Filed Pursuant to Rule 424(b)(3)
Registration No. 333-278891
Prospectus Supplement No. 5
(To Prospectus dated May 10, 2024)
Zapata Computing Holdings Inc.
15,850,336 Shares of Common Stock
13,550,000 Warrants to Purchase Shares of Common Stock
25,049,982 Shares of Common Stock Underlying Warrants
This prospectus supplement no. 5 (this “Prospectus Supplement”) updates, amends and supplements the prospectus dated May 10, 2024 (as amended or supplemented from time to time, the “Prospectus”) which forms a part of the Registration Statement on Form S-1 (Registration Statement No. 333-278891) filed by Zapata Computing Holdings Inc. (the “Company,” “we,” us,” or “our”). Capitalized terms used in this Prospectus Supplement and not otherwise defined herein have the meanings specified in the Prospectus.
This Prospectus Supplement is being filed to update, amend and supplement the information included or incorporated by reference in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on August 14, 2024 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this Prospectus Supplement.
This Prospectus Supplement is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This Prospectus Supplement should be read in conjunction with the Prospectus and any amendments or supplements thereto. If there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on the information in this Prospectus Supplement.
Our Common Stock is listed on the Nasdaq Global Market and our Warrants to purchase Common Stock are listed on the Nasdaq Capital Market (together with the Nasdaq Global Market, “Nasdaq”) under the symbols “ZPTA” and “ZPTAW,” respectively. On August 13, 2024, the last reported sales price of Common Stock, as reported by Nasdaq, was $0.5367 per share, and the last reported sales price of the Warrants on Nasdaq was $0.0551 per warrant.
We are an “emerging growth company” and a “smaller reporting company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements for the Prospectus and may elect to do so in future filings.
Investing in our securities is highly speculative and involves a high degree of risk. You should review carefully the risks and uncertainties described in the section titled “Risk Factors” beginning on page 21 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or passed upon the accuracy or adequacy of the Prospectus. Any representation to the contrary is a criminal offense.
The date of this Prospectus Supplement is August 14, 2024
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
OR
☐ 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 |
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. |
1 |
|
|
|
|
Item 1. |
1 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
37 |
Item 3. |
58 |
|
Item 4. |
58 |
|
|
|
|
PART II. |
60 |
|
|
|
|
Item 1. |
60 |
|
Item 1A. |
60 |
|
Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
91 |
Item 3. |
91 |
|
Item 4. |
91 |
|
Item 5. |
91 |
|
Item 6. |
93 |
|
95 |
||
i
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, |
|
|
December 31, |
|
||
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.
1
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 |
|
|
— |
|
|
|
— |
|
|
|
(4,935 |
) |
|
|
— |
|
Change in fair value of forward purchase agreement derivative |
|
|
(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 |
|
$ |
(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.
2
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 |
|
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
|
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 |
) |
3
|
|
Convertible Preferred |
|
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
|
500,000 |
|
|
|
— |
|
|
|
(10,986 |
) |
|
|
— |
|
|
|
— |
|
|
|
(10,986 |
) |
Issuance of common stock related to the conversion of Senior |
|
|
— |
|
|
|
— |
|
|
|
|
3,257,876 |
|
|
|
— |
|
|
|
14,660 |
|
|
|
— |
|
|
|
— |
|
|
|
14,660 |
|
Issuance of common stock in connection with debt issuance |
|
|
— |
|
|
|
— |
|
|
|
|
42,372 |
|
|
|
— |
|
|
|
352 |
|
|
|
— |
|
|
|
— |
|
|
|
352 |
|
Conversion of redeemable convertible preferred stock into |
|
|
(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.
4
ZAPATA COMPUTING HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
For the Six Months Ended |
|
|||||
|
|
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.
5
Table of Contents
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
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”).
6
Table of Contents
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.
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.
7
Table of Contents
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents at high-quality and accredited financial institutions.
The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable. Accounts receivable is presented after consideration of an allowance for credit losses, which is an estimate of amounts that may not be collectible. In determining the amount of the allowance at each reporting date, the Company makes judgments about general economic conditions, historical write-off experience and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions. Account balances are written off after all means of collection are exhausted and the potential for recovery is determined to not be probable. As of June 30, 2024 and December 31, 2023, the Company recorded zero allowance for credit losses.
The following table summarizes customers who represent greater than 10% of the Company’s total revenue during the three and six months ended June 30, 2024, as well as customers who represent greater than 10% of the Company’s total accounts receivable as of June 30, 2024 and December 31, 2023:
|
|
Percentage of Revenue |
|
|
Percentage of Accounts Receivable |
||||||||
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
June 30, |
|
December 31, |
||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
|
|
|
|
Customer A* |
|
58% |
|
35% |
|
50% |
|
34% |
|
|
89% |
|
43% |
Customer B |
|
18% |
|
24% |
|
20% |
|
23% |
|
|
N/A** |
|
N/A** |
Customer C |
|
N/A** |
|
17% |
|
13% |
|
18% |
|
|
N/A** |
|
31% |
Customer D |
|
N/A** |
|
N/A** |
|
11% |
|
N/A** |
|
|
N/A** |
|
N/A** |
Customer E |
|
N/A** |
|
24% |
|
N/A** |
|
26% |
|
|
N/A** |
|
26% |
*Related party
**Less than 10% of total revenue or accounts receivable
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial purchase to be cash equivalents. As of June 30, 2024 and December 31, 2023, the amount of cash equivalents included in cash and cash equivalents totaled $6,652 and $2,693, respectively.
Restricted Cash
Restricted cash consists of cash on deposit to secure a letter of credit totaling $137 as of June 30, 2024 and December 31, 2023 that is required to be maintained in connection with the Company’s lease arrangements. The letter of credit is expected to be renewed until the lease expiration in September 2024. As of June 30, 2024, the Company classified its restricted cash as a current asset and included in prepaid expenses and other current assets on the condensed consolidated balance sheet based on the release date of the restrictions. As of December 31, 2023, the Company classified its restricted cash as a non-current asset and included in other non-current assets on the condensed consolidated balance sheet.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
|
|
June 30, |
|
|
December 31, |
|
||
Cash and cash equivalents |
|
$ |
7,164 |
|
|
$ |
3,332 |
|
Restricted cash |
|
|
137 |
|
|
|
137 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
7,301 |
|
|
$ |
3,469 |
|
8
Table of Contents
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
Deferred Offering Costs
The Company capitalized deferred offering costs, consisting of direct legal, accounting, capital markets advisory and other fees and costs directly attributable to the Company’s Merger with Legacy Zapata (see Notes 3 and 16). Upon the Closing of the Merger on March 28, 2024, all deferred offering costs totaling $7,058 were reclassified and recorded against additional paid-in capital in the condensed consolidated balance sheets. The deferred transaction costs were $0 and $1,943 as of June 30, 2024 and December 31, 2023, respectively.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1 |
— |
Quoted prices in active markets for identical assets or liabilities. |
|
|
|
Level 2 |
— |
Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
|
|
|
Level 3 |
— |
Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows:
|
|
Estimated Useful Life |
Computer equipment |
|
3 years |
Furniture and fixtures |
|
5 years |
Leasehold improvements |
|
Shorter of remaining lease term or useful life |
Costs for capital assets not yet placed into service are capitalized and are depreciated once placed into service. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance that do not improve or extend the life of the respective assets are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. If such asset group is considered to be impaired, the impairment loss to be recognized is measured based on the excess of the carrying value of the impaired asset group over its fair value.
For the three and six months ended June 30, 2024, the Company did not recognize any impairment losses on long-lived assets.
9
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
Leases
In accordance with ASC Topic 842, Leases (“ASC 842”), the Company determines whether an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date, when control of the underlying asset is transferred from the lessor to the lessee, as operating or finance leases and records a right-of-use (“ROU”) asset and a lease liability on the condensed consolidated balance sheets for all leases with a lease term of greater than twelve months. For all asset classes, the Company has elected to not recognize leases with a lease term of twelve months or less on the balance sheet and will recognize lease payments for such short-term leases as an expense on a straight-line basis.
The Company enters into contracts that contain both lease and non-lease components. Non-lease components are items or activities that transfer a good or service to the lessee, and may include items such as maintenance, utilities, or other operating costs. The Company elected to account for the lease and associated non-lease components as a single lease component for all existing classes of underlying assets. Variable costs associated with leases, such as utilities or maintenance costs, are not included in the measurement of ROU assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.
Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term and are measured using the discount rate implicit in the lease if readily determinable. If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based upon the available information at the lease commencement date. The Company’s incremental borrowing rate reflects the fixed rate at which the Company could borrow the amount of lease payments in the same currency on a collateralized basis, for a similar term in a similar economic environment. ROU assets are further adjusted for items such as initial direct costs, prepaid rent, or lease incentives. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. The Company’s lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option.
Deferred Legal Fees
Deferred legal fees consist of consideration to be paid to AAC’s legal advisors in connection with its initial public offering (“IPO”) and the consummation of the Merger. The deferred legal fees have been and will be paid by the Company in equal monthly installments over the twelve-month period starting on May 3, 2024.
Forward Purchase Agreement Derivative Liability
On March 25, 2024, the Company entered into a forward purchase agreement with Sandia Investment Management LP, acting on behalf of certain funds (collectively, “Sandia” or the “Seller”). The Forward Purchase Agreement contains (i) an Optional Early Termination provision, which is considered an in-substance put option (the “Optional Early Termination”) and (ii) a Variable Maturity Consideration which is the amount of the Settlement Amount Adjustment in excess of the Settlement Amount as defined below in Note 7 (the “Variable Maturity Consideration”). The Optional Early Termination and the Variable Maturity Consideration, as combined, are considered a freestanding financial instrument as the Optional Early Termination and the Variable Maturity Consideration cannot be legally detachable and separately exercisable from each other and together, meet the definition of a derivative instrument. Pursuant to the Forward Purchase Agreement, the Seller has the option to early terminate the arrangement in whole or in part by providing written notice to the Company, and the Seller will pay the Company an amount equal to the product of the number of shares that are early terminated and the Reset Price (as defined in Note 7) then in effect. If the Seller exercises an Optional Early Termination, then the Settlement Amount and the Settlement Amount Adjustment to be paid at the Valuation Date, in each case as such term is defined in Note 7, will be reduced in proportion to the number of shares subject to the Optional Early Termination. Additionally, the Company may be obligated to pay consideration to the Seller in cash or, under certain circumstances, in shares of the Company’s common stock, if the Settlement Amount Adjustment exceeds the Settlement Amount. The Company recorded the derivative instrument as a liability on its condensed consolidated balance sheets and measured it at fair value with the initial value of the derivative instrument recorded as a loss on issuance of forward purchase agreement derivative liability in the condensed consolidated statements of operations and comprehensive loss. The forward purchase agreement derivative liability will be subsequently remeasured to fair value at each reporting period, with changes in fair value recognized in the condensed consolidated statements of operations and comprehensive loss.
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
Senior Notes and Senior Secured Notes
The Company performed an analysis of all of the terms and features of the Senior Notes and the Senior Secured Notes (as defined in Note 8). The Company elected the Fair Value Option to account for the Senior Notes. The Senior Notes were remeasured at fair value at each balance sheet date until they were extinguished and converted to Senior Secured Notes (see Note 8) in December 2023.
The Company accounts for its Senior Secured Note issued to a third party for capital market advisory services in connection with the Merger as a stock-based award granted to non-employees (see Note 8) and measured the fair value of the award at the Merger date using the binomial lattice model. The liability portion of the award is carried at redemption value, including paid in-kind interest, as Senior Secured Notes in the accompanying balance sheet. The fair value in excess of the redemption value was recorded to additional paid-in capital and a loss at issuance.
The Company accounts for its remaining Senior Secured Notes at amortized cost, as they were issued at a substantial premium and do not qualify for the Fair Value Option. The Company concluded that the optional conversion features were not required to be bifurcated and separately accounted for as a derivative.
The substantial premium related to the remaining Senior Secured Notes issued is recorded as a loss at issuance within total other expense, net in the condensed consolidated statements of operations and comprehensive loss. Costs related to the issuance of the Senior Secured Notes are recorded as a debt discount as a reduction of the carrying value of the notes and amortized over the term of the Senior Secured Notes and are recorded in other expense, net within the condensed consolidated statements of operations and comprehensive loss using the effective interest method.
Segment Information
The Company manages its business as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s chief executive officer, who is the chief operating decision maker, reviews the Company’s financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources. As of June 30, 2024 and December 31, 2023, the Company does not have material long-term assets outside the U.S.
Classification of Convertible Preferred Stock
Legacy Zapata has classified its Series Seed Preferred Stock (“Series Seed Preferred Stock”), Series A Preferred Stock (“Series A Preferred Stock”), Series B-1 Preferred Stock and Series B-2 Preferred Stock (the “Series B Preferred Stock” and, together with the Series Seed Preferred Stock and Series A Preferred Stock, the “Convertible Preferred Stock” outside of stockholders’ deficit on the Company’s condensed consolidated balance sheets because the holders of such stock had redemption features and certain liquidation rights in the event of a deemed liquidation that, in certain situations, were not solely within the control of Legacy Zapata and would require the redemption of the then-outstanding Convertible Preferred Stock. Upon the Closing of the Merger on March 28, 2024, 14,222,580 shares of Convertible Preferred Stock were converted into 13,001,114 shares of the Company’s common stock using the Exchange Ratio of 0.9141.
Capitalization of Software Development Costs
The Company incurred software development costs related to development of its quantum computing platform. Given that the Company may sell the platform both as a service as well as a license, the Company evaluates software development costs to determine the point where technological feasibility is established. The Company has determined that technological feasibility is typically concurrently with the release, and therefore there have not been costs capitalized through June 30, 2024. Costs incurred in connection with maintenance and customer support are also expensed as incurred.
Revenue Recognition
Revenue is recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. Performance obligations in contracts represent distinct or separate goods or services that the Company provides to customers.
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
The Company recognizes revenue using the following steps: 1) identification of the contract, or contracts with a customer, 2) identification of performance obligations in the contract, 3) determination of the transaction price, 4) allocation of the transaction price to the performance obligations in the contract and 5) recognition of revenue when or as the Company satisfies the performance obligations.
At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct.
The Company currently earns revenue primarily from subscriptions to its software platform, referred to as the Orquestra Platform, and services.
The Company’s subscriptions to its Orquestra Platform are currently offered as stand-ready access to the Company’s cloud environment for access on an annual or multi-year basis. The Company’s consulting services may result in either single or multiple performance obligations based on the contractual terms. The Company may also offer services in the form of stand-ready scientific and software engineering services, which are typically only offered in conjunction with the Orquestra Platform. The Company evaluates its contracts at inception to determine if the promises represent a single, combined performance obligation or multiple performance obligations. The Company allocates the transaction price to the performance obligations identified.
Judgment is required to allocate the transaction price to each performance obligation. The Company utilizes a stand-alone selling price methodology based on observable or estimated prices for each performance obligation. The Company considers market conditions, entity-specific factors, and information about the customer that is reasonably available to the entity when estimating stand-alone selling price for those performance obligations without an observable selling price. The Company’s contracts do not contain rights of return, and any variable consideration as the result of service level agreements has been immaterial. The Company does not have other contractual terms that give rise to variable consideration.
Revenue from subscriptions to the Company’s Orquestra Platform to date have only been sold as access to the platform in its hosted environment and are therefore recognized over the contract term on a ratable basis, as the promise represents a stand-ready performance obligation.
Revenue from consulting services is generally recognized over time. The Company’s contracts typically contain fixed-fee transaction prices. The Company determines and records a provision for loss contracts at the contract level when the current estimate of total costs of the contract at completion exceeds the total consideration the Company expects to receive. The Company has not recorded any provision for loss contracts at June 30, 2024 or December 31, 2023.
For consulting services, the Company measures progress toward satisfaction of the performance obligation as the services are provided, and revenue is generally recognized based on the labor hours expended over time. Through this method, the Company recognizes revenue based on the actual labor hours incurred to date compared to the current estimate of total labors hours to satisfy the performance obligation. The Company believes this method best reflects the transfer of control to the customer. This method requires periodic updates to the total estimated hours to complete the contract, and these updates may include subjective assessments and judgments. The Company had limited contracts for which, based on the Company’s determination of the enforceability of payment terms, revenue was recognized at a point in time when payment became enforceable.
Revenue from services sold in the form of stand-ready scientific and software engineering services are recognized over the contract term on a ratable basis, as the obligation represents a stand-ready obligation.
From time to time, the Company may enter into arrangements to build license applications that can be used in conjunction with its Orquestra Platform or separately. To date, the license application built has been delivered as a perpetual license with associated post-contract support. The Company recognizes the license at the time of deployment, and the related post-contract support over the contracted service period on a ratable basis, as it is provided as a stand-ready service.
The Company’s payment terms vary by contract and do not contain significant financing components. Amounts collected in advance of revenue recognized are recorded as deferred revenue in the condensed consolidated balance sheets.
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
The Company’s balances resulting from contracts with customers include the following:
Contract Acquisition Costs—The Company incurs and pays commissions at the commencement of the contract. The period of the related revenue recognition for the Company’s contracts is typically less than one year in duration, and as such, the Company applies the practical expedient to expense the costs in the period in which they were incurred.
For contracts that have periods that exceed one year, the Company capitalizes contract acquisition costs. As of June 30, 2024 and December 31, 2023, capitalized contract acquisition costs of $19 and $38, respectively, were included in prepaid expenses and other current assets on the condensed consolidated balance sheets. There was $10 and $15 of amortization of contract acquisition costs recognized in the condensed consolidated statements of operations and comprehensive loss for the three months ended June 30, 2024 and 2023, respectively, and $19 and $19 recognized in the condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2024 and 2023.
Accounts Receivable—Accounts receivable represents amounts billed or unbilled to customers that have yet to be collected and represents an unconditional right to receive this consideration from its customers. Account balances are written off against the allowance in the period in which the Company determines that is it probable that the receivable will not be recovered. As of June 30, 2024 and December 31, 2023, there were accounts receivable due from related parties amounting to $2,235 and $829, respectively. As of June 30, 2024 and December 31, 2023, the Company had zero allowance for credit losses.
Deferred Revenue—Deferred revenue represents payments received for which revenue has not yet been recognized.
All deferred revenue as of December 31, 2023 was recognized as revenue during the six months ended June 30, 2024. The decrease in deferred revenue is due to decreased customer billings for revenue not yet delivered for consulting services and subscriptions relating to timing of satisfaction of the Company’s performance obligations.
Balances from contracts with customers for the six months ended June 30, 2024, consist of the following:
|
|
End of Period |
|
|
Beginning of |
|
||
Accounts receivable (including $1,500 and $562 from related parties at June 30, 2024 and December 31, 2023, respectively) |
|
$ |
1,617 |
|
|
$ |
1,341 |
|
Unbilled accounts receivable (including $735 and $267 from related parties at June 30, 2024 and December 31, 2023, respectively) |
|
|
888 |
|
|
|
597 |
|
Deferred revenue |
|
|
736 |
|
|
|
744 |
|
Balances from contracts with customers for the year ended December 31, 2023, consist of the following:
|
End of Year |
|
Beginning of |
|
||
Accounts receivable (including $562 and $0 from related |
$ |
1,341 |
|
$ |
600 |
|
Unbilled accounts receivable (including $267 and $534 from |
|
597 |
|
|
827 |
|
Deferred revenue |
|
744 |
|
|
500 |
|
All revenue from contracts with customers was generated in the U.S. during the three and six months ended June 30, 2024 and 2023. Revenue from contracts with customers recognized for the three and six months ended June 30, 2024 and 2023 consist of the following:
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Point in time |
|
$ |
735 |
|
|
$ |
— |
|
|
$ |
735 |
|
|
$ |
— |
|
Over time |
|
|
1,266 |
|
|
|
1,432 |
|
|
|
2,484 |
|
|
|
2,944 |
|
Total |
|
$ |
2,001 |
|
|
$ |
1,432 |
|
|
$ |
3,219 |
|
|
$ |
2,944 |
|
Cost of Revenue
Cost of revenue includes expenses related to supporting product offerings. The Company’s primary cost of revenue is personnel costs, including salaries and other personnel-related expense. Cost of revenue also includes costs relating to the Company’s information technology and systems, including depreciation, network costs, data center maintenance, database management and data processing costs. The Company allocates these overhead expenses based on headcount, and thus these expenses are reflected in cost of revenue and each operating expense category.
Research and Development Expenses
Research and development expenses consist primarily of expenses and overhead costs incurred in developing new products. The Company expenses all research and development costs as incurred.
Sales and Marketing Expenses
Advertising expenses, which are included in sales and marketing expense in the condensed consolidated statements of operations and comprehensive loss, primarily include promotional expenditures, and are expensed as incurred. The amount incurred for advertising expenses for the three and six months ended June 30, 2024 and 2023 was immaterial.
In addition, sales and marketing expenses consist primarily of personnel-related costs, including salaries and wages, benefits, commissions, bonuses and stock-based compensation expense for the Company’s employees engaged in sales and sales support, business development, marketing, corporate partnerships, and customer service functions. Sales and marketing expenses also include costs incurred for market research, tradeshows, branding, marketing, promotional expense, and public relations, as well as facilities and other supporting overhead costs, including depreciation and amortization.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, for personnel and consultants in the Company’s executive and finance functions. General and administrative expenses also include professional fees for legal, finance, accounting, intellectual property, auditing, tax and consulting services, travel expenses and facility-related expenses, which include allocated expenses for rent and maintenance of facilities and other operating costs not otherwise included in research and development expenses or sales and marketing expenses.
Warrant Instruments
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own common stock and whether the instrument holders could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and, for liability-classified warrants, at each reporting period end date while the warrants are outstanding.
The Company evaluated its outstanding warrants and concluded that the warrants to purchase common stock at an exercise price of $11.50 per share that are listed on the Nasdaq Capital Market under the ticker symbol “ZPTAW” (“Public Warrants”) and warrants to purchase common stock at an exercise price of $11.50 per share held by the Sponsor and the Sponsor Co-Investor (“Private
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
Placement Warrants”) to be issued pursuant to the warrant agreements are indexed to its own common stock and therefore qualify for equity accounting treatment.
Stock-Based Compensation
The Company measures all stock-based options granted to employees, directors and non-employees based on the fair value of the awards on the date of grant using the Black-Scholes option-pricing model. The Company measures restricted stock awards using the difference, if any, between the purchase price per share of the award and the fair value of the Company’s common stock at the date of grant.
The Company grants stock options and restricted stock awards that are subject to service-based vesting conditions. Compensation expense for awards to employees and directors with service-based vesting conditions is recognized using the straight-line method over the requisite service period, which is generally the vesting period of the respective award. Compensation expense for awards to non-employees with service-based vesting conditions is recognized in the same manner as if the Company had paid cash in exchange for the goods or services, which is generally over the vesting period of the award. The Company accounts for forfeitures as they occur.
The Company classifies stock-based compensation expense in its condensed consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. The comprehensive loss for the Company equals its net loss plus changes in foreign currency translation for all periods presented.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the condensed consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Company had accrued no amounts for interest or penalties related to uncertain tax positions as of June 30, 2024 and December 31, 2023.
Emerging Growth Company
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company intends to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. As a result, the Company’s unaudited condensed consolidated financial statements may not be comparable to those public companies that comply with new or revised accounting pronouncements as of public company effective dates. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments became effective for the Company for annual and interim reporting periods beginning after December 15, 2023. The Company adopted ASU 2020-06 on January 1, 2024. The adoption of this guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all public entities, including public entities with a single reportable segment, to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures. The guidance in this update is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires enhanced income tax disclosures, including specific categories and disaggregation of information in the effective tax rate reconciliation, disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. The requirements of the ASU are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures.
In March 2024, the FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements, which amends the Codification to remove references to various concepts statements and impacts various topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The guidance in this update is effective for fiscal years beginning after December 15, 2024. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.
On March 28, 2024, the Company completed its planned Merger with Legacy Zapata, pursuant to which Legacy Zapata became a wholly owned subsidiary of the Company.
In connection with the Merger, AAC filed an application for deregistration with the Cayman Islands Registrar of Companies 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 (the “Domestication”), changing its name to Zapata Computing Holdings Inc. At the effective time of the Domestication, existing holders of ordinary shares of AAC received 7,596,206
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
shares of the Company’s common stock in exchange for their Class A and Class B ordinary shares held immediately prior to the consummation of the Merger.
With the Closing of the Merger, holders of shares of Legacy Zapata common stock and Legacy Zapata Convertible Preferred Stock received an aggregate of 17,696,425 shares of the Company’s common stock, and holders of Legacy Zapata Options received options to purchase an aggregate of 3,016,409 shares of the Company’s common stock, determined by giving effect of the Exchange Ratio of 0.9141.
For accounting purposes, the Merger was accounted for as a reverse recapitalization whereby Legacy Zapata was treated as the accounting acquirer and AAC was treated as the acquired company. This determination was primarily based on the following factors: (i) Legacy Zapata’s existing stockholders had the majority of the voting interest in the combined entity with an approximate 63% voting interest; (ii) the combined company’s board of directors consisted of seven board members with one board member designated by AAC, and each of the remaining six board members were members of the board of directors of Legacy Zapata and one additional independent board member; (iii) Legacy Zapata’s senior management comprised all the senior management of the combined company; and (iv) Legacy Zapata’s existing operations comprised the ongoing operations of the combined company. In accordance with guidance applicable to these circumstances, the Merger was treated as the equivalent of Legacy Zapata issuing stock for the net assets of AAC, accompanied by a recapitalization. The net assets of AAC were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger were those of Legacy Zapata.
On April 1, 2024, in connection with the consummation of the Merger, the Company’s common stock was listed on the Nasdaq Global Market, and the Public Warrants and the Private Placement Warrants were listed on the Nasdaq Capital Market, under the new trading symbols “ZPTA” and “ZPTAW,” respectively. Costs paid by the Company directly attributable to the Merger were $7,058 and were treated as issuance costs and netted against additional paid-in-capital in the condensed consolidated balance sheet of the Company. Additionally, upon the consummation of the Merger, the holders of certain outstanding Senior Secured Notes elected to convert the principal of their notes and accrued interest thereon into 3,257,876 shares of the Company’s common stock (856,202 shares to related parties) in accordance with their terms, at a conversion price of $4.50 per share. Aggregate principal and accrued interest of $2,081 on the Senior Secured Notes remains outstanding as of June 30, 2024.
In connection with the Closing of the Merger, the following events occurred as discussed in more detail below:
Unvested Shares
In contemplation of the Merger, AAC, Legacy Zapata, the Sponsor, the Sponsor Co-Investor and certain directors entered into a sponsor support agreement. AAC’s Sponsor, the Sponsor Co-Investor, key stockholders of the Sponsors and directors owned an aggregate of 5,750,000 Class B ordinary shares of AAC (the “Sponsor Shares”), of which 1,423,500 shares of Class B ordinary shares were subject to certain vesting and forfeiture provisions as described in the sponsor support agreement. At the Closing of the Merger, 1,129,630 Sponsor Shares were determined to be unvested and are subject to forfeiture (the “Unvested Shares”) (see Note 12).
Purchase Agreement with Lincoln Park
On December 19, 2023, the Company entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from the Company, at the option of the Company, an aggregate of up to $75,000 of the Company’s common stock from time to time over a 36-month period following the Commencement Date, subject to certain limitations contained in the Purchase Agreement including, but not limited to, the filing and effectiveness of a registration statement (the “Lincoln Park Registration Statement”). In accordance with the Purchase Agreement, the Company was required to pay Lincoln Park a commitment fee of $1,688 (the “Commitment Fee”) as follows: (i) on the business day prior to the filing of the Lincoln Park Registration Statement, $563 in shares of common stock and (ii) the Company could elect to pay the remaining $1,125 amount of the Commitment Fee in either cash or shares of the Company’s common stock, with any shares issuable on the business day prior to the filing of the Lincoln Park Registration Statement and any cash due within 90 days of the Closing Date. Shares issued as payment for the Commitment Fee are referred to herein as the “Commitment Shares”.
On April 11, 2024, the Company issued 712,025 shares of common stock to Lincoln Park as consideration for the Commitment Fee at an effective price of $2.37 per share. As of June 30, 2024, the Company has issued 5,419,287 shares of its common stock to Lincoln Park for aggregate proceeds of $5,300 (excluding the Commitment Fee shares).
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ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
Forward Purchase Agreement
On March 25, 2024, the Company entered into the Forward Purchase Agreement with Sandia, pursuant to which Sandia purchased, prior to the Closing, 1,000,000 shares of AAC’s Class A Ordinary Shares from third parties through a broker in the open market (the “Recycled Shares”) and, concurrently with the Closing, 500,000 shares of the Company’s common stock at a purchase price of $10.99 per share (the “Additional Shares”). Pursuant to the Forward Purchase Agreement, at the Closing, the Company prepaid to Sandia (the “Prepayment”), (i) with respect to the Recycled Shares, with proceeds from the trust account, a cash amount equal to the (x) product of the number Recycled Shares and (y) $10.99 per share and, (ii) with respect to the Additional Shares, a per share amount equal to $10.99 per share netted against the proceeds from the Additional Shares received from Sandia. In the case of the Recycled Shares, the Prepayment was paid with proceeds from the trust account at the Closing of the Merger. The Prepayment for Additional Shares was netted against the proceeds that Sandia was to pay for the purchase of such Additional Shares, resulting in no cash received or paid for the share issuance (see Note 7).
Advisory Agreements
On July 4, 2023, AAC entered into an engagement letter with a third party, pursuant to which the third party acted as a capital markets advisor to AAC in connection with the Merger. AAC agreed to pay the third party a fee of (i) $500 in cash payable upon the Closing of the Merger, plus (ii) $1,000 in shares of the Company’s common stock, payable 180 days after the Closing of the Merger plus (iii) $1,000 payable in either cash or shares of the Company’s common stock, payable 270 calendar days following the completion of the Merger. On March 25, 2024, AAC and the third party entered into an amendment to the engagement letter to settle the fee arrangement, such that there is no remaining obligation following the Merger.
On September 13, 2023, the Company entered into an agreement with an additional third party for advisory services to be provided in connection with the Merger. In March 2024, the payment terms of the agreement were amended to provide for a fee of $1,250, to be paid by the issuance of a Senior Secured Note with a principal amount of $1,000 and the remaining $250 in six monthly installments in cash of $42 per month commencing on May 15, 2024. During the six months ended June 30, 2024 the Company paid $84 to the third party.
The Senior Secured Note issued to the third party was a modified award issued subsequent to the initial date of grant (see Note 3). The incremental fair value of the Senior Secured Note from the award modification was recorded as a Loss on issuance of senior secured notes within Total other expense, net in the condensed consolidated statements of operations and comprehensive loss. The Senior Secured Note issued to the third party has the same terms as the Senior Secured Notes issued to other noteholders. The third party did not convert the Senior Secured Note into shares of the Company’s common stock upon the Closing of the Merger, and the Senior Secured Note remained outstanding at June 30, 2024.
On February 9, 2024, AAC and the Company entered into a capital markets advisory agreement with a third party pursuant to which the Company agreed to pay the third party i) $300 for capital markets advisory services provided related to the Merger, and ii) $150 for services provided related to the benefit of the holders of AAC and Zapata securities. On March 27, 2024, AAC and the Company also agreed to issue to the third party a Senior Secured Note in the principal aggregate amount of $150 immediately prior to the Closing of the Merger in exchange for additional capital markets advisory services provided in connection with the Merger. This Senior Secured Note was then converted into 33,333 shares of the Company’s common stock at the Closing of the Merger. The Company recorded a reduction of $450 in additional paid-in capital on its condensed consolidated balance sheet as a transaction cost in connection with the capital markets advisory services provided. During the six months ended June 30, 2024, in connection with the 33,333 shares issued for the additional services, the Company recognized $150 in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.
On February 9, 2024, the Company entered into an engagement letter with an additional third party, as amended on February 27, 2024, pursuant to which the third party acted as a capital markets advisor to the Company in connection with the Merger. The Company agreed to pay the third party a non-refundable cash fee of $1,800, payable by the Company in monthly payments of $113 commencing on the earlier of May 31, 2024 or the effectiveness of the Lincoln Park Registration Statement until the full advisory fee of $1,800 has been paid (the “Term”), with $300 of such payment waivable if the Company voluntarily prepays $1,500 to the third party prior to December 31, 2024. The Lincoln Park Registration Statement was declared effective on April 18, 2024. Notwithstanding the foregoing, the Company will pay the full $1,800 upon consummation of a financing transaction with proceeds of $15,000 or more (not including sales under the Purchase Agreement or similar financing) during the Term. Upon the Closing of the Merger, the Company recognized $1,800 as transaction costs, which recorded as a reduction in additional paid-in capital. The Company also
18
Table of Contents
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
recorded an obligation of $1,575 to the third party in accrued expenses and other current liabilities within the condensed consolidated balance sheet as of June 30, 2024. During the six months ended June 30, 2024, the Company paid $226 to the third party.
In March 2024, the Company entered into a placement agent agreement to retain an additional third party for the purpose of raising up to $10,000, for a term of 60 days from the execution of the placement agent agreement. The Company agreed to pay a cash fee equal to 7.0% of the gross amount of cash proceeds received by the Company from investors introduced by the third party directly to the Company (the “Financing Proceeds”), payable within 7 business days following receipt of proceeds from any investors introduced by the third party. In addition, the Company agreed to issue a number of shares of common stock equal to 3.0% of the Financing Proceeds divided by 4.50 upon the closing of the Merger. The Company made cash payments in an aggregate amount equal to $123 in connection with the receipt of the Financing Proceeds and issued 11,666 shares of common stock upon the closing of the Merger. The Company capitalized the cash fee and the fair value of the shares issued as a debt discount and amortized using the effective interest method over the term of the loans. (See Note 8).
Marketing Services Agreement
On February 9, 2024, AAC entered into a marketing services agreement with a third party to promote investor engagement, pursuant to which AAC agreed to pay the third party in shares of the Company’s common stock with a value of $300 upon the Closing of the Merger. In connection with the Closing of the Merger, the Company issued 30,706 shares of the Company’s common stock to the third party.
Merger Consideration
The following table reconciles the elements of the Merger to the condensed consolidated statement of cash flows and the consolidated statement of changes in equity. Upon the Closing of the Merger, the Company assumed liabilities of $8,159 from AAC, which was comprised of $223 of accounts payable, $1,987 of accrued expenses and other current liabilities, $2,619 of note payable – related party, and $3,330 of deferred legal fees.
|
|
March 28, 2024 |
|
|
Cash - AAC Trust (net of redemptions) |
|
$ |
20,283 |
|
Less: AAC costs paid at Closing |
|
|
(7,317 |
) |
Less: Notes payable - related party paid at Closing |
|
|
(330 |
) |
Net proceeds from the Merger |
|
|
12,636 |
|
Less: Liabilities obtained from AAC |
|
|
(8,159 |
) |
Merger consideration |
|
$ |
4,477 |
|
The number of shares of the Company’s common stock outstanding immediately following the consummation of the Merger was as follows:
|
|
Share |
|
|
Legacy Zapata equityholders |
|
|
17,696,425 |
|
AAC public shareholders |
|
|
1,846,206 |
|
AAC Sponsor shares |
|
|
5,750,000 |
|
Senior Secured Note holders |
|
|
3,257,876 |
|
Additional Shares issued pursuant to the Forward Purchase Agreement |
|
|
500,000 |
|
Capital markets advisors |
|
|
42,372 |
|
Total shares of common stock immediately after the Merger |
|
|
29,092,879 |
|
19
Table of Contents
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
|
Fair Value Measurements at June 30, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds |
|
$ |
6,652 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,652 |
|
|
|
$ |
6,652 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,652 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forward purchase agreement derivative liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13,163 |
|
|
$ |
13,163 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13,163 |
|
|
$ |
13,163 |
|
|
|
Fair Value Measurements at December 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market mutual funds |
|
$ |
2,693 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,693 |
|
|
|
$ |
2,693 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,693 |
|
The Company’s cash equivalents maintained in money market funds are based on quoted market prices in active markets, which represent a Level 1 measurement within the fair value hierarchy. The carrying values of the Company’s accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities, the note payable – related party, deferred revenue, deferred legal fees and the obligation to issue common stock approximate their fair values due to the short-term nature of these instruments. The Forward Purchase Agreement derivative liability is carried at fair value, determined according to Level 3 inputs in the fair value hierarchy (see Note 7).
For the six months ended June 30, 2024 and 2023, there were no transfers between Level 1, Level 2 and Level 3.
Valuation of Forward Purchase Agreement Derivative Liability
As described in Note 3, the Company entered into the Forward Purchase Agreement in connection with the Merger on March 25, 2024. The Forward Purchase Agreement contains (i) an Optional Early Termination provision, and (ii) a Variable Maturity Consideration. The Optional Early Termination and the Variable Maturity Consideration, as combined, are considered as a freestanding financial instrument and meet the definition of a derivative instrument. The fair value of the forward purchase agreement derivative liability, consisting of the Optional Early Termination and the Variable Maturity Consideration, was estimated using a Monte-Carlo Simulation in a risk-neutral framework. The fair value of the derivative liability was equal to the difference between the fair value of the Forward Purchase Agreement and the amount of cash receivable at the two-year settlement date, which was calculated as the present value of the initial reset price of $10.00 per share (as defined in the Forward Purchase Agreement) discounted using the term-matched risk-free rate.
The following table represents the significant inputs used in calculating the forward purchase agreement derivative liability on the issuance date and as of June 30, 2024:
|
|
March 28, 2024 |
|
|
June 30, 2024 |
|
||
Stock price |
|
$ |
13.60 |
|
|
$ |
0.60 |
|
Expected volatility |
|
|
50.00 |
% |
|
|
60.00 |
% |
Risk-free interest rate |
|
|
4.54 |
% |
|
|
4.75 |
% |
Expected life (in years) |
|
|
2.00 |
|
|
|
1.75 |
|
Expected dividend yield |
|
|
— |
% |
|
|
— |
% |
20
Table of Contents
ZAPATA COMPUTING HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share and share amounts)
The Company determined the initial value for the forward purchase agreement derivative liability of $4,935 using the Level 3 inputs as of the issuance date on March 28, 2024 and recorded the loss on issuance of $4,935 as a loss on issuance of forward purchase agreement derivative liability in the condensed consolidated statements of operations and comprehensive loss. The change in fair value of the forward purchase agreement derivative liability of $8,228 was recorded during the three and six months ended June 30, 2024 in the condensed consolidated statements of operations and comprehensive loss.
The following table presents the change in fair value of the forward purchase agreement derivative liability for the three and six months ended June 30, 2024:
|
|
Amounts |
|
|
Balance as of December 31, 2023 |
|
$ |
— |
|
Forward purchase agreement derivative liability issuance |
|
|
4,935 |
|
Balance as of March 31, 2024 |
|
|
4,935 |
|
Partial early termination of forward purchase agreement derivative liability |
|
|
(823 |
) |
Change in fair value of forward purchase agreement derivative liability |
|
|
9,051 |
|
Balance as of June 30, 2024 |
|
$ |
13,163 |
|
Property and equipment, net consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
Computer equipment |
|
$ |
||||||