Zapata Quantum, Inc.: Form 10-Q for the period ended Jun 30, 2026

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited 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.

Cautionary Note Regarding Forward-Looking Statements

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations for prospective future growth, cash flows, ability to service outstanding debt obligations, operating results, potential future trends and developments within our industry and the U.S. and global economies generally, plans and expectations for the Company, 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. 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 and expressions. 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 are based on current expectations and projections about future events and financial trends, 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.

The results anticipated by any or all of these forward-looking statements might not occur. 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 and tariff litigation, the impact of the war with Iran, 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 customers 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 Form 10-K for the year ended December 31 2025 filed with the SEC. Any forward-looking statement made by us 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 is a leading pure-play hardware-agnostic quantum software company. Following a strategic realignment in 2025, the Company offers 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. To the Company’s knowledge, it 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 it 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 scaling 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.

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

In April 2026, we sold and issued to accredited investors a total of 15,000 shares of Series D (which are convertible into 34,160,784 shares of Common Stock, subject to adjustment) and Warrants to purchase up to 17,080,392 shares of Common Stock (representing 50% warrant coverage on an as-converted basis) for total gross proceeds of $15 million. We received net proceeds of $13.8 million after deducting commissions and fees. We intend to use the net proceeds for working capital and general corporate purposes.

As part of the Offering, we entered into a Securities Purchase Agreement and Registration Rights Agreement with the investors. The terms of the Securities Purchase Agreement, Series D, Warrants, and Registration Rights Agreement were previously disclosed in the Current Report on Form 8-K filed on April 8, 2026.

See “Liquidity and Capital Resources” below for additional information.

Components of Our Results of Operations

Revenue

Our revenue historically was 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. We generated no revenue in each of the three and six months ended June 30, 2026 and June 30, 2025.

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.

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 Expense, Net

Other expense, net consists primarily of fair value adjustments related to our Senior Secured Notes and derivative contract in connection with our Forward Purchase Agreement, interest income, interest expense and foreign exchange gains and losses from our international operations.

Results of Operations

Comparison of the Three months Ended June 30, 2026 and 2025

The following table summarizes our results of operations for the three months ended June 30, 2026 and 2025:

(in thousands)

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expense was $285 thousand for the three months ended June 30, 2026, as compared to $0 for the three months ended June 30, 2025. The increase reflects higher employee compensation costs, marketing expenses, and stock-based compensation expense.

Research and Development Expenses

Research and development expense was $383 thousand for the three months ended June 30, 2026, as compared to $0 for the three months ended June 30, 2025. The increase reflects higher employee compensation costs, advisor fees, and stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses were $959 thousand for the three months ended June 30, 2026, compared to $584 thousand for the three months ended June 30, 2025. The increase of $375 thousand reflects an increase in stock-based compensation expenses and employee compensation. Current-quarter expenses mainly consisted of insurance, software costs, salaries and benefits, and legal and professional fees, including $142 thousand of legal expenses related to our intellectual property.

Other Expense, Net

Other expense, net was $208 thousand for the three months ended June 30, 2026, compared to other income, net of $3.3 million for the three months ended June 30, 2025. The $3.5 million negative variance was primarily driven by the prior year recording of 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 $134 thousand loss on extinguishment of Senior Secured Note, and a $88 thousand increase in interest expense.

Comparison of the Six Months Ended June 30, 2026 and 2025

The following table summarizes our results of operations for the six months ended June 30, 2026 and 2025:

(in thousands)

26

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expense was $458 thousand for the six months ended June 30, 2026, as compared to $0 for the six months ended June 30, 2025. The increase reflects an increase in employee compensation costs, marketing expenses, and stock-based compensation expense.

Research and Development Expenses

Research and development expense was $618 thousand for the six months ended June 30, 2026, as compared to $0 for the six months ended June 30, 2025. The increase reflects an increase in employee compensation costs, advisor fees, and stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses were $1.8 million for the six months ended June 30, 2026, compared to $1.3 million for the six months ended June 30, 2025. The increase of $484 thousand reflects an increase in stock-based compensation expenses and employee compensation. Current-quarter expenses mainly consisted of insurance, software costs, salaries and benefits, and legal and professional fees, including $268 thousand of legal expenses related to our intellectual property.

Other Expense, Net

Other expense, net was $321 thousand for the six months ended June 30, 2026, compared to other income, net of $3.2 million for the six months ended June 30, 2025. The $3.5 million negative variance was primarily driven by the prior year recording of 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 $134 thousand loss on extinguishment of Senior Secured Note, and a $118 thousand increase in interest expense.

Liquidity 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. For the six months ended June 30, 2026, we recorded a net loss of $3,145, used cash in operations of $2,688 and had a stockholders’ equity of $3,062 as of that date. As of June 30, 2026, we had a cash balance of $12,771. Cash used in operations was primarily from the Company’s operating losses, working capital, and investment in strategic growth initiatives. We have incurred significant losses and negative cash flows from operations since inception and expect to continue to incur losses and negative cash flows for the foreseeable future as we expand our penetration of the quantum computing application development market.

In April 2026, we sold and issued to accredited investors a total of 15,000 shares of Series D (which are convertible into 34,160,784 shares of Common Stock, subject to adjustment) and Warrants to purchase up to 17,080,392 shares of Common Stock (representing 50% warrant coverage on an as-converted basis) for total gross proceeds of $15 million. We received net proceeds of $13.8 million after deducting commissions and fees.

As of August 4, 2026, we have cash and cash equivalents of $12.1 million. We expect our existing cash will be sufficient to fund our current operating plan for at least twelve months from the date of issuance of these financial statements.

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. As of June 30, 2026, the aggregate principal and accrued interest outstanding under the Senior Secured Notes totaled $1.4 million.

Convertible Promissory Notes

In June 2025, we entered into a securities 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 million. The Convertible Promissory Notes bear simple interest at a rate of 10.00% per annum and, as extended, mature in June 2027, 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. As of June 30, 2026, the aggregate principal and accrued interest outstanding under the Convertible Promissory Notes totaled $3.1 million, net of the unamortized debt discount of $211 recognized in connection with the amendment and the remaining unamortized debt issuance costs.

Effective June 1, 2026, the Company and the holders amended the Convertible Promissory Notes to extend the maturity date to June 2027 and replace the provision requiring automatic conversion upon the closing of a qualified financing. Under the amended terms, if (i) the volume-weighted average price of the Company’s common stock on the immediately preceding trading day equals or exceeds $0.60 per share and (ii) the average daily traded value of the Company’s common stock for the five immediately preceding trading days equals or exceeds $1.0 million, the Company may elect to convert all or any portion of the outstanding principal balance into shares of common stock at a conversion price of $0.04 per share, subject to customary adjustments for stock splits, stock dividends, combinations, recapitalizations and similar events. Any accrued and unpaid interest attributable to principal converted pursuant to the amended conversion provision is automatically forgiven upon conversion. If the Company elects to convert the entire $3.0 million outstanding principal balance, the Convertible Promissory Notes would convert into 75,000,000 shares of the Company’s common stock.

Cash Flows

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

(in thousands)

28

Operating Activities

Net cash used in operating activities was $2.7 million for the six months ended June 30, 2026. Operating cash flows reflected a net loss of $3.1 million, partially offset by $805 thousand in non-cash charges. Changes in working capital were primarily driven by a $214 thousand decrease in accounts payable, a $174 thousand decrease in accrued expenses and other current liabilities, partially offset by a $40 thousand increase in prepaid expenses and other current and non-current assets. Non-cash charges included $361 thousand in non-cash interest expense and $444 thousand in stock-based compensation.

Net cash used in operating activities was $464 thousand 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 $720 thousand 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 $195 thousand in non-cash interest expense, a $134 thousand loss on extinguishment of Senior Secured Note and $74,000 thousand in stock-based compensation.

Financing Activities

Net cash provided by financing activities was $13.9 million for the six months ended June 30, 2026. This amount primarily reflects $13.8 million in net proceeds received from the sale of Series D Convertible Preferred shares, net of expenses, and proceeds of $1 thousand on the exercise of stock options.

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.

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.

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, 2025.

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 utilize 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 utilize some of the reduced regulatory and reporting requirements applicable to emerging growth companies pursuant to the JOBS Act so long as the Company 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 of 2002, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2026, have concluded that, based on such evaluation, our disclosure controls and procedures were not effective due to the material weaknesses described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of June 30, 2026, our disclosure controls and procedures were not effective:

• The Company does not have sufficient segregation of duties within accounting functions, as its Chief Executive Officer is the sole officer.
• The Company does not have sufficient or complete written documentation of our internal controls policies and procedures.
• A substantial portion of the Company’s financial reporting is carried out by an outside accounting firm.
• The Company’s human resources, processes and systems are not sufficient to enable the production of timely and accurate financial statements in accordance with US GAAP.

30

Plans for Remediation of Material Weaknesses

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. Management is committed to finalizing the remediation of the material weaknesses. Management’s internal control remediation efforts include the following:

• 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;
• 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.

Changes in Internal Control Over Financial Reporting

Other than with respect to the ongoing remediation efforts on the material weaknesses, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Internal Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.