10-Q: Zapata Quantum Q3 2025: Restructuring & Capital Raise Efforts

Zapata Quantum reports Q3 2025 financial results, detailing ongoing restructuring efforts, capital raises, and a strategic refocus on core quantum computing after an operational cessation.

Summary

• Net income was $3.265 million for the three months ended September 30, 2025, and $5.195 million for the nine months ended September 30, 2025.
• Revenue was $0 for both the three and nine months ended September 30, 2025, a 100% decrease from the prior year, due to the Operational Cessation in the fourth quarter of 2024.
• The accumulated deficit decreased to $122.474 million as of September 30, 2025, from $127.669 million at December 31, 2024.
• Cash and cash equivalents increased to $919 thousand at September 30, 2025, from $359 thousand at December 31, 2024.
• The company undertook restructuring activities in 2025 aimed at restarting certain aspects of its core business, focusing on subscription-based quantum and hybrid quantum-classical computing applications.
• 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 in 2025.
• Settled approximately $11.7 million of liabilities through the issuance of common stock and Series C Convertible Preferred Stock in 2025, resulting in significant gains on extinguishment of liabilities.
• Identified material weaknesses in internal control over financial reporting, including insufficient segregation of duties, incomplete documentation, reliance on an outside accounting firm, and insufficient human resources, processes, and systems.
• As of November 30, 2025, the company had approximately $2.1 million in cash and does not have sufficient capital to meet its working capital needs for the next 12 months.

Sentiment

Score: 3

Explanation: While the company reported net income and reduced its accumulated deficit due to debt restructuring and non-cash gains, its core operations generated no revenue, and it continues to face substantial doubt about its ability to continue as a going concern. The ongoing need for significant capital and material weaknesses in internal controls indicate a highly precarious financial position, despite successful, albeit small, capital raises and liability settlements.

Positives

• Net income of $3.265 million for Q3 2025 and $5.195 million for the nine months ended September 30, 2025, a significant improvement from a net loss of $34.414 million in the prior nine-month period.
• Accumulated deficit decreased by $5.195 million from December 31, 2024, to September 30, 2025.
• Successful capital raises totaling $4.5 million in 2025 through Convertible Notes ($3.0 million) and Series A Convertible Preferred Stock ($1.5 million).
• Significant debt restructuring, settling approximately $11.7 million of liabilities by issuing common stock and Series C Convertible Preferred Stock, including a $2.357 million gain on extinguishment of Forward Purchase Agreement liability and a $5.614 million gain on extinguishment of other liabilities.
• Cash and cash equivalents increased to $919 thousand at September 30, 2025, from $359 thousand at December 31, 2024.
• Strategic realignment to refocus on its core quantum mission, developing software and tooling for quantum and hybrid quantum-classical computing applications.

Negatives

• Revenue was $0 for both the three and nine months ended September 30, 2025, a 100% decrease from the prior year, due to the Operational Cessation.
• The company ceased operations in October 2024 due to insufficient financial resources and inability to access adequate liquidity.
• Ongoing substantial doubt about the ability to continue as a going concern due to historical losses, negative cash flows, and the need for significant additional capital to restart operations.
• Identified material weaknesses in internal control over financial reporting, including insufficient segregation of duties, incomplete written documentation of policies, reliance on an outside accounting firm, and insufficient human resources, processes, and systems.
• As of November 30, 2025, the company had approximately $2.1 million in cash and does not have sufficient capital to meet working capital needs for the next 12 months.
• Trading of common stock and warrants was suspended and removed from Nasdaq on October 25, 2024.

Risks

• Substantial doubt about the ability to continue as a going concern within one year due to significant losses, negative cash flows, and the need for additional capital.
• Dependence on raising capital through future equity or debt financing to fund operations and achieve profitability.
• Risks associated with successful development and marketing of products, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and dependence on key individuals.
• Material weaknesses in internal control over financial reporting, including insufficient segregation of duties, incomplete written documentation of policies and procedures, reliance on an outside accounting firm for financial reporting, and insufficient human resources, processes, and systems.
• The registration statement for the Lincoln Park Purchase Agreement is no longer effective, which is a condition to transactions under the agreement, limiting access to that funding source.
• The restructuring activities aimed at restarting certain aspects of the core business require substantial funds to implement, and there is no assurance that the company will be able to continue raising the necessary additional capital.
• The company's long-term success is dependent upon its ability to successfully market, deliver, and scale its quantum computing application development solutions, increase revenue, meet its obligations, obtain additional capital when needed, and ultimately achieve profitable operations.

Future Outlook

The company is strategically realigning to refocus on its core quantum mission, aiming to deliver subscription-based solutions for quantum and hybrid quantum-classical computing applications. These planned operations are contingent on raising sufficient capital. The company expects to continue incurring losses and negative cash flows for the foreseeable future as it expands its market penetration. Management believes it will be able to raise additional funds through equity or debt financing, but there is no assurance of securing the necessary capital to continue operations and execute its business plan.

Management Comments

• Management believes that it will be able to continue to raise funds by sale of its securities to provide the additional cash needed to meet the Company’s obligations.
• 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.
• We are currently in the process of identifying and engaging internal control consultants to assist us in performing a risk assessment as well as identifying and designing a system of internal controls necessary to mitigate the risks identified, including preparation of written documentation and testing of our internal control policies and procedures, such that we are able to perform a Section 404 analysis of our internal control over financial reporting when and as required.
• We plan to increase our personnel resources and technical accounting expertise within the accounting function to replace our outside service providers; until we have sufficient technical accounting and financial reporting capabilities, we have retained an accounting consulting firm to provide support and to assist us in our evaluation of more complex applications of U.S. GAAP and assist us with financial reporting.

Industry Context

Zapata Quantum operates in the nascent but rapidly evolving quantum computing application development market. Its strategic refocus on core quantum software and tooling, moving away from broader AI exploration, positions it within a specialized niche. The company's hardware-agnostic approach and patented technology aim to address the software bottleneck in quantum adoption. However, the industry is characterized by significant R&D investment, competition from larger companies, and the need for substantial capital to scale, which aligns with Zapata's ongoing challenges in securing funding and achieving profitability.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks.
• The company's operational cessation and subsequent restructuring make direct comparisons challenging.
• Its focus on quantum software and tooling, with over 60 patents, suggests a strong intellectual property position, but the financial performance (zero revenue, going concern doubt) indicates it is currently far from industry standards for revenue-generating software companies.

Management Changes

Corporate Governance

Legal Proceedings

• NA

Related Party Transactions

• Accounts receivable of $1,567 thousand from related parties as of September 30, 2025, and December 31, 2024.
• Accounts payable of $5,504 thousand to related parties as of September 30, 2025, and December 31, 2024, primarily related to Andretti Global sponsorship agreements.
• Legacy Zapata had a sponsorship agreement and an enterprise solution subscription agreement with Andretti Global (an AAC affiliate) expiring December 31, 2024.
• Legacy Zapata entered into a sponsorship agreement with Andretti Autosport 1, LLC (an affiliate of Andretti Global) expiring December 31, 2024, with committed payments of $1,000 thousand.
• An Order Form under the February 2022 enterprise solution subscription agreement with Andretti Global for $1,000 thousand was terminated following the Operational Cessation, and no payments were made.
• In January 2025, a Senior Secured Note with $1,157 thousand principal and accrued interest was assigned to Sandia (a related party).
• In June 2025, the company issued 34,000,000 shares to Sandia under a Consent Agreement in exchange for Sandia's waiver of certain rights and defaults.
• In June 2025, the company issued 6,591,000 shares to Sandia to settle its $2,436 thousand obligation under the Forward Purchase Agreement.
• In June 2025, the company issued 5,407,000 shares of common stock to related parties to settle Notes Payable Related Party of $1,998 thousand.

Stakeholder Impact

• Shareholders face significant dilution from the issuance of common stock to settle liabilities and raise capital (e.g., 34 million shares to Sandia, 6.591 million shares to Sandia, 5.407 million shares to related parties, 37.5 million warrants, 11.983 million shares convertible from Series C Preferred Stock).
• Lock-up restrictions limit immediate sale by certain recipients of common/preferred stock.
• Trading of common stock and warrants was suspended and removed from Nasdaq, impacting liquidity for existing shareholders.
• All employees were terminated in October 2024, except for a small number for wind-down, indicating significant job losses.
• Creditors converted debt into equity or entered into forbearance agreements, shifting their risk exposure and potentially leading to partial extinguishment of debt.
• Operational Cessation led to $0 revenue, implying disruption or termination of services for existing customers. The company is now refocusing on subscription-based solutions.

Next Steps

• Continue efforts to negotiate and restructure outstanding obligations.
• Continue efforts to raise additional capital through public or private investments, and equity or debt securities.
• Implement restructuring activities to restart certain aspects of its core business, focusing on subscription-based quantum and hybrid quantum-classical computing applications.
• Identify and engage internal control consultants to perform a risk assessment and design a system of internal controls.
• Increase personnel resources and technical accounting expertise within the accounting function.
• Potentially make contingent payments of $792 thousand each upon capital-raising transactions generating at least $45 million and $55 million, respectively.

Key Dates

Recommendation

Despite reporting net income for the period, this was driven by non-recurring gains from debt extinguishment and fair value adjustments, not operational profitability. The company has ceased core operations, reported zero revenue, and explicitly states 'substantial doubt about the Company’s ability to continue as a going concern.' It lacks sufficient capital for the next 12 months, and its stock and warrants have been delisted from Nasdaq. While restructuring and capital raising efforts are underway, the fundamental business remains highly distressed with significant operational and financial risks, including material weaknesses in internal controls. The substantial dilution from recent equity issuances further diminishes shareholder value. A seasoned investor would view this as a highly speculative investment with significant downside risk.

Keywords

Quantum Computing, SEC Filing, 10-Q, Financial Results, Restructuring, Capital Raise, Going Concern, Debt Extinguishment, Corporate Governance, Internal Controls, Zapata Quantum, ZPTA, Software Platform, Hybrid Quantum-Classical