Zapata Computing Holdings Inc. Ceases Operations

Insider Brief

• Zapata Computing Holdings Inc. is shutting down after its board approved a plan to cease operations due to the company’s inability to meet financial obligations, according to an SEC filing.
• The company owes $2.5 million to Sandia Investment Management and an additional $2.3 million to other creditors, with the value of its assets insufficient to cover these debts, leaving shareholders unlikely to receive any returns.
• Originally focused on quantum computing, Zapata had shifted to generative AI solutions and completed a business combination with a SPAC in 2023, but market volatility and skepticism around SPACs led to a sharp decline in its stock value.

Zapata Computing Holdings Inc. (Zapata) is set to cease operations after its board of directors approved a plan to wind down the business, terminate most employees and address outstanding financial obligations, according to a Form 8-K filed with the Securities and Exchange Commission (SEC).

The decision SEC filing, officially dated October 8, 2024, cited the company’s inability to meet its financial obligations as the primary driver behind the closure.

The company’s shares dropped 56% on news of the liquidation report, according to MarketWatch.

Based on the filing, the company entered into a Forward Purchase Agreement with Sandia Investment Management LP in March 2024. As part of that agreement, Sandia purchased 1.25 million shares of Zapata’s stock. According to the filing, the agreement allowed Sandia to accelerate the settlement date under certain conditions, including a “VWAP Trigger Event,” which occurs when the stock’s volume-weighted average price (VWAP) falls below $1.00 for 20 trading days within a 30-day period.

As a result of the stock falling below this threshold, Sandia exercised its right to move the settlement date forward to October 8, 2024, triggering a financial obligation for Zapata. The company now owes Sandia $2.5 million in cash, minus a settlement amount calculated based on several factors, including the number of unregistered shares. The final payment will be made 10 business days after the valuation period ends, which is tied to trading volumes reaching 1.25 million shares. Zapata anticipates that around 500,000 of these shares will be unregistered.

The financial strain extends beyond the Sandia obligation, according to the filing. The company owes an additional $2.3 million to various creditors through Senior Secured Promissory Notes. These creditors hold a security interest in nearly all of the company’s assets. In its filing, Zapata stated that the fair market value of its assets is not sufficient to cover its outstanding debts. As a result, after meeting its creditor obligations, the company does not expect to have any assets left for its shareholders. Due to its insolvency, Zapata also noted that it does not plan to file for bankruptcy or seek stockholder approval for the shutdown.

In addition to the financial challenges, Zapata has taken steps to reduce its workforce. The company terminated nearly all employees as of October 9, 2024, retaining only a small number of staff, including Chief Financial Officer Sumit Kapur, to manage the cessation of operations. Kapur was also appointed as Chief Executive Officer following the resignation of Christopher Savoie, the company’s founder and former CEO, on October 7, 2024. Savoie’s resignation was not attributed to any disagreements with the company or its operations, according to the filing.

Zapata, which had originally positioned itself as a player in the quantum computing sector when it formed in 2017 and then, later, shifted mainly to a provider of generative artificial intelligence (AI) technologies, completed what’s officially referred to as “a business combination” with Andretti Acquisition Corp., a special purpose acquisition company (SPAC), a year ago. Following the merger, the combined company has been renamed Zapata Computing Holdings Inc., eventually trading on the Nasdaq under the ticker symbols “ZPTA” and “ZPTAW” on April 1, 2024.

Owing much to a shaky market and increased skepticism in SPACs, the company’s stock faced a chilly start to its entering the public market, falling 60% on its debut on NASDAQ. The stock never really gained traction after that.

Zapata acknowledged in the filing that it no longer maintains effective internal controls over financial reporting. This lack of oversight raises concerns about the accuracy of future disclosures. The company also noted that its filings with the SEC may not fully reflect its current situation due to these changes.

As the company winds down its operations, creditors will be prioritized in any financial distributions, most likely leaving shareholders with little to no return.

Zapata’s board of directors officially approved the closure on October 7, 2024, signaling the end of the company’s business activities. While the company will attempt to satisfy its financial obligations to the extent possible, its liabilities far exceed its assets, leaving a bleak outlook for any further developments.