash equivalents		(40	)		(22	)
Net increase (decrease) in cash and cash equivalents		3,832			(4,077	)
Cash and cash equivalents and restricted cash at beginning of period		3,469			10,210
Cash and cash equivalents and restricted cash at end of period	$	7,301		$	6,133
Supplemental disclosures
Issuance of common stock in connection with conversion of senior secured notes ($3,853 and $0 from related parties, respectively)	$	14,660		$	—
Issuance of common stock in connection with debt issuance costs related to senior secured notes and capital markets advisory agreements	$	352		$	—
Issuance of senior secured notes in lieu of payments for offering costs and capital markets advisory agreements	$	1,150		$	—
Deferred offering costs included in accounts payable and accrued expenses and other current liabilities	$	2,793		$	—
Debt issuance costs in included in accrued expenses and other current liabilities	$	35		$	—
Conversion of convertible preferred stock upon the reverse recapitalization	$	64,716		$	—
Issuance of common stock in connection with the equity line of credit commitment shares	$	1,688		$	—
Income taxes paid	$	—		$	22

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZAPATA COMPUTING HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands, except per share and share amounts)

Nature of the Business and Basis of Presentation

Zapata Computing Holdings Inc., formerly known as Andretti Acquisition Corp. (“AAC”), was incorporated as a Cayman Islands exempted company on January 20, 2021. On March 28, 2024, AAC filed an application for deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which AAC was domesticated and continues as a Delaware corporation and changed its name to Zapata Computing Holdings Inc. AAC was formed for the purpose of effecting a merger, consolidation share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. On March 28, 2024 (the “Closing Date” or “Closing”), AAC consummated a business combination with Zapata Computing, Inc. (“Legacy Zapata”) pursuant to the Business Combination Agreement by and among AAC, Tigre Merger Sub, Inc. and Legacy Zapata entered into on September 6, 2023 (the “Business Combination Agreement”).

Zapata Computing Holdings Inc. is a holding company whose principal asset is its ownership interest in Legacy Zapata, and operates and controls all of the businesses and operations of Legacy Zapata and its subsidiaries. Zapata Computing Holdings Inc. and its predecessor, AAC, are collectively referred to herein as “Zapata” or the “Company”. The Company offers customers Industrial Generative Artificial Intelligence (“AI”) Solutions designed to solve computationally complex problems. These are subscription-based solutions that combine software and services to develop custom industrial generative AI applications. Zapata’s software leverages a broad spectrum of computing resources, including classical, high performance, and quantum computing hardware and, in developing and applying its software tools to specific applications, Zapata uses techniques inspired by quantum physics that can then be applied to the appropriate hardware.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Certain information or footnote disclosures normally included in unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with Legacy Zapata’s consolidated financial statements and notes thereto included as Exhibit 99.1 to the Form 8-K filed by Legacy Zapata on April 3, 2024. The interim results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.

On the Closing Date, AAC and Legacy Zapata, consummated a business combination (the “Merger”) (see Note 3) pursuant to the Business Combination Agreement. In connection with the Closing of the Merger, AAC changed its name to Zapata Computing Holdings Inc. The Company’s common stock and warrants commenced trading on the Nasdaq Global Market and the Nasdaq Capital Market, respectively, under the new trading symbols “ZPTA” and “ZPTAW”, respectively, on April 1, 2024. The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, AAC, which was the legal acquirer, was treated as the “acquired” company for financial reporting purposes and Legacy Zapata, a direct wholly owned subsidiary of AAC, was treated as the accounting acquirer.

As a result, the unaudited condensed consolidated financial statements included herein for the three and six months ended June 30, 2024 reflected (i) the historical operating results of Legacy Zapata prior to the Merger, (ii) the combined results of the Company, Legacy Zapata and AAC following the Closing of the Merger, (iii) the assets and liabilities of Legacy Zapata at their historical costs, (iv) the assets and liabilities of the Company and AAC at their historical costs, which approximated fair value, and (v) the Company’s equity structure for all periods presented.

The Company’s equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s common stock, par value $0.0001, issued to Legacy Zapata’s stockholders in connection with the recapitalization transaction. As such, the Company’s common stock and the corresponding capital amounts and earnings per share related to Legacy Zapata’s common stock prior to the Merger have been retrospectively restated as shares reflecting the conversion upon the closing of the Merger calculated in accordance with the Business Combination Agreement by multiplying each share of Convertible Preferred Stock (as defined below) by 0.9141 (the “Exchange Ratio”).

ZAPATA COMPUTING HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands, except per share and share amounts)

Going Concern

The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company has incurred significant losses and negative cash flows from operations since the inception of Legacy Zapata in November 2017 and expects to continue to incur losses and negative cash flows for the foreseeable future as the Company expands its penetration of the Industrial Generative AI Solutions market.

The Company is subject to risks and uncertainties similar to those of other companies of similar size in its industry, including, but not limited to, the need for successful development of products, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, risks associated with changes in information technology, and the ability to raise additional capital to fund operations. The Company’s long-term success is dependent upon its ability to successfully market, deliver, and scale its Industrial Generative AI Solutions, increase revenue, meet its obligations, obtain additional capital when needed and, ultimately, to achieve profitable operations.

Since inception through June 30, 2024, the Company has financed its operations primarily through sales of its Convertible Preferred Stock, as defined below, and common stock (including sales under its equity line of credit) and with issuances of Senior Notes and Senior Secured Notes, as defined below. The Company has incurred net losses of $15,576 and $37,896 for the three and six months ended June 30, 2024, respectively. As of June 30, 2024 and December 31, 2023, the Company had an accumulated deficit of $127,422 and $89,526, respectively. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to utilize its equity line of credit, identify future equity or debt financing and generate profits from its operations. The Company is pursuing all available options for funding, which include seeking public or private investments and funding through its Purchase Agreement (also referred to as the equity line of credit) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to the Company.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these condensed consolidated financial statements include, but are not limited to, revenue recognition, the Forward Purchase Agreement derivative liability, the valuation of the Company’s common stock, and the fair value of stock-based awards. The Company’s estimates are based on historical information available as of the date of the unaudited condensed consolidated financial statements and various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

Foreign Currency and Currency Translation

The functional currency for the Company’s wholly owned foreign subsidiaries in Canada, Japan, Spain and the United Kingdom is United States dollars (“USD”), Japanese Yen, Euro and British Pound, respectively. Assets and liabilities of these subsidiaries are translated into USD at the exchange rate in effect on the balance sheet date. Income and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a translation adjustment, which is included in the condensed consolidated statements of stockholders’ deficit as a component of accumulated other comprehensive loss. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.