10-Q: Zapata Quantum Reports Q2 Net Income Amid Restructuring

Zapata Quantum, Inc. reported a net income of $2.7 million for Q2 2025 and $1.9 million for the six months ended June 30, 2025, driven by significant debt restructuring and capital raising efforts following its operational cessation in late 2024.

Summary

• The company reported net income of $2.7 million for the three months ended June 30, 2025, a significant improvement from a net loss of $15.6 million in the prior-year period.
• For the six months ended June 30, 2025, net income was $1.9 million, compared to a net loss of $37.9 million in the same period of 2024.
• Revenue was $0 for both the three and six months ended June 30, 2025, due to the operational cessation in October 2024, compared to $2.0 million and $3.2 million respectively in 2024.
• Operating expenses significantly decreased due to the operational cessation, with total operating expenses falling from $8.1 million to $0.6 million for the three months and from $13.3 million to $1.3 million for the six months ended June 30, 2025.
• The company undertook significant restructuring activities in 2025, including raising $3.0 million through Convertible Promissory Notes and $1.5 million through Series A Convertible Preferred Stock.
• Approximately $11.7 million of liabilities were settled through the issuance of common stock via conversion agreements with creditors.
• The Forward Purchase Agreement settlement liability of $2.4 million was settled by issuing 6,591,000 common shares to Sandia, resulting in a $2.4 million gain on extinguishment.
• The company repaid $1.0 million of principal and $0.2 million of accrued interest on Senior Secured Notes in June 2025.
• Notes Payable Related Parties of $2.0 million were settled by issuing 5,407,000 common shares.
• The company changed its name to Zapata Quantum, Inc. on August 21, 2025.
• Material weaknesses in internal controls over financial reporting were identified, including insufficient segregation of duties, lack of written documentation, reliance on outside accounting firm, and inadequate HR/processes/systems.

Sentiment

Score: 4

Explanation: While the company reported net income due to significant debt restructuring and reduced operating expenses from operational cessation, the underlying business generated no revenue. The company faces substantial doubt about its going concern ability, requires significant capital, and was delisted from Nasdaq. The positive financial metrics are largely accounting gains and cost reductions from halting operations, not from core business growth, which is a major concern.

Positives

• Achieved net income of $2.7 million for Q2 2025 and $1.9 million for the six months ended June 30, 2025, a substantial improvement from prior-year losses.
• Successfully raised $3.0 million through Convertible Promissory Notes and $1.5 million through Series A Convertible Preferred Stock in 2025.
• Significantly reduced liabilities by settling approximately $11.7 million of obligations through equity conversions.
• Settled the $2.4 million Forward Purchase Agreement liability, resulting in a $2.4 million gain on extinguishment.
• Repaid $1.0 million principal and $0.2 million interest of Senior Secured Notes.
• Reduced total liabilities from $26.2 million at December 31, 2024, to $23.1 million at June 30, 2025.
• Improved total stockholders deficit from $(23.5) million at December 31, 2024, to $(19.4) million at June 30, 2025.
• Cash and cash equivalents increased to $1.4 million at June 30, 2025, from $0.4 million at December 31, 2024, and further to $2.1 million as of November 30, 2025.
• Successfully restructured debt and commenced efforts to restart core business operations.

Negatives

• Revenue was $0 for the three and six months ended June 30, 2025, due to the operational cessation.
• The company incurred significant losses and negative cash flows from operations since inception and expects to continue to incur losses and negative cash flows for the foreseeable future.
• Substantial doubt exists about the company's ability to continue as a going concern within one year.
• The company does not have sufficient capital to meet working capital needs for the next 12 months.
• Material weaknesses in internal control over financial reporting were identified.
• Trading of common stock and warrants was suspended and removed from Nasdaq on October 25, 2024.
• An event of default occurred under Senior Secured Promissory Notes in Q4 2024, though it has since been cured.

Risks

• Ability to raise additional capital through future equity or debt financing to fund operations and execute its business plan.
• Ability to successfully market, deliver, and scale its quantum computing application development solutions.
• Competition from substitute products and services from larger companies.
• Protection of proprietary technology and potential patent litigation.
• Dependence on key individuals.
• Risks associated with changes in information technology.
• Potential for regulatory changes impacting quantum computing, artificial intelligence, and data privacy.
• Software and technology infrastructure on which the company depends may fail to perform as designed or intended.
• The company's ability to re-establish material operations and generate revenue.
• Central bank interest rates and future interest rate changes.
• Risks arising from the impact of inflation, tariffs, deterioration of the labor market, and potential recession.

Future Outlook

The company plans to deliver subscription-based solutions for quantum and hybrid quantum-classical computing applications, including software and software tools supported by services, effective October 31, 2025. 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 penetration of the quantum computing application development market.

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.
• The restructuring activities aimed at restarting certain aspects of its core business require substantial funds to implement and there is no assurance that the Company will be able to continue raising the additional capital necessary to continue operations and execute on the Company's business plan.
• 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.
• Management has taken actions to remediate the deficiencies in its internal controls over financial reporting and implemented additional processes and controls designed to address the underlying causes associated with the above-mentioned material weaknesses.

Industry Context

Zapata Quantum, Inc. is repositioning itself as a pure-play hardware-agnostic quantum software company, focusing on subscription-based solutions for quantum and hybrid quantum-classical computing applications. This strategic realignment follows a period of broader AI exploration and aims to address the software bottleneck in quantum adoption. The company's patented technology and participation in DARPA's Quantum Benchmarking program highlight its foundational expertise in a nascent but rapidly evolving industry. The shift back to core quantum mission suggests a focus on specialized, high-value applications in cryptography, pharmaceuticals, manufacturing, materials discovery, and defense, aligning with the long-term potential of quantum computing despite current market challenges and the need for significant capital.

Management Changes

Corporate Governance

Legal Proceedings

• No material legal proceedings to which the company or its subsidiaries is a party or to which any property is subject.
• No threatened or pending litigation or proceedings known to be contemplated by governmental authorities.
• No material proceedings involving directors, officers, affiliates, or significant stockholders adverse to the company.

Related Party Transactions

• Accounts receivable from related parties: $1,567,000 as of June 30, 2025, and December 31, 2024.
• Accounts payable to related parties: $5,504,000 as of June 30, 2025, and December 31, 2024.
• Sponsorship agreement with Andretti Global (an AAC affiliate) for marketing services, total commitment $8,000,000, with $4,500,000 included in accounts payable as of June 30, 2025.
• Sponsorship agreement with Andretti Autosport 1, LLC (an Andretti Global affiliate) for $1,000,000, expired December 31, 2024.
• Enterprise solution subscription agreement with Andretti Global for $1,000,000, terminated after Operational Cessation with no payments made.
• Notes Payable Related Parties of $1,998,000 were settled in June 2025 by issuing 5,407,000 common shares to related party note holders.
• A Senior Secured Note with $1,157,000 principal and accrued interest was assigned to Sandia (a related party) in January 2025.
• Sandia received 34,000,000 shares under a Consent Agreement in June 2025 for waiving certain rights/defaults.
• Sandia received 6,591,000 shares in June 2025 to settle the $2,436,000 Forward Purchase Agreement obligation.

Stakeholder Impact

• Shareholders: Experienced significant dilution from numerous equity issuances to settle debt and raise capital (e.g., 34,000,000 shares to Sandia, 5,407,000 shares to related party note holders, 6,591,000 shares to Sandia, 4,619,000 shares to creditors in October 2025). High risk due to going concern issues and Nasdaq delisting.
• Employees: All employees (except a few for wind-down) were terminated in October 2024 due to operational cessation, indicating severe impact. Restructuring efforts may lead to new employment opportunities.
• Creditors: Many creditors had liabilities converted into equity, representing a forced conversion from debt to a highly speculative equity position. Some debt was repaid in cash.
• Customers: Existing customer contracts were impacted by the operational cessation, leading to $0 revenue in the current period. The new business focus aims to re-engage customers in the quantum computing space.
• Suppliers: Some suppliers had agreements terminated or obligations converted to equity due to the operational cessation.

Next Steps

• Restarting certain aspects of its core business, focusing on subscription-based quantum and hybrid quantum-classical computing applications.
• Continuing efforts to negotiate and restructure outstanding obligations.
• Continuing efforts to raise additional capital through equity or debt financing.
• Remediating identified material weaknesses in internal controls over financial reporting, including engaging consultants and increasing internal personnel.
• Developing and scaling quantum computing application development solutions.

Key Dates

Recommendation

Despite reporting net income for the quarter and year-to-date, this was primarily driven by accounting gains from debt extinguishment and drastic cost reductions due to the complete cessation of operations and mass employee terminations. The company generated no revenue in the current period and faces substantial doubt about its ability to continue as a going concern. It has been delisted from Nasdaq, indicating severe liquidity and operational challenges. While restructuring and capital raising efforts are underway, the significant dilution from equity issuances to settle liabilities, coupled with the high-risk nature of restarting a business in a nascent market like quantum computing from a near-zero operational base, makes the stock highly speculative with significant downside risk. The material weaknesses in internal controls further compound these concerns. A seasoned investor would likely view this as a distressed asset with a very low probability of successful turnaround and significant risk of further value erosion.

Keywords

Quantum Computing, Software, SEC Filing, 10-Q, Financial Results, Debt Restructuring, Capital Raise, Going Concern, Operational Cessation, Nasdaq Delisting, Corporate Governance, Financial Technology, AI, Hybrid Quantum-Classical Computing