Zura Bio Ltd quarterly report, Q3 FY2022

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Business context and reporting period

This is JATT Acquisition Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022, filed November 14, 2022. JATT was a blank-check SPAC and had not begun operating a business or generating operating revenue. It had agreed to combine with Zura Bio; this filing reports JATT’s financial position, not Zura Bio’s standalone operating results.

Financial results and position

  • Revenue: None; JATT expected to generate operating revenue only after a business combination.
  • Net income: $458,470 for Q3 2022 and $2.877 million for the first nine months of 2022. Earnings were driven primarily by noncash warrant-liability fair-value gains and interest/investment income, not operating activity.
  • Expenses and margins: General and administrative expense was $491,890 in Q3 and $1.688 million year to date; related-party expense was $51,708 and $339,708, respectively. Operating losses were $543,598 and $2.028 million. Operating margins are not meaningful because there was no revenue.
  • Cash flow: Operating activities used $954,751 in the first nine months. Financing provided $299,981, and cash declined by $654,770 to $74,453.
  • Assets and liquidity: September 30 total assets were $140.480 million, including $140.283 million in the Trust Account. Working capital deficit was approximately $1.1 million.
  • Liabilities: Total liabilities were $7.404 million, including $1.344 million current liabilities, $4.010 million deferred underwriting commissions, and $2.050 million derivative warrant liabilities. A $299,981 related-party working capital loan was outstanding.
  • Equity and redemptions: All 13.8 million Class A shares were subject to possible redemption, recorded at $140.183 million, or approximately $10.16 per share. There were also 3.45 million Class B shares outstanding.

Material changes versus the prior comparable period

  • Q3 net income fell to $458,470 from $5.787 million in Q3 2021, when a substantially larger $8.622 million warrant fair-value gain drove earnings. Q3 2022 included a $315,300 warrant gain and $686,544 of Trust Account investment income.
  • Year-to-date 2022 net income was $2.877 million, versus $5.735 million from inception through September 2021; those periods are not equal in length. The 2022 result included a $4.020 million warrant fair-value gain and $884,056 of Trust Account income.
  • Cash fell from $729,223 at December 31, 2021 to $74,453 at September 30, 2022, while the working capital loan increased from zero to approximately $300,000.
  • Derivative warrant liabilities declined from $6.070 million to $2.050 million, producing a noncash gain that materially affected reported income.

Transaction, outlook, risks and unusual items

  • Proposed Zura combination: The June 2022 agreement contemplated issuing Zura holders 16.5 million JATT Class A shares, subject to adjustments described in the agreement. The financing commitments included a $20 million PIPE and a $30 million forward purchase investment, plus a $15 million backstop if public redemptions exceeded 90%. Closing conditions included shareholder approvals, effective registration, NYSE listing approval, at least $5.0 million in net tangible assets, and a specified $65 million cash condition. The agreement allowed termination if closing had not occurred by November 15, 2022.
  • Combination deadline: JATT was required to complete a business combination by January 16, 2023 or begin winding up and redeeming public shares, subject to applicable requirements. The filing states management believed existing working capital raised substantial doubt about the company’s ability to continue as a going concern through the earlier of a combination or liquidation.
  • Additional funding: On November 2, 2022, a Sponsor affiliate agreed to make up to $500,000 available under a non-interest-bearing note; no funds had been borrowed under it as of the filing. The September working capital loan could, at the lender’s option, convert into warrants.
  • Controls: Management concluded disclosure controls were ineffective because of a material weakness in accounting for complex financial instruments. Additional analyses and expert consultation were performed; remediation was ongoing, with no assurance it would be effective.
  • Other risks and contingencies: Management noted potentially adverse but unquantified effects from COVID-19 and the Russia-Ukraine conflict and related sanctions. It also described proposed SEC SPAC rules as potentially increasing transaction costs, time, and completion risk. No legal proceedings were reported.
  • Outlook: No operating guidance or revenue forecast was provided. Management expected continued public-company and transaction-search expenses. Reported earnings were unusually sensitive to warrant valuation changes.

Important facts for investors to verify

  1. Whether the Zura business combination closed, was amended, or was terminated, and whether all shareholder, listing, registration, and cash conditions were satisfied.
  2. Actual public-share redemptions and the resulting unrestricted cash available at closing, including the status of the PIPE, forward purchase financing, and redemption backstop.
  3. How JATT funded operations after September 30, including any draw on the November $500,000 note, and whether the going-concern uncertainty was resolved.
  4. Progress in remediating the material weakness in financial reporting controls and the reliability of recurring warrant fair-value estimates.
  5. The final transaction share count, dilution from warrants and incentive awards, and any changes to the disclosed lock-ups or financing terms.