Zapata Quantum, Inc.

Current report

Item 1A. Risk Factors.

Current report

Not applicable for smaller reporting companies.

Current report

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

Current report

Item 3. Defaults Upon Senior Securities.

Current report

During the fourth quarter of 2024, an event of default occurred under the Company’s Senior Secured Promissory Notes issued pursuant to the Senior Secured Note Purchase Agreement dated December 15, 2023. Under the terms of these notes, the Company’s Current Report on Form 8-K filed on October 11, 2024, in which the Company disclosed that, at that time, it was unable to, and unlikely to become able to, satisfy all of its financial obligations, constituted an event of default. As a result, all amounts outstanding under the Senior Secured Promissory Notes became immediately due and payable.

Current report

As of November 30, 2025, the Company has repaid approximately $1 million of principal, together with accrued interest, and has cured the event of default with respect to the remaining principal balance and accrued interest under the Senior Secured Promissory Notes. No Senior Secured Promissory Notes, or other Senior Securities, remain in default as of the filing date of this report.

Current report

Item 4. Mine Safety Disclosures.

Previous report

Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, you should consider carefully the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q, including our financial statements and the related notes. We believe the risks described below are the risks that are material to us as of the date of this report. If any of the following risks actually occur, our business, results of operations and financial condition would likely be materially and adversely affected. In these circumstances, the market price of our common stock, par value $0.0001 per share (our “Common Stock”) could decline, and you may lose part or all of your investment.

Previous report

Risks Related to Zapata’s Financial Condition and Status as an early-stage Company

Previous report

We are an early-stage company with a limited operating history, in a nascent industry, making it difficult to forecast future results.

Previous report

We were founded in 2017 to develop and provide software with related services and proprietary IP to utilize quantum math on classical and future quantum hardware. Most recently, we are an Industrial Generative AI software company that develops custom quantum-inspired generative AI applications and provides accompanying services to solve complex industrial problems. The market focus for our Industrial Generative AI solutions and the use of quantum math and algorithms are nascent fields with uncertainty on future market uptake and in technological progress in the field.

Previous report

There can be no assurance that we can or will meet the challenges commonly faced by early-stage companies, including the need to scale operations and to achieve and manage rapid growth. A number of factors could cause our scaling efforts to be adversely impacted, including any increased competition, lesser-than-expected growth or contraction of our overall market, our inability to accurately forecast demand for our customer offerings, our inability to establish sales or other partnerships with service firms, an inability to develop repeatable solutions, an inability to grow our team, or our failure, for any reason, to capitalize on growth opportunities. We have encountered and will encounter risks and uncertainties frequently experienced by early-stage companies in rapidly changing industries, such as the risks and uncertainties described herein. We cannot provide assurance that we can meet the challenges faced by all companies, including established companies, in rapidly changing or nascent industries. The failure to address these challenges successfully or promptly could have a material adverse effect on our future profitability.

Previous report

We have a history of operating losses, which are expected to continue for the foreseeable future.

Previous report

We have incurred significant operating losses since our inception. We incurred net losses of $37.9 million and $9.9 million during the six months ended June 30, 2024 and 2023, respectively, and we have a cumulative deficit since the formation of Legacy Zapata in November 2017 through June 30, 2024 of approximately $127.4 million. We believe that we will continue to incur operating and net losses each quarter at least for the foreseeable future. The size of future losses will depend on several factors, including the degree to which we expand our scientific, product, software engineering, sales and other teams, and the revenue that we can generate from sales of our Industrial Generative AI solutions. Our operating expenses have increased as a result of becoming a public company and we expect that our expenses will continue to increase as we grow our business.

Previous report

We may not be able to scale our business and Industrial Generative AI solutions quickly enough to meet customer and market demand and to remain competitive in the Industrial Generative AI solutions market.

Previous report

In order to grow our business, we will need to scale our operations in every area from our existing start-up capacity. These challenges will require that we:

Previous report

scale our product design team to design and continually re-design our Industrial Generative AI solutions in order to maintain a competitive position in the market, including increasing the number of employees following our previous reductions in force;

Previous report

increase the size of our software engineering team to produce in a competitively timely manner stable Industrial Generative AI solutions based on the chosen design elements;

Previous report

increase the size of our services team to provide ongoing services in connection with our Industrial Generative AI solutions;

Previous report

expand our customer-support services;

Previous report

expand our scientific research and development in order to generate IP required or helpful to our business, including IP to develop our Industrial Generative AI solutions, to provide freedom to operate for our Industrial Generative AI solutions, and to create barriers to competition, on an accelerated time frame in order to minimize the risk that third-parties might first create potentially blocking IP;

Previous report

increase our sales and marketing teams and efforts;

Previous report

develop and expand relationships with large service firms to leverage sales of our Industrial Generative AI solutions;

Previous report

develop and expand our operational, financial and legal systems and teams to accommodate an expected increase in customer and partner relationships and additional expected legal requirements imposed as a result of international data privacy regulations, securities compliance and reporting obligations imposed by the Merger;

Previous report

establish, maintain and scale effective financial disclosure controls and procedures;

Previous report

expand our executive and administrative teams in all areas including finance, accounting, operations, human resources, and legal, in order to effectively manage our growth; and

Previous report

expand our access to computing hardware and specifically Graphics Processing Unit chips (“GPUS”), which have faced supply limitations.

Previous report

If we cannot successfully overcome these challenges and manage the organizational growth required to do so, then our business, including our ability to establish and maintain a competitive place in the market, financial condition, and profitability, may be materially adversely affected.

Previous report

We expect to require additional capital to pursue our business objectives and growth strategy, respond to business opportunities, challenges or unforeseen circumstances, and pay off deferred expenses incurred in connection with the Merger, and we may be unable to raise capital or additional financing when needed on acceptable terms, or at all.

Previous report

We expect to seek additional financing in the future to fund our growth, such as use of the funds available under the Purchase Agreement and the 2024 Purchase Agreement, expand go-to-market functions and drive market demand, grow and manage our offerings, hire employees, respond to competitive pressures, make acquisitions or other investments, and pay off deferred expenses incurred in connection with the Merger. Our business plans may change, general economic, financial or political conditions in our markets may deteriorate or other circumstances may arise, in each case that have a material adverse effect on our cash flows and the anticipated cash needs of our business. Any of these events or circumstances could result in significant additional funding needs, requiring us to raise additional capital. We cannot predict the timing or amount of any such capital requirements at this time.

Previous report

If financing is not available on satisfactory terms, or at all, we may be unable to expand our business at the rate desired and our results of operations may suffer. In addition, any financing through issuances of equity securities would be dilutive to holders of our shares.

Previous report

On December 19, 2023, we and Legacy Zapata entered into the Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has agreed to purchase, at our option, up to $75,000,000 of Common Stock from time to time through April 19, 2027 (such Common Stock, the “Purchased Shares”). On April 11, 2024, we issued 712,025 shares of our Common Stock to Lincoln Park as Commitment Shares. On April 12, 2024, we filed the Lincoln Park Registration Statement, which registers for resale the Commitment Shares and an additional 12,287,975 shares of Common Stock that may be issued to Lincoln Park in the future under the Purchase Agreement, which was declared effective on April 18, 2024. As of June 30, 2024, we have sold an aggregate of 5,419,287 shares of Common Stock to Lincoln Park pursuant to the Purchase Agreement at a weighted average price of $0.978 per share for aggregate consideration of approximately $5.3 million.

Previous report

On August 13, 2024, we entered into the 2024 Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us, at our option, up to $10,000,000 of Common Stock from time to time over a 24‑month period upon the satisfaction of certain conditions set forth in the 2024 Purchase Agreement including, but not limited to, the filing and effectiveness of the 2024 Registration Statement. In addition, pursuant to the 2024 Purchase Agreement, we have issued 500,000 shares of our common stock to Lincoln Park as a commitment fee.

Previous report

We generally have the right to control the timing and amount of any future sales of Common Stock to Lincoln Park. Actual sales of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the trading price of our Common Stock and determinations by us as to available and appropriate sources of funding for our operations. The Purchase Agreement prohibits us from issuing or selling and Lincoln Park from acquiring any Common Stock if (i) the closing price of the Common Stock is less than $0.50 (subject to adjustment per the terms of the Purchase Agreement) or (ii) those shares of Common Stock, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership of more than 4.99%, or at Lincoln Park’s election, up to 9.99%, of the then issued and outstanding shares of Common Stock, as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder. Under the 2024 Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase shares, on business days during which the last closing sale price of our Common Stock is between $0.10 and $0.50 (as may be adjusted in certain circumstances). Our ability to initiate sales under the 2024 Purchase Agreement, however, is subject to certain conditions, including the filing and effectiveness of the 2024 Registration Statement. In addition, absent stockholder approval, we are prohibited from issuing more than approximately 7.7 million shares of our common stock under the 2024 Purchase Agreement, which is equal to 19.99% of our outstanding common stock immediately prior to the execution of the 2024 Purchase Agreement, at below market prices per Nasdaq rules. If any of these conditions are not satisfied or limitations are in effect, we may not be able to utilize all or part of the committed funds under the Purchase Agreement or the 2024 Purchase Agreement, which would have an adverse impact on our ability to satisfy our capital needs and could materially adversely impact our business. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

Previous report

When we sell Common Stock to Lincoln Park, Lincoln Park may resell all, some or none of such shares at any time or from time to time in its discretion, subject to compliance with applicable securities laws. Sales to Lincoln Park by us have resulted in, and could continue to result in, substantial dilution to the interests of other holders of Common Stock. Additionally, the sale of a substantial number of Common Stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at prices that we might otherwise wish to effect such sales.

Previous report

We will need additional capital to continue as a going concern, implement our business plan or respond to business opportunities or unforeseen circumstances and such financing may not be available.

Previous report

Through June 30, 2024, we have funded our operations primarily with proceeds from sales of Convertible Preferred Stock, Senior Notes (which were subsequently exchanged for Senior Secured Notes), the Senior Secured Notes and sales under our Purchase Agreement with Lincoln Park. Our continuation as a going concern is dependent upon our ability to continue to effect sales pursuant to our Purchase Agreement with Lincoln Park and identify future debt or equity financing and generate profitable operations from our operations. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. These factors raise substantial doubt about our ability to continue as a going concern.

Previous report

Our business plan also contemplates a substantial scaling of Zapata across all departments, including science, software engineering, and product design, in order to launch multiple products and/or offerings in a timely manner to obtain and preserve a competitive advantage. This scaling will require substantial capital at a time when we project we will be operating at a loss before we become profitable, and this may take longer than we anticipate. Consequently, our expansion is limited in proportion to our growth in revenue and available capital. The capital required to sustain our business during this period may be greater than anticipated. We also deferred certain costs incurred in connection with the Merger. The terms of these deferrals required us to commence payment on the deferred amounts in May 2024. As of June 30, 2024, approximately $6.1 million of deferred offering costs remain outstanding. In addition, presently unforeseen opportunities or circumstances may require capital beyond what we currently project. The period during which we expect to operate at a loss may be extended by circumstances beyond our control.

Previous report

We may obtain additional financing through public or private equity or debt financings (subject to the limitations under the Senior Secured Notes and Forward Purchase Agreement), such as the Purchase Agreement and the 2024 Purchase Agreement, that may result in dilution to stockholders, the issuance of securities with priority as to liquidation and/or dividend and other rights more favorable than the Common Stock, or the imposition of debt covenants and repayment obligations or other restrictions that may adversely affect our business. For example, as of June 30, 2024, we have outstanding an aggregate principal amount of $2.0 million in Senior Secured Notes. These Senior Secured Notes, among other things, convert at the option of the holder at $8.50 per shares and prohibit Legacy Zapata from issuing additional indebtedness, subject to limited exceptions. There is no guarantee that future financing will be at financial terms equal to or more favorable than these, and we may need to enter into future equity or, if available, debt financing at significantly less favorable terms. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

Previous report

Additionally, the Forward Purchase Agreement may negatively impact our ability to raise additional capital through equity or debt financings, due to the potential substantial dilution to our stockholders that could occur during the term of the instrument (which will be no more than two years from the date of the closing of the Merger), or may negatively affect our ability to obtain favorable or acceptable terms in connection with any such equity or debt financing. Under the Forward Purchase Agreement, the Reset Price is $10.00 per share. Beginning 180 days after the closing of the Merger, the Reset Price will subject to monthly resets, to be the greater of (a) $4.50 and (b) the 30-day volume weighted average price of shares of Common Stock immediately preceding the reset date (but not to exceed $10.00). If during the term of the Forward Purchase Agreement, we sell or issue any shares of Common Stock or securities convertible or exercisable for shares of Common Stock at an effective price of less than the Reset Price (a “Dilutive Offering”), then the Reset Price would immediately reset to the effective price of such offering, subject to certain exceptions, which include an exception for drawdowns under the Purchase Agreement, as may be amended, supplemented or otherwise modified from time to time, or any extension, continuation or replacement thereof, through October 15, 2024, the date that is 180 days following effectiveness of the Lincoln Park Registration Statement. Reduction of the Reset Price would reduce any payments Sandia may be obligated to pay us with respect to any Terminated Shares. Additionally, in the event of a Dilutive Offering, the maximum number of shares available under the Forward Purchase Agreements could be increased if the Dilutive Offering occurs at a price below the existing Reset Price. The maximum number of shares would be reset to the quotient of (i) 1,500,000 divided by (ii) the quotient of (a) the price of such Dilutive Offering divided by (b) $10.00. Depending on the Reset Price over the 24 months following the closing of the Merger (which may be impacted by the price at which shares of our Common Stock could be sold through a potential public or private equity offering) and the manner in which the Forward Purchase Agreement transactions are settled, we may not receive any future payments under the Forward Purchase Agreement, and will be required to pay an adjustment amount of $2.00 per share in cash or $2.25 per share in issuances of additional shares, offset by the amount that Sanda pays us for such shares (if any), calculated pursuant to the Forward Purchase Agreement based on the volume weighted daily VWAP Price (as defined in the Forward Purchase Agreement), which could adversely affect our liquidity and capital needs. Additionally, any proceeds to which we may be entitled pursuant to the Forward Purchase Agreement are not held in any bankruptcy-protected account, escrow account, trust account, or any similar ar…

Excerpt shortened here; the source contains the full paragraph.

Previous report

Furthermore, the term of the Forward Purchase Agreement gives Sandia the right to accelerate our obligations under the Forward Purchase Agreement if the VWAP Price for 20 trading days during a 30 consecutive trading day-period falls below $1.00 per share (a “VWAP Trigger Event”). Because a VWAP Trigger Event has occurred, Sandia has the right, but not the obligation, to accelerate the term of the Forward Purchase Agreement. If Sandia elects to exercise its acceleration right, we would be required to pay an adjustment amount of $2.00 per share in cash or $2.25 per share in issuances of additional shares, offset by the amount that Sanda pays us for such shares (if any), calculated pursuant to the Forward Purchase Agreement based on the volume weighted daily VWAP Price.

Previous report

We may also seek additional financing even if in our view such additional financing is not required in order to take advantage of favorable market conditions or for strategic considerations. There can be no assurance that additional financing will be available on favorable terms, or at all. The inability to obtain such additional financing if needed may adversely affect our ability to operate at the levels necessary to execute our business plan or may force us into bankruptcy.

Previous report

While the Senior Secured Notes are outstanding, Legacy Zapata is subject to substantial restrictions, including on the ability to incur additional indebtedness, which could adversely affect Legacy Zapata’s and our business and financial condition.

Previous report

Pursuant to the Senior Secured Note Purchase Agreement, we issued and sold, or issued in exchange for Senior Notes, an aggregate of $16.2 million in aggregate principal amount of Senior Secured Notes. Following the closing of the Merger, $2.0 million in aggregate principal amount of Senior Secured Notes remain outstanding. The Senior Secured Notes bear compounding interest at the rate of 15% per annum and all accrued but unpaid interest thereon will be due and payable on December 15, 2026. While Legacy Zapata can prepay the Senior Secured Notes without penalty prior to maturity, so long as any Senior Secured Notes are outstanding, Legacy Zapata cannot incur additional indebtedness for borrowed money, and cannot create, incur, assume or suffer to exist any lien on any property or assets, in each case except in limited circumstances. Accordingly, we will be significantly limited in our ability to obtain additional debt financing for so long as the Senior Secured Notes remain outstanding. The Senior Secured Notes are convertible at the option of the holder at a conversion price of $8.50 per share. However, there is no guarantee that the remaining noteholders will convert their Senior Secured Notes.

Previous report

A significant portion of the assets of Legacy Zapata, which serves as our operating entity, are pledged to the holders of the Senior Secured Notes and failure to repay obligations to these noteholders when due, or any other default events, will have a material adverse effect on Legacy Zapata’s and our business and could result in foreclosure on Legacy Zapata’s assets.

Previous report

In connection with the issuance of Senior Secured Notes in December 2023, Legacy Zapata entered into a Security Agreement with Acquiom Agency Services LLC as collateral agent on behalf of the noteholders (the “Security Agreement”). The Security Agreement creates a security interest in all of the property of Legacy Zapata and Zapata Government Services, Inc., its wholly owned subsidiary, subject to certain exceptions specified in the Security Agreement (the “Collateral”). Pursuant to the Security Agreement, Zapata Government Services, Inc. has agreed to guarantee the obligations of Zapata under the Security Agreement and the Senior Secured Note.

Previous report

Upon the occurrence of an Event of Default under the Security Agreement, the Collateral Agent will have certain rights under the Security Agreement, including the right to take control of the Collateral and, in certain circumstances, sell the Collateral to cover obligations owed to the holders of the Senior Secured Notes pursuant to its terms. “Event of Default” under the Security Agreement means (i) any default of the terms, conditions or covenants of the Security Agreement (after giving effect to any applicable grace or cure period); (ii) failure to pay any principal or interest payment on the due date or any other payments required under the terms of the Senior Secured Note within 15 days of notification of such failure to pay, (iii) Legacy Zapata or any guarantor is in default under any loan agreement or any other indebtedness for borrowed money, in each case in a principal amount of greater than $200,000 that has not been cured or waived, or (iv) Legacy Zapata or any guarantor enters into any voluntary or involuntary bankruptcy or insolvency proceedings. Any such default would have a material adverse effect on Legacy Zapata’s and, by extension, our, business and our stockholders could lose their entire investment in us.