Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the "Forward-Looking Statements" and "Risk Factors" sections of this Quarterly Report on Form 10-Q, which describe factors or events that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For periods prior to the closing of the Merger (as defined below), the use of "our," "we", the "Company" and words of similar import in this Item 2 refer to Zapata Quantum, Inc. ("Zapata", or "Legacy Zapata") or Andretti Acquisition Corp. ("AAC"), as the context requires.

Cautionary Note Regarding Forward-Looking Statements

This Report contains forward-looking statements, including statements regarding our expectations for prospective future growth, operating results and financial condition, potential future trends and developments within our industry and the U.S. and global economies generally, plans and expectations for our future business plan and capital raising efforts, expectations and plans with respect to our products and services including the potential market for, timing, features, and demand for such products and services, and liquidity and sources of capital. Forward-looking statements are prefaced by words such as "anticipate," "expect," "plan," "could," "may," "will," "should," "would," "intend," "seem," "potential," "appear," "continue," "future," believe," "estimate," "forecast," "project," and similar words. We have based these forward-looking statements largely on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. We caution you, therefore, against relying on any of these forward-looking statements.

Our actual results may differ materially from those contemplated by the forward-looking statements for a variety of reasons, including, without limitation, the possibility that estimates, projections and assumptions on which the forward-looking statements are based prove to be incorrect, our ability to raise the necessary capital to re-establish material operations and generate revenue and the terms and timing of any related transactions, central bank interest rates and future interest rate changes, the risks arising from the impact of inflation, tariffs, the deterioration of the labor market of the United States, a recession which may result on the Company's business, prospective customers, and on the national and global economy, our ability to attract homeowners to our products and services, the potential for regulatory changes impacting quantum computing, artificial intelligence, data privacy and other areas that impact the Company's business, and the ability of us and third parties on which we depend to comply with applicable regulatory requirements, the risk that software and technology infrastructure on which we depend fail to perform as designed or intended, and the risks and uncertainties disclosed in our other reports and documents filed with the SEC. Any forward-looking statement made by us in this presentation speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Overview

Zapata Quantum, Inc., formerly known as Zapata Computing Holdings Inc., is a leading pure-play hardware-agnostic quantum software company. Following a strategic realignment in 2025, the Company will deliver subscription-based solutions to efficiently deploy and accelerate the development of quantum and hybrid quantum-classical computing applications. Founded in 2017 by researchers from a Harvard University Quantum Computing Lab, Zapata has built one of the industry's most robust intellectual property portfolios in quantum and hybrid quantum-classical computing and algorithmic methods, with over 60 patents, granted and pending, developed over eight years.

Zapata's software platform for quantum computing applications is based on our patented technology and supports a wide range of use cases in cryptography, pharmaceuticals, manufacturing, materials discovery and defense. The Company is the only organization to have participated across all technical areas of the Defense Advanced Research Projects Agency's ("DARPA")'s Quantum Benchmarking program and has worked with Fortune 500 enterprises and government agencies to unlock the potential of quantum computing.

Following a period of broader AI exploration, the Company undertook, in 2024 and 2025, a strategic realignment to refocus on its core quantum mission: developing the software and tooling layer that enables enterprises, governments, and researchers to harness quantum computing for economically meaningful outcomes.

In late 2024 the Company voluntarily elected to temporarily suspend its operations due to its limited capital resources and inability to access adequate liquidity to continue to fund its operations and meet its outstanding debt obligations. In June 2025, the Company commenced debt restructuring and capital raising transactions and the reinstatement of operations by (1) entering into exchange agreements with unsecured creditors pursuant to which such creditors agreed to exchange outstanding obligations payable to them for common stock and certain rights related thereto, and (2) the Company sold convertible notes and warrants for gross proceeds of $3 million. The Company has since been continuing efforts to negotiate and restructure outstanding obligations and raise capital. In the furtherance of recommencing operations, the Company has also entered into advisory agreements with third parties and agreed to compensate such parties in the form of equity and/or cash compensation. See Note 19, Subsequent Events in the notes to the unaudited condensed consolidated financial statements contained in this Report.

Zapata's hardware-agnostic approach and proprietary technology address the "software bottleneck" that limits quantum adoption. The Company's products - Orquestra, Bench-Q, Quantum Graph, and Quantum Pilot - provide the infrastructure and workflow tools that connect problem discovery, algorithm design, and hardware execution. These tools are supported by professional services, partnerships, and licensing programs that collectively form the Company's business model.

Recent Developments

Merger with Andretti Acquisition Corp. ("AAC")

On March 28, 2024, we completed our business combination with AAC, pursuant to which, among other things, Legacy Zapata became a wholly owned subsidiary of AAC (the "Merger"). 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. For additional information regarding the Merger, refer to Note 3 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Forward Purchase Agreement

On March 25, 2024, we entered into the Forward Purchase Agreement with Sandia Investment Management LP, pursuant to which Sandia purchased, prior to the closing of the Merger, 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 of the Merger, 500,000 shares of our common stock at a purchase price of $10.99 per share (the "Additional Shares").

In April 2024, Sandia exercised their optional early termination rights under the Forward Purchase Agreement, pursuant to which 250,000 shares were terminated and we received payments totaling $2.5 million under the early termination obligation prescribed in the Forward Purchase Agreement.

On October 8, 2024, we received notice from Sandia accelerating the Valuation Date to October 8, 2024. As a result, we became obligated to pay Sandia $2.4 million in cash or shares. In June 2025, we satisfied our obligations under the Forward Purchase Agreement through the issuance of 6,591,000 shares of common stock to Sandia.

For additional information regarding the Forward Purchase Agreement, refer to Note 7 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Enterprise Solution and Sponsorship Agreements with Andretti Global

One of AAC's affiliates, Andretti Autosport Holding Company, LLC ("Andretti Global") has preexisting contractual relationships with the Company. In February 2022, we entered into i) an enterprise solution subscription agreement and ii) a sponsorship agreement with Andretti Global, both of which expired on December 31, 2024. We considered that these agreements were executed prior to the business combination and were not executed in contemplation of the business combination. Accordingly, Andretti Global was not considered a related party prior to the consummation of the Merger.

On March 28, 2024, we entered into a sponsorship agreement with Andretti Autosport 1, LLC, an affiliate of Andretti Global. The agreement expired on December 31, 2024. Our committed future payments under the sponsorship agreement total $1.0 million.

On March 28, 2024, we entered into an Order Form under the February 2022 enterprise solution subscription agreement with Andretti Global. Pursuant to the agreement, Andretti Global agreed to pay us a total of $1.0 million, subject to our payment of the sponsorship fee to Andretti Autosport 1, LLC. Following the Operational Cessation, the agreement was terminated, and no payments were made.

For additional information regarding the Enterprise Solution and Sponsorship Agreements with Andretti Global, refer to Note 18 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Purchase Agreements with Lincoln Park

On December 19, 2023, we entered into a purchase agreement (the "2023 Purchase Agreement") with Lincoln Park Capital Fund, LLC ("Lincoln Park"), pursuant to which Lincoln Park agreed to purchase from us, at our option, an aggregate of up to $75.0 million of our common stock from time to time over a 36-month period following the Commencement Date, subject to certain limitations contained in the 2023 Purchase Agreement.

On August 13, 2024, we entered into a purchase agreement (the "2024 Purchase Agreement") with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us, at our option, an aggregate of up to $10.0 million of shares of our common stock from time to time over a 24-month period upon the satisfaction of certain conditions contained in the 2024 Purchase Agreement. In connection with the Operational Cessation described below, the registration statement in connection with the Purchase Agreement is no longer effective (which is a condition to transactions under the Purchase Agreement).

For additional information regarding the Purchase Agreements with Lincoln Park, refer to Note 10 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Operational Cessation

On October 7, 2024, our board of directors approved the cessation of our operations (the "Operational Cessation") due to insufficient financial resources to continue funding ongoing operations and meet existing obligations. In connection with the Operational Cessation, our board of directors approved the termination of all our employees, except for a small number of employees retained to administer termination business activities, including Sumit Kapur, our Chief Financial Officer. All such employees were terminated effective October 9, 2024. Following the Operational Cessation, we maintained minimal day-to-day operations.

On October 25, 2024, trading of our common stock and warrants was suspended and removed from the listing and registration on Nasdaq.

Operations Prior to Operational Cessation

Prior to the Operational Cessation, we offered specialized generative AI solutions which used techniques inspired by quantum physics and were tailored to solving complex industrial problems. These solutions combined software and related services and were subscription based. Our approach utilized mathematical techniques from the quantum physics community to make computation more efficient and to create models that have other advantages over conventional methods. Our primary target customers were enterprise organizations, which generally consist of large businesses that have high revenue, the size and resources to dominate a specific market and a significant number of employees.

We had a suite of three subscription-based specialized generative AI offerings that included software and software tools supported by services. These offerings consist of:

• Zapata AI Sense ("Sense"): A suite of algorithms and complex mathematical models to enhance analytics and other data-driven applications.

• Zapata AI Prose ("Prose"): Our set of generative AI solutions based on large language models ("LLMs"), similar to widely used generic chatbot applications but customized to an enterprise's industry and its unique problems.

• Orquestra: The Company's specialized generative AI application development platform on which it provides Sense and Prose to customers.

Restructuring Efforts

As noted above, since the Operational Cessation, we have had minimal day-to-day operations. Management has since concentrated its efforts on restructuring activities aimed at restarting certain aspects of its core business, including capital-raising activities to improve our capital structure and to support the anticipated recommencement of business operations. For additional information regarding these restructuring activities, refer to Note 19, Subsequent Events, in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Since our inception through June 30, 2025, we have financed our operations primarily through sales of our Convertible Preferred Stock and common stock and with issuances of Senior Notes, Senior Secured Notes and Convertible Notes. For the six months ended June 30, 2025 we generated net income of $1.9 million. As of June 30, 2025 and December 31, 2024, we had an accumulated deficit of $125.7 million and $127.7 million, respectively.

Our ability to continue as a going concern is dependent upon our ability to raise capital through future equity or debt financing and generate profits from our operations. We are pursuing all available options for funding, which include seeking public or private investments and funding through the sale of equity or debt securities.

In 2025, we raised an aggregate of $3.0 million through the issuance of Convertible Notes and $1.5 million through the sale of Series A Convertible Preferred Stock. The proceeds from the Convertible Notes were used to repay one of our outstanding Senior Secured Notes. In addition, in 2025, we entered into conversion agreements with certain creditors to settle approximately $11.7 million of liabilities through the issuance of shares of our common stock. These activities were undertaken as part of our ongoing efforts to improve the Company's capital structure and provide the liquidity necessary to support restarting certain aspects of our core business.

Although we believe that we will be able to continue to raise funds through the sale of our securities to provide the additional funding needed to meet our obligations, the restructuring activities aimed at restarting certain aspects of our core business will require substantial additional funding and there is no assurance that we will be able to continue raising the additional capital necessary to continue operations and execute on our business plan.

These factors raise substantial doubt about our 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 we be unable to continue as a going concern. We have evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. We have 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 we expand our penetration of the quantum computing application development solutions market.

See "Liquidity and Capital Resources" below for additional information.

Components of Our Results of Operations

Revenue

Our revenue is generated primarily from sales of subscriptions to our software platform and related services. Subscriptions to our software platform are offered as stand-ready access to our cloud environment on an annual or multi-year basis. We may also offer consulting services in the form of stand-ready scientific and software engineering services, which are typically only offered in conjunction with our software platform. We evaluate our contracts at inception to determine if the terms represent a single, combined performance obligation or multiple performance obligations.

Under our consulting contracts, our deliverables may include integrated quantum, classical or hybrid quantum-classical computing solutions to our customers or to provide research and development services regarding the potential benefits of these solutions to use cases specified by our customer. Our subscription-based solutions consist of our commitment to provide access to our hosted software platform throughout the contract term along with stand-ready scientific and software engineering services.

Revenue from subscriptions to our software platform to date have only been sold as access to the platform in our hosted environment and are therefore recognized over the contract term on a ratable basis, as the commitment represents a stand-ready performance obligation.

Revenue from consulting services is generally recognized over the contract term as performance is completed on the performance obligations identified. Revenue from stand-ready scientific and engineering services are recognized over the contract term on a ratable basis, as the obligation represents a stand-ready obligation.

From time to time, we may enter into arrangements to build license applications that can be used in conjunction with our software platform. To date, the license application built has been delivered as a perpetual license with associated post-contract support. We recognize 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.

Our revenue recognition policies are discussed below under the heading "Critical Accounting Policies and Significant Judgments and Estimates" and Note 2, "Summary of Significant Accounting Policies" to our condensed consolidated financial statements, included elsewhere in this Quarterly Report.

Cost of Revenue

Cost of revenue includes expenses related to supporting product offerings. Our primary cost of revenue is personnel costs, including salaries and other personnel-related expense. Cost of revenue also includes costs relating to our information technology and systems, including depreciation, network costs, data center maintenance, database management and data processing costs. We allocate these overhead expenses based on headcount, and thus are reflected in cost of revenue and each operating expense category.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related costs, including salaries and wages, benefits, commissions, bonuses and stock-based compensation expense for our 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. Sales and marketing expenses are primarily driven by investments in the growth of our business. We expect sales and marketing expenses, expressed as a percentage of revenue, to vary from period to period for the foreseeable future.

Advertising expenses, which are included in sales and marketing expense, primarily include promotional expenditures, and are expensed as incurred. The amounts incurred for advertising expenses for the three and six months ended June 30, 2025 and 2024 were $0, $0.7 million, $0, and $1.4 million, respectively.

Research and Development

Research and development expenses consist primarily of personnel-related costs, including salaries and wages, benefits, bonuses, and stock-based compensation expense for our scientists, engineers and other employees engaged in the research and development of our products. In addition, research and development expenses include third party software subscription costs, facilities and other supporting overhead costs, including depreciation and amortization. Research and development costs are expensed as incurred.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries and wages, bonuses, benefits, and stock-based compensation expense for our finance, legal, information technology, human resources, and other administrative personnel. General and administrative expenses also include facilities and supporting overhead costs, including depreciation and amortization, and external professional services.

Other Income (Expense), Net

Other income (expense), net consists primarily of fair value adjustments related to our Senior Secured Notes and derivative contract in connection with our Forward Purchase Agreement, loss associated with amendments to capital markets advisory agreements, gain on extinguishment of our Forward Purchase Agreement and extinguishment of liabilities pursuant to our Conversion Agreements, interest income, interest expense and foreign exchange gains and losses from our international operations.

Income Taxes

For the three and six months ended June 30, 2025, the Company did not record an income tax provision. For the three and six months ended June 30, 2024, the Company recorded an income tax provision of $7 and $14, respectively. These are related to income taxes from our foreign operations with pre-tax income generated from intercompany activities. We recorded a full valuation allowance of our net deferred tax asset position as of June 30, 2025 as we believe it was more likely than not that we would not be able to utilize our deferred tax assets.

Results of Operations

Comparison of the Three months Ended June 30, 2025 and 2024

The following table summarizes our results of operations for the three months ended June 30, 2025 and 2024:

		Three Months Ended June 30,
		2025				2024				Change				%
		(in thousands)
Revenue ($0 and $1,168 from related parties, respectively)		$	-			$	2,001			$	(2,001	)			-100	%
Cost of revenue			-				1,280				(1,280	)			(100	)
Gross profit			-				721				(721	)			(100	)
Operating expenses:
Sales and marketing ($0 and $696 from related parties, respectively)			-				2,193				(2,193	)			(100	)
Research and development			-				1,593				(1,593	)			(100	)
General and administrative			584				4,307				(3,723	)			(86	)
Total operating expenses			584				8,093				(7,509	)			(93	)
Loss from operations			(584	)			(7,372	)			6,788				(92	)
Other income (expense):
Interest expense			(141	)			(77	)			(64	)			83
Change in fair value of forward purchase agreement derivative liability			-				(8,228	)			8,228				(100	)
Loss on extinguishment of senior secured note			(134	)			-				(134	)			-
Gain on extinguishment of forward purchase agreement settlement liability			2,357				-				2,357				-
Gain on extinguishment of liabilities			1,197				-				1,197				-
Other income, net			5				108				(103	)			(95	)
Total other income (expense), net			3,284				(8,197	)			11,481				(140	)
Net income (loss) before income taxes			2,700				(15,569	)			18,269				(117	)
Provision for income taxes			-				(7	)			7				(100	)
Net income (loss)		$	2,700			$	(15,576	)		$	18,276				-117	%

Revenue

Revenue was $0 for the three months ended June 30, 2025, as compared to $2.0 million for the three months ended June 30, 2024. The decrease reflects the Operational Cessation.

Cost of Revenue

Cost of revenue was $0 for the three months ended June 30, 2025, as compared to $1.3 million for the three months ended June 30, 2024. The decrease reflects the Operational Cessation.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expense was $0 for the three months ended June 30, 2025, as compared to $2.2 million for the three months ended June 30, 2024. The decrease reflects the Operational Cessation.

Research and Development Expenses

Research and development expense was $0 for the three months ended June 30, 2025, as compared to $1.6 million for the three months ended June 30, 2024. The decrease reflects the Operational Cessation.

General and Administrative Expenses

General and administrative expenses were $0.6 million for the three months ended June 30, 2025, compared to $4.3 million for the three months ended June 30, 2024. The decrease of $3.7 million reflects the Operational Cessation. Expenses for the current quarter mainly consisted of insurance, software costs, salaries and benefits for remaining personnel, and legal and professional fees.

Other Income (Expense), Net

Other income, net was $3.3 million for the three months ended June 30, 2025, compared to other expense, net of $8.2 million for the three months ended June 30, 2024. The $11.5 million favorable variance was primarily driven by the absence of an $8.2 million loss recognized in the prior-year period related to changes in the fair value of the Forward Purchase Agreement liability. Current-period results also include a $2.4 million gain on extinguishment of Forward Purchase Agreement settlement liability and a $1.2 million gain on extinguishment of liabilities. These favorable items were partially offset by a $0.1 million loss on extinguishment of Senior Secured Note, $0.1 million decline in other income, net and $0.1 million increase in interest expense.

Provision for income taxes

There was no provision for income taxes during the three months ended June 30, 2025. The provision for income taxes during the three months ended June 30, 2024 was not material and was related to our foreign operations.

Comparison of the Six months Ended June 30, 2025 and 2024

The following table summarizes our results of operations for the six months ended June 30, 2025 and 2024:

		Six Months Ended June 30,
		2025				2024				Change				%
		(in thousands)
Revenue ($0 and $1,601 from related parties, respectively)		$	-			$	3,219			$	(3,219	)			-100	%
Cost of revenue			-				2,328				(2,328	)			(100	)
Gross profit			-				891				(891	)			(100	)
Operating expenses:
Sales and marketing ($0 and $1,391 from related parties, respectively)			-				3,841				(3,841	)			(100	)
Research and development			-				3,007				(3,007	)			(100	)
General and administrative			1,264				6,489				(5,225	)			(81	)
Total operating expenses			1,264				13,337				(12,073	)			(91	)
Loss from operations			(1,264	)			(12,446	)			11,182				(90	)
Other income (expense):
Interest expense			(243	)			(862	)			619				(72	)
Loss on issuance of forward purchase agreement derivative liability			-				(4,935	)			4,935				(100	)
Change in fair value of forward purchase agreement derivative liability			-				(8,228	)
Loss on issuance of senior secured note			-				(9,776	)			9,776				(100	)
Loss on extinguishment of senior secured note			(134	)			-				(134	)			-
Gain on extinguishment of forward purchase agreement settlement liability			2,357				-				2,357				-
Gain on extinguishment of liabilities			1,197				-				1,197				-
Other income (expense), net			17				(1,636	)			1,653				(101	)
Total other income (expense), net			3,194				(25,437	)			28,631				(113	)
Net income (loss) before income taxes			1,930				(37,883	)			39,813				(105	)
Provision for income taxes			-				(13	)			13				(100	)
Net income (loss)		$	1,930			$	(37,896	)		$	39,826				-105	%

Revenue

Revenue was $0 for the six months ended June 30, 2025, as compared to $3.2 million for the six months ended June 30, 2024. The decrease reflects the Operational Cessation.

Cost of Revenue

Cost of revenue was $0 for the six months ended June 30, 2025, as compared to $2.3 million for the six months ended June 30, 2024. The decrease reflects the Operational Cessation.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expense was $0 for the six months ended June 30, 2025, as compared to $3.8 million for the six months ended June 30, 2024. The decrease reflects the Operational Cessation.

Research and Development Expenses

Research and development expense was $0 for the six months ended June 30, 2025, as compared to $3.0 million for the six months ended June 30, 2024. The decrease reflects the Operational Cessation.

General and Administrative Expenses

General and administrative expenses were $1.3 million for the six months ended June 30, 2025, compared to $6.5 million for the six months ended June 30, 2024. The decrease of $5.2 million reflects the Operational Cessation. Expenses for the current period mainly consisted of insurance, software costs, salaries and benefits for remaining personnel, and legal and professional fees.

Other Expense, Net

Other income, net was $3.2 million for the six months ended June 30, 2025, compared to other expense, net of $25.4 million for the six months ended June 30, 2024. The $28.6 million favorable variance was primarily attributable to the nonrecurrence in the current period of the following prior period charges: (i) $9.8 million loss related to the issuance of Senior Secured Notes, (ii) an $8.2 million loss resulting from the change in fair value of Forward Purchase Agreement, (iii) a $4.9 million loss on issuance of Forward Purchase Agreement, and (iv) $1.8 million in transaction costs incurred related to the Lincoln Park Purchase Agreement. Additionally, interest expense decreased by $0.6 million, primarily due to the conversion of a majority of the Senior Notes to equity upon closing of the merger in the first quarter of 2024.

Other income, net for the six months ended June 30, 2025 includes a $2.4 million gain on extinguishment of Forward Purchase Agreement settlement liability, and a $1.2 million gain on extinguishment of liabilities. These favorable items were partially offset by a $0.1 million loss on extinguishment of Senior Secured Note.

Provision for income taxes

There was no provision for income taxes during the six months ended June 30, 2025. The provision for income taxes during the six months ended June 30, 2024 was not material and was related to our foreign operations.

Liquidity, Going Concern and Capital Resources

Since our inception, we have financed our operations primarily with proceeds from sales of Convertible Preferred Stock and common stock and the issuance of Convertible Notes. As of June 30, 2025, we had cash and cash equivalents of $1.4 million. Since our inception through June 30, 2025, we have sold 14,222,580 shares of our Convertible Preferred Stock for aggregate net proceeds of $64.7 million, received $14.5 million from the issuance of Senior Notes and Senior Secured Notes, $8.6 million in proceeds under an equity line of credit and $2.9 million in proceeds from the issuance of Convertible Promissory Notes. Our principal use of cash is to fund our operations and platform development to support our growth.

As of November 30, 2025, we had approximately $2.1 million in cash. We do not have sufficient capital to meet our working capital needs for the 12 months following the date we file this Report.

Senior Secured Notes

The Senior Secured Notes bear interest at the compound rate of 15% per annum and are convertible at the option of each noteholder in connection with the Merger at a conversion price of (i) $4.50 per share at the closing of the Merger or (ii) $8.50 per share at any time after the closing of the Merger. The outstanding principal amount of the Senior Secured Notes and all accrued but unpaid interest will be due and payable at the maturity date, December 15, 2026, unless otherwise converted. Upon the closing of the Merger, a portion of the aggregate outstanding Senior Secured Notes with an aggregate principal amount of $14.2 million and associated accrued interest of $0.5 million were converted into shares of our common stock. While any Senior Secured Notes are outstanding, we cannot incur additional indebtedness for borrowed funds, except additional Senior Secured Notes, substantially similar notes or other debt instruments that are pari passu with or subordinate to the Senior Secured Notes.

In June 2025, we repaid a portion of our Senior Secured Notes, which had an original principal amount of $1.0 million and accrued interest of $0.2 million. In connection with the repayment, we recognized a loss on debt extinguishment of $0.1 million during the six months ended June 30, 2025. As of June 30, 2025, the aggregate principal and accrued interest outstanding under the Senior Secured Notes totaled $1.2 million.

Notes Payable - Related Parties

To finance transaction costs in connection with the Merger, the sponsor of AAC and certain of AAC's officers and directors made working capital loans (the "Notes Payable - Related Party") to AAC prior to the closing of the Merger. The Notes Payable - Related Party would either be repaid upon the consummation of the Merger, without interest, or at AAC's discretion, up to $1.5 million of such Notes Payable - Related Party could be converted into Private Placement Warrants at a price of $1.00 per warrant on the date of the Merger.

On March 28, 2024, the terms of the Notes Payable - Related Party were amended, pursuant to which the outstanding principal balance plus the accrued interest of $2.6 million, which was also due per its terms at the closing of the Merger was deferred and became due in monthly installments (including interest accruing from the closing of the Merger through the payment date) for twelve months thereafter beginning thirty days following the effectiveness of the Lincoln Park Registration Statement. The Lincoln Park Registration Statement was declared effective on April 18, 2024. Upon the closing of the Merger, none of the note holders elected to exercise their option of converting their respective loans into warrants. The Notes Payable - Related Party bear interest at a rate of 4.5% per annum.

In June 2025, we entered into Conversion Agreements with the note holders of the Notes Payable - Related Party. As a result of the conversion, we derecognized Notes Payable - Related Party of $2.0 million, and recorded the issuance of 5,407,000 shares of common stock. As of June 30, 2025, there was no outstanding balance under the Notes Payable - Related Party.

Lincoln Park Purchase Agreement

On December 19, 2023, prior to the Merger, we entered into a Purchase Agreement with Lincoln Park pursuant to which Lincoln Park agreed to purchase from us, an aggregate of up to $75.0 million of common stock from time to time over a 36-month period following the closing of the Merger.

On August 13, 2024, we entered into the 2024 Purchase Agreement with Lincoln Park pursuant to which Lincoln Park agreed to purchase from us, an aggregate of up to $10.0 million shares of common stock from time to time over a 24-month period upon the satisfaction of certain conditions contained in the 2024 Purchase Agreement.

In connection with the Operational Cessation described above, the registration statement in connection with the Purchase Agreement is no longer effective (which is a condition to transactions under the Purchase Agreement).

Forward Purchase Agreement

On March 25, 2024, we entered into the Forward Purchase Agreement with Sandia, pursuant to which Sandia purchased, from the open market, 1,000,000 Recycled Shares and 500,000 Additional Shares. In April 2024, Sandia elected to terminate the transaction in part by exercising the Optional Early Termination provision under the Forward Purchase Agreement, pursuant to which 250,000 shares were terminated. We received payments totaling $2.5 million under the Optional Early Termination provision prescribed in the Forward Purchase Agreement.

On October 8, 2024, we received notice from Sandia accelerating the Valuation Date to October 8, 2024. As a result, we became obligated to pay Sandia $2.4 million in cash or shares. In June 2025, we satisfied our obligation under the Forward Purchase Agreement through the issuance of 6,591,000 shares of our common stock to Sandia and recognized a gain on extinguishment of the Forward Purchase Agreement liability of $2.4 million.

Convertible Promissory Notes

In June 2025, we entered into a security purchase agreement with accredited investors pursuant to which we sold and issued secured Convertible Promissory Notes and warrants to purchase 37,500,000 shares of Common Stock ("Warrants") for total gross proceeds of $3,000. The Convertible Promissory Notes bear simple interest at a rate of 10.00% per annum and mature in June 2026, unless earlier converted or repaid in accordance with its terms. Interest accrues daily based on a 360-day year and will not be paid in cash prior to maturity unless the Convertible Promissory Notes are repaid before conversion.

The Convertible Promissory Notes are convertible into 75,000,000 shares of our common stock at the option of the holder at any time prior to repayment. The conversion price is $0.04 per share, subject to customary anti-dilution adjustments for stock splits, stock dividends, combinations, or recapitalizations. Upon conversion, any unpaid accrued interest is automatically forgiven.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

		Six Months Ended June 30,
		2025				2024
		(in thousands)
Net cash used in operating activities		$	(464	)		$	(8,254	)
Net cash used in investing activities			-				(26	)
Net cash provided by financing activities			1,482				12,152
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(21	)			(40	)
Net increase in cash, cash equivalents and restricted cash		$	(997	)		$	3,832

Operating Activities

Net cash used in operating activities was $0.5 million for the six months ended June 30, 2025. Operating cash flows reflected net income of $1.9 million and a $0.8 million net increase in working capital, partially offset by offset by $3.2 million in net non-cash charges. Changes in working capital were primarily driven by a $0.7 million increase in accrued expenses and other current liabilities, and a $73 thousand increase in accounts payable, partially offset by a $37 thousand increase in prepaid expenses and other current and non-current assets. Non-cash charges included $2.4 million gain on extinguishment of Forward Purchase Agreement settlement liability, and $1.2 million gain on extinguishment of liabilities, partially offset by $0.2 million in non-cash interest expense, $0.1 million loss on extinguishment of Senior Secured Note and $0.1 million in stock-based compensation.

Net cash used in operating activities was $8.3 million for the six months ended June 30, 2024. The factors affecting our operating cash flows during this period were our net loss of $37.9 million, partially offset by a net change in our operating assets and liabilities of $3.4 million and non-cash charges of $26.2 million. The non-cash charges primarily consisted of $9.8 million in the loss on issuance of Senior Secured Notes, $0.4 million in stock-based compensation expense, $0.8 million in non-cash interest expense, $0.2 million in non-cash vendor payments, $0.2 million in non-cash lease expense, $1.7 million in equity line of credit commitment expense, $8.2 million in change in fair value of forward purchase contract, $0.1 million in depreciation and amortization expense and $4.9 million in the loss on the forward purchase contract. The change in operating assets and liabilities was driven by a $5.5 million increase in accounts payable, partially offset by a $0.6 million increase in accounts receivable, a $0.9 million increase in prepaid expenses and other current and non-current assets, a $0.0 million decrease in accrued expenses and other current liabilities, a $0.4 million decrease in deferred legal fees and a $0.2 million decrease in operating lease liabilities. The increase in accounts receivable is due to the timing of billings and collections from customer contracts. The increase in accounts payable was primarily related to the increase in transaction costs and the timing of invoicing and payments of sponsorship fees and professional services fees. The increase in prepaid expenses and other current and non-current assets was primarily due to the timing of vendor invoicing and payments for sponsorship fees. The decrease in accrued expenses and other current liabilities was primarily due to the payment of legal and audit fees. The decrease in deferred legal fees resulted from payments of fees. The decrease in operating lease liabilities resulted primarily from lease payments.

Investing Activities

There were no cash flows from investing activities during the six months ended June 30, 2025.

Net cash used in investing activities was $26 thousand for the six months ended June 30, 2024, primarily attributable to purchases of property and equipment, consisting mainly of computer equipment.

Financing Activities

Net cash provided by financing activities was $1.5 million for the six months ended June 30, 2025. This amount primarily reflects $2.8 million in net proceeds received from the issuance of Convertible Promissory Notes, partially offset by the repayment of $1.3 million of Senior Secured Notes.

Net cash provided by financing activities was $12.2 million for the six months ended June 30, 2024. This amount primarily reflects $12.6 million in proceeds received in connection with the closing of the Merger, $5.9 million from the issuance of Senior Secured Notes, $5.3 million from issuances of common stock under the equity line of credit, $2.5 million from the partial early termination of the Forward Purchase Agreement and $0.1 million from the exercises of stock options. These inflows were partially offset by the repayment of $0.3 million of notes payable to related parties, $2.9 million in deferred offering costs payment and $11.0 million prepayment under the Forward Purchase Agreement.

Recent Financing and Restructuring Transactions

For a description of certain capital raising and restructuring activities we have conducted in 2025, see Note 19, Subsequent Events in the notes to the unaudited condensed consolidated financial statements contained in this Report.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements during the periods presented. Zapata and Legacy Zapata have not entered into any off-balance sheet financing agreements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations and Other Commitments

As of June 30, 2025, there have been no material changes with regard to contractual obligations from those disclosed in our "Management's Discussion and Analysis on Financial Condition and Results of Operations-Contractual Obligations and Other Commitments" in our Annual Report on Form 10-K for the year ended December 31, 2024.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no material changes to our critical accounting policies from those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" section of our Annual Report on Form 10-K for the year ended December 31, 2024.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements, which are included elsewhere in this Report.

Emerging Growth Company Status

Zapata Quantum Inc. 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 Financial Accounting Standards Board ("FASB") or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies. We also intend to take advantage of some of the reduced regulatory and reporting requirements applicable to emerging growth companies pursuant to the JOBS Act so long as it qualifies as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.