Zura Bio Ltd quarterly report, Q2 FY2022

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Business context and reporting period

This is JATT Acquisition Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022, signed August 12, 2022. Despite the request metadata naming Zura Bio Ltd, the filing is for JATT, a blank-check company formed to pursue a business combination; it is not an operating-company quarterly report for Zura Bio. JATT reported no operating revenue and had not commenced operations.

On June 16, 2022, JATT agreed to combine with Zura Bio. The proposed transaction remained subject to approvals and other closing conditions.

Financial results and position

  • Revenue: None reported; JATT stated it would not generate operating revenue until after a business combination.
  • Net income: $2.27 million for Q2 2022 and $2.42 million for the first six months of 2022, compared with net losses of $19,141 for Q2 2021 and $52,180 from inception through June 30, 2021. The 2022 profits chiefly reflected noncash gains from lower warrant-liability fair values: $3.16 million in Q2 and $3.71 million for the six-month period.
  • Expenses and other income: Q2 general and administrative expenses were $873,804, plus $198,000 of related-party expenses. For six months, these were $1.20 million and $288,000, respectively. Trust investment income was $181,213 for Q2 and $197,512 for six months.
  • Cash flow: Operating activities used $687,494 in the first six months. A $179,006 working-capital loan partly offset this, and cash declined by $508,488 to $220,735.
  • Liquidity and liabilities: Current assets were $436,598 and current liabilities were $1.04 million, producing a working-capital deficit of approximately $604,000. The company had $179,006 outstanding under a related-party working-capital loan. Total liabilities were $7.42 million, including $4.01 million of deferred underwriting commissions and $2.36 million of warrant liabilities.
  • Trust and redeemable shares: Trust investments totaled $139.60 million. All 13.8 million public Class A shares were subject to possible redemption, recorded at $139.50 million, or approximately $10.11 per share.
  • Margins and debt: Not applicable to this pre-combination SPAC; the filing reports no revenue. It reports no long-term debt, but does report the working-capital loan.

Material changes versus the prior comparable period

JATT moved from small formation-related losses in 2021 to reported income in 2022, largely because warrant liabilities were remeasured downward. General and administrative and related-party expenses also increased as the company pursued a transaction. Cash outside the trust fell from $729,223 at December 31, 2021 to $220,735 at June 30, 2022, while the working-capital loan balance increased from zero to $179,006.

Outlook, risks, contingencies and unusual items

  • Going concern: Management said the working-capital position raised substantial doubt about JATT’s ability to continue as a going concern until a business combination or required liquidation. Sponsor-affiliated parties may provide additional loans but are not obligated to do so.
  • Transaction terms: The proposed deal included $20 million of PIPE financing and a $30 million forward-purchase investment, plus a further $15 million backstop if public-share redemptions exceeded 90%. Closing conditions included shareholder approvals, an effective registration statement, NYSE listing approval, at least $5,000,001 of net tangible assets, and a specified $65 million cash condition. The agreement could be terminated if closing had not occurred by November 15, 2022.
  • Timing: JATT’s 18-month business-combination period ended January 16, 2023; failure to complete a deal by then required it to cease operations, redeem public shares and wind up, subject to applicable law.
  • Warrants and dilution: Warrant fair-value changes materially affected reported earnings. The proposed transaction also contemplated new shares, potential warrant transfers, and an incentive plan reserving up to 10% of fully diluted post-closing shares.
  • Controls: Management concluded disclosure controls were ineffective due to a material weakness in accounting for complex financial instruments. It reported additional review procedures and ongoing remediation, with no assurance remediation would be effective.
  • Other risks: The filing cited uncertainty about potential effects of COVID-19 and proposed SEC rules concerning SPAC transactions. No legal proceedings were reported.

Most important facts for investors to verify

  1. Confirm the entity: this 10-Q is filed by JATT Acquisition Corp, not Zura Bio Ltd.
  2. Check the business-combination agreement’s closing status, financing commitments, cash condition, redemption levels and termination or deadline provisions.
  3. Assess whether JATT had adequate cash outside the trust and access to additional funding given the disclosed going-concern doubt.
  4. Separate recurring operating costs from noncash warrant remeasurement gains when evaluating the reported profit.
  5. Review the status and remediation of the material weakness in financial-instrument accounting.