Filed 2026-03-02 · Period ending 2025-12-31 · 61,490 words · SEC EDGAR
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# Quantum Computing Inc. (QUBT) — 10-K
**Filed:** 2026-03-02
**Period ending:** 2025-12-31
**Accession:** 0001213900-26-022417
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1758009/000121390026022417/)
**Origin leaf:** 2158d1862d67f010f6e31e92dfb3be8e22bfd2ded23f4fefd3d9d4a277f0808d
**Words:** 61,490
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**
UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
**FORM 10-K**
(Mark One)
**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For
the fiscal year ended December 31, 2025
or
**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For
the transition period from __________________ to __________________
Commission
File Number 001-40615
****
**QUANTUM
COMPUTING INC.**
(Exact
name of registrant as specified in its charter)
| Delaware | | 82-4533053 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S Employer Identification No.) | |
| | | | |
| 5 Marine View Plaza, Suite 214, Hoboken, NJ | | 07030 | |
| (Address of principal executive offices) | | (Zip Code) | |
Registrants
telephone number, including area code (703) 436-2121
Securities
registered pursuant to Section 12(b) of the Act:
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | |
| Common Stock, par value $.0001 | | QUBT | | The Nasdaq Stock Market LLC | |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was
required to submit and post such files). Yes No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer,
smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | | Accelerated filer | | |
| Non-accelerated filer | | Smaller reporting company | | |
| | Emerging growth company | | |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No .
The aggregate market value of the voting and non-voting
common stock held by non-affiliates of the registrant as of June 30, 2025, the last business day of the registrants most recently
completed second fiscal quarter, was $2,545,765,591 based on the closing price of $19.17 per share of Quantum Computing Inc. common stock
on the Nasdaq Stock Market LLC on that date. Shares of the registrants common stock held by each officer and director and each
other person who may be deemed to be an affiliate of the registrant have been excluded from the computation. This determination of affiliate
status with respect to the foregoing calculation is not necessarily a conclusive determination for other purposes.
As
of February 27, 2026, there were 224,538,254 shares of the registrants common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Information required by Part III of this
Form 10-K is incorporated by reference to the registrants proxy statement (the Proxy Statement) for the 2026 annual
meeting of stockholders, which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end
of the fiscal year covered by this Form 10-K.
**TABLE OF CONTENTS**
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PART I |
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ITEM 1. |
BUSINESS. |
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ITEM 1A. |
RISK FACTORS. |
11 | |
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ITEM 1B. |
UNRESOLVED STAFF COMMENTS. |
30 | |
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ITEM 1C. |
CYBERSECURITY. |
30 | |
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ITEM 2. |
PROPERTIES. |
32 | |
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ITEM 3. |
LEGAL PROCEEDINGS. |
32 | |
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ITEM 4. |
MINE SAFETY DISCLOSURES. |
34 | |
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PART II |
35 | |
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
35 | |
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ITEM 6. |
[RESERVED] |
36 | |
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ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
36 | |
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ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
44 | |
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ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
44 | |
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ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
44 | |
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ITEM 9A. |
CONTROLS AND PROCEDURES. |
44 | |
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ITEM 9B. |
OTHER INFORMATION. |
47 | |
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ITEM 9C |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. |
47 | |
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PART III |
48 | |
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ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
48 | |
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ITEM 11. |
EXECUTIVE COMPENSATION. |
48 | |
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ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
48 | |
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ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
48 | |
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ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
48 | |
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PART IV |
49 | |
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ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
49 | |
i
**PART I**
**FORWARD-LOOKING STATEMENTS**
This Annual Report on Form 10-K contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section
21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). In some cases, forward-looking statements are
identified by terms such as may, will, should, could, would, expects,
plans, anticipates, believes, estimates, projects, predicts,
potential and similar expressions intended to identify forward-looking statements.
These forward-looking statements are only predictions
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by such forward-looking statements. Factors that could cause or contribute to differences in our future financial and other results include
those discussed in the risk factors set forth in Part I, Item 1A of this Annual Report on Form 10-K as well as those discussed elsewhere
in this Annual Report on Form 10-K and the factors described below:
****
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| Our ability to effectively manage future growth and achieve
operational efficiencies; |
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| the ability to implement our business plans, forecasts and
other expectations, including the integration of recently acquired businesses, and to identify and realize additional opportunities; |
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| the market acceptance for our products and services; |
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| the results of our research and development and any failure
to adequately and timely develop our products; |
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| the failure of any of our products to perform as expected
and any liability or loss of market share that may come as a result; |
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| changes in the competitive and highly regulated industries
in which we operate, variations in operating performance across competitors, changes in laws and regulations affecting our business and
changes in our capital structure; |
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| success in retaining or recruiting, or changes required in,
officers, key employees or directors, and our ability to attract and retain key personnel; |
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| inability or failure to protect intellectual property; |
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| the diversion of managements attention and consumption
of resources as a result of acquisitions of other companies and success in integrating and otherwise achieving the benefits of recent
and potential acquisitions; |
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| our inability to effectively integrate or benefit from recently
purchased assets or businesses; |
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| global inflation and interest rates; |
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| impacts of the wars in Ukraine or Israel or other global
conflicts; |
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| fluctuations in foreign exchange rates; |
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| failure to maintain adequate operational and financial resources
or raise additional capital or generate sufficient cash flows; |
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| any significant disruption in or unauthorized access to our
computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from
cyber-attacks; and |
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| other factors detailed under the section of this Annual Report
on Form 10-K entitled Risk Factors. |
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You should read this Annual Report on Form 10-K and the documents that
we reference in this Annual Report on Form 10-K and have filed with the Securities and Exchange Commission (the SEC) as
exhibits to this Annual Report on Form 10-K with the understanding that our actual future results, levels of activity, performance and
events and circumstances may be materially different from what we expect. We qualify all forward-looking statements by these cautionary
statements.
Throughout this Annual Report on Form 10-K, the
terms we, us, our, the Company, our Company, QCi and
QUBT, refer to Quantum Computing Inc., a Delaware corporation, and unless the context indicates otherwise, also includes
our wholly-owned subsidiaries.
1
**ITEM 1. BUSINESS***.*
**The High-Performance Computing Landscape**
There is a large and growing demand for ever-increasing
computational performance in information processing. The recent emergence of artificial intelligence (AI), large language
models (LLMs), and machine learning (ML) algorithms has added to the need for efficient processing of vast
volumes of data. Classical computers, or the computers that are currently used in home and office settings, that use silicon microprocessors
are understood to have performance limitations in solving certain classes of computational problems, in particular, large-scale optimization
problems. Optimization deals with finding the best solution to a problem according to a defined criteria from a set of possible solutions.
Solving large-scale optimization problems requires complex calculations that cannot currently be performed in a reasonable amount of time
using classical computing systems for problem sizes relevant to many industrial and real-world applications.
There is a growing belief among some computer science experts that
quantum computing will solve problems faster than traditional computers and may offer a potential solution to the hard limits now being
approached by classical computers. In addition to new computational methodologies using quantum phenomena, there is a corresponding emergence
of new materials in microprocessors that may be able to overcome some of the limitations of the silicon-based processors used in classical
computers. One promising area is in the use of photonics, which uses particles of light for computation. We believe that these emerging
approaches will create an opportunity for new materials and methods that can meet the growing demand for scalable performance and power
efficiency. While it is difficult to determine which area that quantum computers will create the first practical impact, we expect continued
technological development across multiple quantum computing modalities and architectures over the coming years. Besides quantum computing,
we also believe that photonics approaches to information processing will see continued development to eventually create impacts in various
computing spaces by significantly reducing power consumption.
**Our Business**
****
Quantum Computing Inc. is an American company
incorporated in Delaware and based in Hoboken, New Jersey utilizing integrated photonics and non-linear quantum optics to develop and
deliver machines for quantum computing, machine learning, remote sensing, imaging and cybersecurity applications. Our vision is to lead
the revolution in photonics and quantum information technology with scalable, accessible, and affordable solutions to bring quantum technology
into real-world application to solve real-world problems. QCis products are designed to operate at room temperature and at
very low power levels compared to other quantum systems currently available in the market, such as cryogenic products based on superconducting,
ion-trap, or annealing architectures. Our acquisition of QPhoton, Inc. in June 2022 (the QPhoton Merger), enabled us to
offer the aforementioned products, integrated with the Companys former software platform, Qatalyst, that was developed before the
QPhoton Merger.
2
Our proprietary core technology is our integrated
photonics approach, which allows us to condition, manipulate, and measure single and entangled photons (particles of light) and gives
us the ability to exploit the non-linear capabilities of photons (our Core Photonics Technology). Our Entropy Quantum Computer
(EQC), is a quantum application of our Core Photonics Technology, designed to solve complex optimization problems. EQC is
based on a patent-pending methodology that uses controlled feedback through energy loss in a photonic loop architecture to drive photonic
states to their least lossy configurations. The EQCs involvement of the changing environment as an integral part of the system
is in sharp contrast to competing quantum approaches, including superconducting, trapped-ion, and annealing architectures, which seek
to establish stable quantum states by the complete elimination of environmental effects. As a result, the EQC can consume less power than
these competing methods and operates at room temperature making it compatible with an ordinary server room environment. We anticipate
that our EQC may enable us to develop and produce multiple generations of quantum machines with increasing computational power, scalability,
and speed.
Our longer-term product development plan is to migrate product designs
based on discrete components, including EQCs current designs, to a set of optical integrated circuits built on wafers using a crystalline
material called thin film lithium niobate (TFLN). The Company believes that TFLN is an excellent material for optical integrated
circuit design, given its advantageous optical properties (linear, non-linear ferroelectric, and electro-optic) and its compatibility
with silicon-based semiconductor fabrication methods. In March 2025, the Company substantially completed the buildout of its state-of-the-art
TFLN chip research and development, prototyping and small-batch manufacturing facility in a leased space within Arizona State Universitys
Research Park in Tempe, Arizona (the AZ Chips Facility). In addition, the Company is in the planning stages for another
higher volume manufacturing facility, which we sometimes refer to as FAB 2.
As part of our long-term strategic
plan to acquire complimentary businesses, in February 2026, the Company acquired Luminar Semiconductor, Inc. (LSI). LSI
provides products and services that leverage its advanced photonics semiconductor technologies. LSI designs chip-scale devices
including laser diodes, semiconductor optical amplifiers, avalanche photodiodes, passive waveguides, photonic integrated circuits, and
other related photonic chips, which are incorporated into products at various levels of integration by leveraging extensive in-house advanced
photonic packaging technologies. The LSI integrated solutions include components, modules, subsystems, and systems that serve a
broad set of customer requirements. Extensive design capabilities are complemented by an in-house III-V photonic semiconductor fabrication
facility and photonics module manufacturing capabilities. These production resources are employed to deliver high performance, high
reliability products to a growing number of customers in a wide array of industries that include aerospace and defense, sensing and instrumentation,
and optical communications. Acquiring LSI provides QCi with advanced semiconductors and related components, as well as design, testing
and consulting services to industry, in particular for Aerospace and Defense applications. Through the acquisition of LSI, QCi has broadened
its photonic chip design capability as well as our optical component and system design and advanced packaging capabilities. LSIs
capabilities are highly synergistic with the QCi technology roadmap and will support the integration of chip-scale devices such as laser
diodes and photodetectors with QCis thin film lithium niobate photonic integrated circuit (PIC) platform. Collaborative efforts
between the LSI and QCi technical teams will be instrumental to delivering QCis photonic- and quantum-based system products.
In addition to our EQC technology, we have leveraged
QCis core photonics technology to demonstrate powerful quantum sensing use cases in LIDAR (light detection and ranging), a technology
that uses pulsed laser light to measure distances to objects by calculating the time it takes for the reflected light to return, reservoir
computing, a form of neural network that can be used in machine learning applications, and a quantum cyber solution, a method for highly
secure communication within a network. Several of these technologies are in the early stages of commercialization and several are available
to customers through our research and development offerings.
**Our Strategy**
QCis strategy is to build a vertically integrated photonics
and quantum optics platform capable of supporting scalable, commercial applications across AI, high-performance computing, cybersecurity,
and remote sensing. Our Core Photonics Technology is central to our strategy because we believe it provides advantages in size,
weight, power, and cost over competing cryogenic products. We further differentiate ourselves in the market by offering, in addition to
cloud-based access to our quantum computers, on-premises installation of our EQC product, which is rack-mountable and compatible with
standard server room infrastructure and requires no special cooling, shielding, or power considerations.
Further, our EQC development plan to gradually
replace discrete optical components with photonic integrated circuits will provide us the ability to fabricate and sell a range of custom
lithium niobate chips for use in our own product lines as well as TFLN Optical Chips, as defined below, for sale into existing commercial
markets for optical devices.
**Market Opportunity**
****
The Company believes that quantum solutions have
the potential to bring significant and increasing advances in the fields of medicine, logistics, defense, finance, engineering, autonomous
vehicles, energy management, and cybersecurity and that demand for quantum computing in these market sectors will outpace and outperform
the general-purpose universal computing market in the near- to mid-term and into the foreseeable future. We believe that our Core Photonics
Technology applications offer practical, cost-effective solutions that can materially advance the adoption of quantum machines across
several market segments including:
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1. | Quantum
computing, including quantum optimization computing |
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2. | Artificial
Intelligence, including edge hardware devices |
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3. | Remote
sensing and imaging, including LiDAR and quantum photonic vibrometry |
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4. | Cybersecurity,
including quantum authentication |
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3
While the current quantum computing market comprises a fraction of
the broader high-performance computing market, we believe that quantum computers will unlock new applications that are unlikely to be
addressable by existing high-performance computers that utilize classical processing units. Estimates of the size of the global high-performance
computing industry vary, but according to Grand View Research, the high-performance computing market was valued at $39.1 billion in 2019
and is expected to reach a value of $53.6 billion by 2027, see *Grand View Research - High Performance Computing Market Size Worth $53.6
Billion By 2027,* https://www.grandviewresearch.com/press-release/global-high-performance-computing-hpc-market According to a report
from Allied Market Research, the global enterprise quantum computing market size was valued at $1.3 billion in 2020 and is projected to
reach $18.3 billion by 2030, growing at a compound annual growth rate of 29.7% from 2021 to 2030, according to a published report on the
enterprise quantum computing market at https://www.alliedmarketresearch.com/enterprise-quantum-computing-market (Information contained
on, or that can be accessed through, these websites is not incorporated by reference in this Annual Report, and you should not consider
information on these websites to be part of this Annual Report). As an early participant in this rapidly growing market, we believe we
are positioned to seek to capture a portion of this growth, although commercialization remains uncertain.
Additionally, we believe that our foundry services
offering through our AZ Chips Facility will address the growing TFLN market and photonic integrated circuit markets. A recent *Market
Research Reports: Document ID: LPI08232779; Published August 8, 2023***Thin Film Lithium Niobate Market Forecast 2023 - 2029**,
indicates a significant potential market growth for TFLN devices, from $190.4 million in 2022 to an estimated $1.9 billion by 2029 - a
compound annual growth rate of 39 percent. The report further describes how such increase in demand is expected to be principally driven
by the advantages of large bandwidth, low power consumption, and small size that TFLN electro-optical modulators possess. Further, Mordor
Intelligence published a market report, **Photonic Integrated Circuit Market Size & Share Analysis - Growth Trends & Forecasts
(2024 - 2029)** which forecasts that the photonic integrated circuit (PIC) market, valued at $15.1 billion in 2024,
will grow at a compound annual growth rate of 20.5% to $38.4 billion in 2029. We believe QCi is well-positioned to benefit from this forecasted
increase in demand.****
****
**Products and Products in Development****
**
We believe our Core Photonics Technology provides
us with a competitive advantage as compared to our competitors and it allows QCi to offer a suite of quantum machines to the market today
with a robust technology roadmap for the future. The QPhoton Merger substantially broadened the Companys technology portfolio and
enabled us to develop a group of closely related products to the EQC, based on our underlying Core Photonics Technology.
*TFLN Optical Chips*
We believe that TFLN optical integrated circuits
(TFLN Optical Chips) will ultimately provide the greatest scalability and performance advantages for quantum information
processing, sensing, and imaging applications. While the Company is developing proprietary chip designs for TFLN Optical Chips for exclusive
use in our products, the Companys foundry services offering at our AZ Chips Facility will make available a range of custom TFLN
chips (custom single photon detectors) for sale into existing commercial markets, including optical devices such as electro-optical modulators,
periodically poled devices for frequency conversion and micro ring resonator cavities.
4
*Entropy Quantum Computer*
Dirac is our EQC product platform
of increasingly advanced optimization devices utilizing our Core Photonics Technology. QCi launched a new EQC device during the first
quarter of 2024 (Dirac-3), which improved upon and expanded the capability we had previously shown with our Dirac-1 and Dirac-2 products,
and plans to release a series of additional EQC products in the coming years that build and expand upon the same architecture. We are
currently developing our Dirac-4 device. This planned evolution of technology and product enhancements will involve improving the size
and capacity of the EQC machines, as well as speed, scalability, and performance fidelity. The EQC is available both as a cloud-based
service, similar to other quantum machines, as well as an on-premises solution.
*Artificial intelligence*
Launched in June 2023, QCis first AI product,
a reservoir computing machine (an RC) called Emucore, is an edge device that can be reprogrammed after manufacturing
and optimized for recurrent neural network applications. An edge device allows the users to process, measure, and analyze
data locally (connected directly to the users device) as opposed to over a network where data must be sent over the internet or
through some cloud service. QCis RC is a standalone device that can be plugged into a local computer or server without having to
connect over the internet. Based on internal benchmarking results, we believe that the RCs hardware-based approach may provide
advantages over certain traditional software implementations, including faster processing speeds and lower energy consumption in selected
time-dependent tasks. Actual performance may vary depending on use case and deployment environment. Our analyses further show that the
RC is capable of delivering superior performance in time-dependent tasks, such as chaotic time series prediction, unstructured financial
model prediction, natural language processing, and weather forecasting. To date, the market for reservoir computing has been limited due
to computing cost and technical implementation complexities, which the RC is designed to address. We anticipate that future generations
of the RC will introduce greater performance and scalability, which will enable the RC to participate in LLM training and other applications.
While technology challenges remain in scaling this technology, this is one of our focus areas to gain a significant share in the AI/ML
hardware market. In November 2025, we launched our newest version RC called Neurawave, a photonics based reservoir computer.
*LiDAR and Quantum Photonic Vibrometer*
QCis LiDAR uses patented methodologies
that leverage the selective use of spatial-temporal modes to maximize the signal-to-noise ratio of weak information signals in a high-noise
background. This technology allows QCi machines to see through dense fog and provide image fidelity at great distances with very high-resolution
in difficult environments such as snow, ice, and water. The practical benefits on payload and signal-to-noise enhancement can be used
to produce LiDAR machines that are greatly enhanced in their ability to measure at improved resolution and distances from aircraft, drones,
and even satellites.
**
Launched in July 2023, QCis Quantum Photonic
Vibrometer is a proprietary, powerful instrument for remote vibration detection, sensing, and inspection. We believe that this device
offers significant advancements in sensitivity, speed, and resolution, and is designed to enhance sensitivity in detecting obscured and
non-line-of-sight objects under certain environmental conditions. The Quantum Photonic Vibrometer measures the vibration frequency of
a remote target by utilizing fast-gated single photon counting to directly detect returning photons whose wavefunctions are dynamically
modulated as they are reflected off the target. By counting photons at a megahertz rate, important properties such as material composition
and mechanical integrity can be determined within seconds and, depending on detection distance, with microwatt to milliwatt optical power.
Working at an eye-safe wavelength, the system can accurately characterize the vibration spectra of solid or liquid targets with vibration
amplitude as small as 100 nanometers.
*Quantum Networks and Quantum Authentication*
QCi has developed a prototype system to address
one of the major challenges in cybersecurity, the authentication of users on a network, which is currently facilitated by the distribution
of private keys by a trusted third party. This approach is inherently insecure as keys are bundled and travel with the encrypted
data, making it susceptible to harvest-and-decrypt-later vulnerability. QCi has developed a quantum authentication technology and methodology
that eliminates the need for trust in third-party involvement in key distribution. Our approach uses a combination of a high-powered laser,
and a patented detection methodology deeply rooted in the fundamental principles of quantum mechanics, resulting in what we believe will
provide trusted protection for private network communication.
5
**Competition**
The quantum computing industry is highly competitive
and rapidly evolving and will likely remain so for the foreseeable future. As this industry continues to grow and mature, we expect a
continued influx of new competitors, products, hardware advances, and concepts to emerge that can dramatically transform the industry
and our business. Due to the high price point of quantum computing hardware today, novel business models may emerge to adapt to customer
preferences in the high-performance computing industry. Our ability to evolve and adapt rapidly over an extended period will be critical
in remaining competitive. We perform a broad range of research and development efforts to identify and position for the changing demands
of current and future customers and users, industry trends, and competitive forces.
According to research conducted by The Quantum
Insider, there are over 700 companies and approximately 400 university academic groups working in various aspects of quantum technology,
with approximately 400 of these having a pure-play focus on quantum computing.
These entities range in size from diversified
global companies with significant research and development resources such as IBM, Google, Intel, Microsoft, Quantinuum (formerly Honeywell)
and Amazon, to recent market entrants such as D-Wave Quantum, Rigetti Computing, IonQ, PsiQuantum, Xanadu and Infleqtion (formerly ColdQuanta),
as well as smaller privately funded development stage companies whose narrower product focuses may allow them to be more effective in
deploying resources towards a specific customer or industry demand. In addition, we face competition from large research organizations
funded by sovereign nations such as China, Russia, Canada, Australia and the United Kingdom, as well as the European Union, and we believe
that additional countries will invest in quantum computing in the future. We will continue to face competition from the existing high-performance
computing industry using classical (non-quantum) computers.
We believe that competition in this market segment
will intensify as time goes on. Many of our competitors may have longer operating histories, significantly greater financial, technical,
product development and marketing resources, and greater name recognition than we do. Our competitors could use these resources to market
or develop products or services that are more effective, more broadly adopted, have more customer or industry awareness, or are less costly
than any or all of our current or future products and services.
**Intellectual Property**
****
Our intellectual property consists of patents,
trademarks, and trade secrets. Our trade secrets consist of product formulas, research and development, and unpatentable know-how, all
of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual property, we rely on a combination of
laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered trademarks. We also rely on the
protection of laws regarding unregistered copyrights for certain content we create and trade secret laws to protect our proprietary technology.
To further protect our intellectual property, we enter into confidentiality agreements with our executive officers, employees, consultants
and directors.
|
1 | Seskir, Z.C., Korkmaz, R. & Aydinoglu, A.U., The landscape
of the quantum start-up ecosystem, EPJ Quantum Technol. 9, 27 (2022), at https://doi.org/10.1140/epjqt/s40507-022-00146-x |
|
6
**Trademarks**
**
The Company has three registered trademarks, QPhoton,
QGraph and Qatalyst. The Company has no pending trademark applications.
**Patents**
**
The Company has three granted United States patents.
|
Country |
|
Serial No. |
|
Filing Date |
|
Patent No. |
|
Issue Date |
|
Title |
|
Status |
|
Anticipated Expiration Date | |
|
USA |
|
17/560,816 |
|
12/23/2021 |
|
11,436,519 |
|
09/06/2022 |
|
Machine Learning Mapping for Quantum Processing Units |
|
|
Granted |
|
12/23/2041 | |
|
USA |
|
17/810,198 |
|
06/30/2022 |
|
12,008,436 |
|
06/11/2024 |
|
Machine Learning Mapping for Quantum Processing Units |
|
|
Granted |
|
06/30/2042 | |
|
USA |
|
17/745,752 |
|
5/16/2022 |
|
12,493,811 |
|
12/09/2025 |
|
Variational Analog Quantum Oracle Learning |
|
|
Granted |
|
5/16/2042 | |
In connection with the Luminar Acquisition (as
defined below), QCi acquired 23 issued patents, 16 pending United States patents and 9 foreign patent publications.
|
Country | |
Serial No. | |
Filing Date | |
Patent No. | |
Issue Date | |
Title | |
Status | |
Anticipated Expiration Date | |
|
USA | |
12/789350 | |
5/27/2010 | |
8401399 | |
3/19/2013 | |
Chip-Based Advanced Modulation Format Transmitter | |
Granted | |
4/18/2031 | |
|
USA | |
13/761867 | |
2/7/2013 | |
8718486 | |
5/6/2014 | |
Chip-Based Advanced Modulation Format Transmitter | |
Granted | |
5/27/2030 | |
|
USA | |
14/267582 | |
5/1/2014 | |
9270380 | |
2/23/2016 | |
Chip-Based Advanced Modulation Format Transmitter | |
Granted | |
5/27/2030 | |
|
USA | |
15/046969 | |
2/18/2016 | |
9887780 | |
2/6/2018 | |
Chip-Based Advanced Modulation Format Transmitter | |
Granted | |
5/27/2030 | |
|
USA | |
12/789344 | |
5/27/2010 | |
8401405 | |
3/19/2013 | |
Monolithic Widely-Tunable Coherent Receiver | |
Granted | |
2/22/2031 | |
|
USA | |
13/761973 | |
2/7/2013 | |
8712256 | |
4/29/2014 | |
Monolithic Widely-Tunable Coherent Receiver | |
Granted | |
5/27/2030 | |
|
USA | |
14/263855 | |
4/28/2014 | |
9246596 | |
1/26/2016 | |
Monolithic Widely-Tunable Coherent Receiver | |
Granted | |
5/27/2030 | |
|
USA | |
14/069956 | |
11/1/2013 | |
9344196 | |
5/17/2016 | |
Integrated Interferometric Optical Transmitter | |
Granted | |
11/1/2033 | |
|
USA | |
15/154756 | |
5/13/2016 | |
9941971 | |
4/10/2018 | |
Integrated Interferometric Optical Transmitter | |
Granted | |
11/1/2033 | |
|
USA | |
15/938842 | |
3/28/2018 | |
10320152 | |
6/11/2019 | |
Tunable Laser | |
Granted | |
3/28/2038 | |
|
USA | |
16/431285 | |
6/4/2019 | |
11251584 | |
2/15/2022 | |
Tunable Laser | |
Granted | |
3/28/2038 | |
|
USA | |
15/962972 | |
4/25/2018 | |
10355451 | |
7/16/2019 | |
Laser With Sampled Grating Distributed Bragg Reflector | |
Granted | |
3/28/2038 | |
7
|
Country | |
Serial No. | |
Filing Date | |
Patent No. | |
Issue Date | |
Title | |
Status | |
Anticipated Expiration Date | |
|
USA | |
16/688908 | |
11/19/2019 | |
11152764 | |
10/19/2021 | |
Gratings For High Power Single Mode Laser | |
Granted | |
11/19/2039 | |
|
USA | |
16/213917 | |
12/7/2018 | |
11391969 | |
7/19/2022 | |
Systems And Methods for Wavelength Monitoring | |
Granted | |
1/14/2039 | |
|
USA | |
16/823823 | |
3/19/2020 | |
11431149 | |
8/30/2022 | |
Single Mode Laser with Large Optical Mode Size | |
Granted | |
7/18/2040 | |
|
USA | |
18/157793 | |
1/20/2023 | |
{US-2023-0268714-A1} | |
Patent Pending | |
Single Mode Laser with Large Optical Mode Size | |
Patent Pending | |
| |
|
China | |
202410080622.3 | |
1/18/2024 | |
{CN118380861 A} | |
Patent Pending | |
Single Mode Laser with Large Optical Mode Size | |
Patent Pending | |
| |
|
USA | |
17/021993 | |
9/15/2020 | |
11721951 | |
8/8/2023 | |
Tunable Laser with Active Material on At Least One End for Monitoring Performance | |
Granted | |
9/15/2040 | |
|
USA | |
18/337374 | |
6/19/2023 | |
12095228 | |
9/17/2024 | |
Tunable Laser with Active Material on At Least One End for Monitoring Performance | |
Granted | |
9/15/2040 | |
|
USA | |
18/776126 | |
7/17/2024 | |
{US-2025-0023327-A1} | |
Published | |
Tunable Laser with Active Material on At Least One End for Monitoring Performance | |
| |
| |
|
USA | |
17/025962 | |
9/18/2020 | |
11631963 | |
4/18/2023 | |
Optical Device with Coating for Operation in Multiple Environments | |
Granted | |
2/7/2041 | |
|
USA | |
17/062462 | |
10/2/2020 | |
11581700 | |
2/14/2023 | |
Multiple Optoelectronic Devices with Thermal Compensation | |
Granted | |
2/8/2041 | |
|
USA | |
18/361421 | |
7/28/2023 | |
{US-2023-0387654-A1} | |
Patent Pending | |
Multiple Optoelectronic Devices with Thermal Compensation | |
Patent Pending | |
| |
|
USA | |
17/163028 | |
1/29/2021 | |
11837838 | |
12/5/2023 | |
Laser Having Tapered Region | |
Granted | |
6/6/2041 | |
|
USA | |
18/486968 | |
10/13/2023 | |
12224554 | |
2/11/2025 | |
Laser Having Tapered Region | |
Granted | |
1/29/2041 | |
|
USA | |
17/656193 | |
3/23/2022 | |
12063073 | |
8/13/2024 | |
System And Method for External Wavelength Control of Optical Modulators | |
Granted | |
3/23/2042 | |
|
USA | |
17/806460 | |
6/10/2022 | |
{20230023686} | |
Published | |
Designs For Lateral Current Control in Optical Amplifiers and Lasers | |
| |
| |
|
China | |
202280055651.3 | |
6/10/2022 | |
{CN117837034 A} | |
Published | |
Designs For Lateral Current Control in Optical Amplifiers and Lasers | |
| |
| |
|
Europe - EPO | |
22821164.5 | |
6/10/2022 | |
{EP4352839 A4} | |
Published | |
Designs For Lateral Current Control in Optical Amplifiers and Lasers | |
| |
6/10/2024 | |
|
USA | |
17/901741 | |
9/1/2022 | |
{US-2023-0072926-A1} | |
Patent Pending | |
Multiwavelength Optical Sources | |
Patent Pending | |
| |
|
China | |
202222346704.7 | |
9/2/2022 | |
CN218866146 U ZL202222346704.7 | |
4/14/2023 | |
Multiwavelength Optical Sources | |
Granted | |
9/2/2032 | |
8
|
Country | |
Serial No. | |
Filing Date | |
Patent No. | |
Issue Date | |
Title | |
Status | |
Anticipated Expiration Date | |
|
USA | |
17/950847 | |
9/22/2022 | |
{US-2023-0088485-A1} | |
Published | |
Segmented Contact for Current Control in Semiconductor Lasers and Optical Amplifiers | |
| |
| |
|
China | |
2022800713529 | |
9/22/2022 | |
{CN118140367 A} | |
Published | |
Segmented Contact for Current Control in Semiconductor Lasers and Optical Amplifiers | |
| |
9/22/2042 | |
|
Europe - EPO | |
22790132.9 | |
9/22/2022 | |
{EP4406079 A1} | |
Published | |
Segmented Contact for Current Control in Semiconductor Lasers and Optical Amplifiers | |
| |
| |
|
USA | |
18/421386 | |
1/24/2024 | |
{20240258766} | |
Patent Pending | |
Isolation Used for Integrated Optical Single Mode Lasers | |
Patent Pending | |
| |
|
PCT | |
PCT/US24/12838 | |
1/24/2024 | |
{WO2024158953} | |
Patent Pending | |
Isolation Used for Integrated Optical Single Mode Lasers | |
Patent Pending | |
| |
|
USA | |
18/604159 | |
3/13/2024 | |
{US-2024-0310590-A1} | |
Patent Pending | |
Semiconductor Laser Chip for Photonic Wire Bonding | |
Patent Pending | |
| |
|
USA | |
18/612981 | |
3/21/2024 | |
{US-2024-0322529-A1} | |
Patent Pending | |
Spatial And Temporal Adjustment of Laser Device Drive Current Using Asic Drives | |
Patent Pending | |
| |
|
USA | |
18/323284 | |
5/24/2023 | |
{US-2024-0396307-A1} | |
Published | |
Spectral-Based Correction Of Laser Bar Smile | |
| |
| |
|
USA | |
18/761160 | |
7/1/2024 | |
{US-2025-0015563-A1} | |
Published | |
Systems And Methods for Beam Combination of Tapered Diode Lasers and Amplifiers | |
| |
| |
|
USA | |
18/784721 | |
7/25/2024 | |
{US-2025-0038476-A1} | |
Published | |
Thermally Compensated Wavelength Tunable Lasers | |
| |
| |
|
USA | |
18/913726 | |
10/11/2024 | |
{US-2025-0125584-A1} | |
Published | |
Distributed Feedback Lasers with Tunable Distributed Bragg Reflector Integration | |
| |
| |
|
USA | |
19/242753 | |
6/18/2025 | |
| |
Patent Pending | |
Pwb Polarization Rotation | |
Patent Pending | |
| |
|
USA | |
19/242759 | |
6/18/2025 | |
| |
Patent Pending | |
Dfb And Dbr Lasers with Grating and Etch Stop | |
Patent Pending | |
| |
|
USA | |
18/181978 | |
3/10/2023 | |
{US-2023-0291170-A1} | |
Published | |
Etalon Vapor Cell for Atomic Sensing | |
| |
| |
|
Europe - EPO | |
24189401.3 | |
7/18/2024 | |
{EP4498538 A1} | |
Patent Pending | |
Multiple Optoelectronic Devices with Thermal Compensation | |
Patent Pending | |
| |
|
China | |
202411020678.6 | |
7/29/2024 | |
{CN119447981 A} | |
Patent Pending | |
Multiple Optoelectronic Devices with Thermal Compensation | |
Patent Pending | |
| |
|
USA | |
18/074668 | |
12/5/2022 | |
12209866 | |
1/28/2025 | |
Atomic Sensor System(1) | |
Granted | |
3/27/2043 | |
|
USA | |
18/181978 | |
3/10/2023 | |
{US-2023-0291170-A1} | |
Published | |
Etalon Vapor Cell For Atomic Sensing(1) | |
| |
| |
|
(1) |
Patent owned and developed jointly by Northrop Grumman Systems Corporation and Freedom Photonics, LLC, a subsidiary of Luminar. | |
9
**Exclusive License Agreement**
QCi has an exclusive license to seven patents
issued to the Stevens Institute of Technology, pursuant to the license agreement dated December 17, 2020 by and among QPhoton and The
Trustees of The Stevens Institute of Technology (the Licensor). QPhoton agreed to reimburse the Licensor for patent prosecution
expenses in the amount of $125,041 and deliver to the Licensor an annual report and quarterly report pursuant to the terms of the license
agreement. As consideration for the license and other rights granted under the license agreement, QPhoton agreed to pay the Licensor (i)
$35,000 upon full execution of the license agreement, (ii) $28,000 each annual anniversary of the effective date of the license agreement
(the Anniversary Payment), (iii) 9% of the membership units of QPhoton and (iv) a royalty of 3.5% of the net sales price
of each licensed product sold or license by QPhoton and any affiliate and sublicensee (the Royalty Payment). On June 15,
2022, the Licensor agreed to assign the license agreement to QCi upon consummation of the QPhoton Merger and as such QCi is responsible
for the Anniversary Payments and the Royalty Payments on an ongoing basis.
|
Title | |
Country | |
Serial Number | |
File Date | |
Patent Number | |
Issue Date | |
|
Discriminate Remote Sensing and Surface Profiling Based on Superradiant Photonic Backscattering | |
USA | |
17/077,878 | |
22-Oct-20 | |
11,264,775 | |
01-Mar-22 | |
|
Method And Apparatus for Quantum Measurement Via Mode Matched Photon Conversion | |
USA | |
15/824,832 | |
28-Nov-17 | |
10,935,379 | |
02-Mar-21 | |
|
Chip-Integrated Device and Methods For Generating Random Numbers That Is Reconfigurable and Provides Genuineness Verification | |
USA | |
16/624,768 | |
19-Dec-19 | |
11,442,697 | |
13-Sep-22 | |
|
Systems And Methods for Quantum-Secured, Private-Preserving Computations | |
USA | |
17/769,303 | |
16-Oct-20 | |
11,711,209 | |
25-Jul-23 | |
|
Approaches, Apparatuses and Methods for LIDAR applications based on modeselective frequency conversion | |
USA | |
17/251,749 | |
13-Jun-19 | |
12,455,355 | |
28-Oct-25 | |
|
Super Ising Emulator with Multi-Body Interactions and All-to-All Connections | |
USA | |
17/924,638 | |
13-May-21 | |
12,526,915 | |
13-Jan-26 | |
|
Devices and methods for low voltage optical modulation | |
USA | |
17/923,554 | |
06-May-21 | |
12,292,626 | |
06-May-25 | |
**Government Regulation and Incentives**
*Export Regulation*
The Department of Commerce Bureau of Industry
and Security (BIS) issued regulations in September 2024 placing some controls and licensing requirements on the export of certain quantum
computing products and technology under the U.S. Export Administration Regulations. Exports of such products may require a license in
certain circumstances. We are reviewing these regulations but do not believe they will have a substantial adverse impact on the Company,
although the regulatory landscape continues to evolve. The U.S. government has also placed some export restrictions on certain other technologies
potentially relevant to the Companys products including cryogenic quantum computing equipment as well as some optical materials,
integrated circuits and related microelectronics. At this time, however, we do not expect there to be significant limitations on the Companys
products.
**Corporate Information**
****
Our executive offices are located at 5 Marine
View Plaza, Suite 214, Hoboken, NJ 07030, and our telephone number is (703) 436-2121. Our corporate website is www.quantumcomputinginc.com.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, and amendments to reports
filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) will be
made available free of charge on our website as soon as reasonably practicable after we electronically file these materials with, or furnish
it to, the SEC on their website located at www.sec.gov. The information contained on, or that can be accessed through, and the contents
of our website are not incorporated into this Annual Report on Form 10-K, and our reference to the URL for our website is intended to
be an inactive textual reference only.
****
**Human Capital**
As of December 31, 2025, the Company had 72 full-time
employees and 5 part-time contract staff, 55 of whom are focused on product development. Our employees are not part of a collective bargaining
agreement and we believe that our relationships with our employees and contract workers are good. The Company offers a health and welfare
benefit plan to current full-time employees that provides medical, dental, vision, life, and disability benefits. The Company also offers
a 401(k) retirement savings plan and participation in the stock option plan to all full-time employees. There are no unpaid liabilities
under the Companys benefit plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired
employees.
10
**ITEM 1A. RISK FACTORS.**
This Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary statements
made in this Annual Report on Form 10-K should be read as applicable to all forward-looking statements wherever they appear in this report.
Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Annual Report on Form 10-K.
**Risks Related to Our Financial Condition and
Status as an Early-Stage Company**
****
**We are in our early stages and have a limited
operating history, which makes it difficult to forecast the future results of our operations.**
****
QCi was formed in 2018 and merged with QPhoton
in June 2022. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limited,
inherently uncertain and subject to numerous factors outside our control, including our ability to plan for and model future growth. Our
ability to generate revenues will largely be dependent on our ability to develop and produce a suite of products based on quantum photonic
technologies, with steadily increasing capabilities. Our technical roadmap may not be realized as quickly as hoped, or even at all. As
a result, our historical results should not be considered indicative of our future performance. Further, in future periods, our growth
could slow or decline for a number of reasons, including but not limited to slowing demand for our quantum products and services, increased
competition, changes to technology, our inability to scale up our technology, a decrease in the growth of the market, or our failure,
for any reason, to continue to take advantage of growth opportunities.
We have also encountered, and will continue to
encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding
these risks and uncertainties and our future growth are incorrect or change, or if we do not address these risks successfully, our operating
and financial results could differ materially from our expectations, and our business could suffer. Our success as a business ultimately
relies upon fundamental research and development breakthroughs in the coming years. There is no certainty these research and development
milestones will be achieved as quickly as hoped, or even at all.
**We have a history of operating losses and
expect to incur significant expenses and continuing losses for the foreseeable future.**
****
We incurred net losses each year since 2018 and
we expect to continue to incur operating and net losses for the foreseeable future and may never achieve or sustain profitability, even
if we begin generating significant revenue from our products and services, which may never occur. Even with significant production, we
may never become profitable from the sale of our products and services.
We expect to incur significantly higher losses
in future periods as we continue to incur significant expenses in connection with the design, development and manufacturing of our quantum
computers and other products and services, and as we expand our research and development activities, invest in manufacturing capabilities,
build up inventories of components for our quantum computers and other products, increase our sales and marketing activities, develop
our infrastructure, and increase our general and administrative functions to support our growing operations. We may find that these efforts
are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses.
If we are unable to achieve and/or sustain profitability, or if we are unable to achieve the growth that we expect from these investments,
it could have a material adverse effect on our business, financial condition or results of operations. Our business model is unproven
and may never allow us to cover our costs.
11
**We have a history
of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve or sustain profitability
or continue operations as planned.**
We are an early-stage
company and we have not generated any material revenues to offset our operating expenses. We incurred negative cash flows from operating
activities and recurring net losses in fiscal years 2025, 2024 and 2023. As of December 31, 2025 and 2024, our accumulated deficit was
$219.2 million and $200.5 million, respectively. If we are unable to generate significant revenues in future periods, we will not be able
to achieve profitability, and even if we achieve profitability, we may be unable to maintain it. Beyond this, we may incur significant
losses in the future for a number of reasons including other risks described in this document, and we may encounter unforeseen expenses,
difficulties, complications, delays and other unknown events. Accordingly, we may not ever achieve profitability.
**We may not be able to scale our business
quickly enough to meet customer and market demand, which could adversely affect our financial condition and results of operations or cause
us to fail to execute on our business strategies.**
****
In order to grow our business, we will need to
continually evolve and scale our business and operations to meet customer and market demand. Quantum computing technology has never been
sold at large-scale commercial levels. Evolving and scaling our business and operations places increased demands on our management as
well as our financial and operational resources to:
|
| attract
new customers and grow our customer base; |
|
|
| maintain
and increase the rates at which existing customers use our platform, sell additional products and services to our existing customers,
and reduce customer churn; |
|
|
| invest
in our platform and product offerings; |
|
|
| effectively
manage organizational change; |
|
|
| accelerate
and/or refocus research and development activities; |
|
|
| expand
manufacturing and supply chain capacity; |
|
|
| increase
sales and marketing efforts; |
|
|
| broaden
customer support and services capabilities; |
|
|
| maintain
or increase operational efficiencies; |
|
|
| implement
appropriate operational and financial systems; and |
|
|
| establish
and maintain effective financial controls and procedures. |
|
Commercial adoption of quantum computing technology is uncertain and
may never occur. We have no experience in producing large quantities of our products and are currently constructing advanced generations
of our products. There are significant technological challenges associated with developing, producing, marketing and selling products
and services in the high-performance computing industry, including our products and services, and we may not be able to resolve all of
the difficulties that may arise in a timely or cost-effective manner, or at all. We may not be able to cost effectively manage production
at a scale or quality consistent with customer demand in a timely or economical manner.
Our ability to scale is dependent also upon components that we must
source from multiple countries, including China. Our supply chain could be adversely affected by geopolitical tensions, export controls,
trade restrictions, tariffs or other changes in U.S. or foreign government policies affecting cross-border commerce. Shortages or supply
interruptions in any of these components will adversely impact our ability to generate revenues. Recent tensions between the United States
and China have resulted in the U.S.s imposition of a series of tariffs and other restrictions on imports from China and sourcing
from certain Chinese persons or entities, as well as other business restrictions. Further, deterioration in the political relationship
between the U.S. and China may result in loss of access to suppliers of key components with little or no warning, which would adversely
affect our ability to develop and manufacture our products. We are actively searching for alternative suppliers outside of China, including
in the United States, but there is no assurance that we can locate comparable components at reasonable prices within the desired timeframes.
12
If we commence large-scale development of our
quantum computers and other products, they may contain defects in design and manufacture that may cause them to not perform as expected
or that may require repair and design changes. Our quantum computers are inherently complex and incorporate technology and components
that may not have been used for computing products and that may contain defects and errors, particularly when first introduced. We have
a limited frame of reference from which to evaluate the long-term performance of our computers. There can be no assurance that we will
be able to detect and fix any defects in our quantum computers in a timely manner that does not disrupt our services to our customers.
If our technology fails to perform as expected, customers may seek out a competitor or turn away from quantum computing entirely, each
of which could adversely affect our sales and brand and could adversely affect our business, prospects and results of operations. If defects
in our technology lead to erroneous outputs, third parties relying on those outputs may draw from them erroneous conclusions, creating
a risk that we will be liable to those third parties.
If we cannot evolve and scale our business and
operations effectively, we may not be able to execute our business strategies in a cost-effective manner and our business, financial condition,
profitability and results of operations could be adversely affected.
**Even if the market in which we compete achieves
its anticipated growth levels, our business could fail to grow at similar rates, if at all.**
****
Our business model depends on our ability to expand
and scale our operations and to increase our sales and support capability. Even if the market in which we compete meets the size estimates
and growth forecasted, our business could fail to grow at similar rates, if at all.
Our growth is dependent upon our ability to successfully
expand our products and services, retain customers, bring in new customers and retain critical talent. Unforeseen issues associated with
scaling up and constructing quantum computing technology at commercially viable levels could negatively affect our business, financial
condition and results of operations.
Our growth is dependent upon our ability to successfully
market and sell our quantum computers and quantum computing products and services. We do not have experience with the large-scale production
and sale of quantum computing technology. Our growth and long-term success will depend upon the development of our sales and production
capabilities.
Moreover, because of our advanced technology,
our customers will require particular support and service functions, some of which are not currently available and may never be available.
If we experience delays in adding such support capacity or servicing our customers efficiently, or experience unforeseen issues with the
reliability of our technology, we could overburden our servicing and support capabilities. Similarly, increasing the number of our products
and services would require us to rapidly increase the availability of these services. Failure to adequately support and service our customers
may inhibit our growth and ability to expand.
There is no assurance that we will be able to
ramp our business to meet our sales, manufacturing, installation, servicing and quantum computing targets, that expected growth levels
will prove accurate or that the pace of growth will continue at the current rate. Failure of QCi to grow at rates similar to that of the
broader quantum computing industry may adversely affect our operating results and ability to effectively compete within the industry.
13
**We may not manage growth effectively.**
****
Our failure to manage growth effectively could
harm our business, results of operations and financial condition. We anticipate that a period of significant expansion will be required
to address potential growth. This expansion will place a significant strain on our management, operational and financial resources. Expansion
will require significant cash investments and management resources and there is no guarantee that they will generate additional sales
of our products or services, or that we will be able to avoid cost overruns or be able to hire additional personnel to support us. In
addition, we will also need to ensure our compliance with regulatory requirements in various jurisdictions applicable to the sale, installation
and servicing of our products. To manage the growth of our operations and personnel, we must establish and maintain appropriate and scalable
operational and financial systems, procedures and controls and a qualified finance, administrative and operations staff. We may be unable
to acquire the necessary capabilities and personnel required to manage growth or to identify, manage and exploit potential strategic relationships
and market opportunities.
**We will require a significant amount of
cash for expenditures as we invest in ongoing research and development and business operations and may need additional capital sooner
than planned to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, and we cannot
be sure that additional financing will be available. If we are unable to raise additional funding when needed, we may be required to delay,
limit or substantially reduce our development efforts.**
****
Our business and future plans for expansion are
capital-intensive, and we will require additional capital for equipment and facilities for hardware manufacturing and optical chip fabrication.
The specific timing of cash inflows and outflows may fluctuate substantially from period to period. We will require a significant amount
of cash for expenditures as we invest in ongoing research and development and business operations. Our operating plan may change because
of factors currently unknown, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings
or other sources. Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend
and other rights more favorable than those of our common stock, imposition of debt covenants and repayment obligations or other restrictions
that may adversely affect our business. Any funds we raise may not be sufficient to enable us to continue to implement our long-term business
strategy. Further, our ability to raise additional capital may be adversely impacted by worsening global economic conditions and disruptions
to and volatility in the credit and financial markets in the United States and worldwide resulting from disruptions in access to bank
deposits or lending commitments due to bank failures, the ongoing war between Russia and Ukraine and the related sanctions imposed against
Russia, and the war between Israel and Hamas, the state of the military conflict between Israel and Hezbollah and the related risk of
a larger regional conflict. In addition, we may seek additional capital due to favorable market conditions or strategic considerations
even if we believe that we have sufficient funds for current or future operating plans.
We may be unable to obtain additional financing
on acceptable terms, or at all, and any such financing may be dilutive to existing stockholders. The inability to obtain financing when
needed may make it more difficult for us to operate our business or implement our growth plans and we may be required to delay, limit
or substantially reduce our quantum computing development efforts. Our ability to raise additional capital through the sale of securities
could be significantly impacted by the resale of our securities by holders of our securities, which could result in a significant decline
in the trading price of our securities and potentially hinder our ability to raise capital on terms that are acceptable to us or at all.
**Failure to identify errors in the quantitative
models we utilize to manage our business could adversely impact product performance and client relationships.**
****
We employ various quantitative models to manage
our business. Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business
and reputation.
****
**Our ability to use net operating loss carryforwards
and other tax attributes may be limited in connection with the QPhoton Merger or other ownership changes.**
****
We have incurred losses during our history, do
not expect to become profitable in the near future and may never achieve profitability. To the extent that we continue to generate taxable
losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire, if at all.
Under current law, U.S. federal net operating
loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility
of such net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income, or less.
It is uncertain if and to what extent various states will conform to the current law.
14
In addition, our net operating loss carryforwards
are subject to review and possible adjustment by the IRS, and state tax authorities. Under Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended (the Code), our federal net operating loss carryforwards and other tax attributes will become subject
to an annual limitation in the event of certain cumulative changes in the ownership of the Company. An ownership change
pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a companys
stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.
Similar rules apply under state tax laws. Our ability to utilize our federal net operating loss carryforwards and other tax attributes
to offset future taxable income or tax liabilities may be limited as a result of ownership changes, including potential changes in connection
with the QPhoton Merger, the acquisition of Luminar Semiconductor, Inc., or other transactions. Similar rules may apply under state tax
laws.
If we earn taxable income, such limitations could
result in increased future income tax liability and our future cash flows could be adversely affected. We have recorded a valuation allowance
related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the
future benefits of those assets.
**Risks Related to Our Business and Industry**
****
**We have not produced any of our products
at volume and we face significant barriers in our attempts to develop and manufacture our products, including the need to invent and develop
new technology. If we cannot successfully overcome those barriers, our business will be negatively impacted and could fail.**
****
Producing quantum computers, sensors and networks
is a difficult undertaking. There are significant manufacturing and engineering challenges that we must overcome. We face significant
challenges in completing development of our quantum computers and other products, and in producing quantum computers in sufficient volumes.
Even if we complete development and achieve volume production of our products, if the cost, accuracy, performance characteristics or other
specifications fall short of our expectations, our business, financial condition and results of operations would be adversely affected.
The performance capabilities of our products will
depend on the development and production of TFLN Optical Chips to achieve scale, performance and cost. There is significant development
and intellectual property risk in the specification, design and development of TFLN Optical Chips and our plans could be impacted by lack
of funding, competition or even unknown core technology factors intrinsic to the work. This would limit the ability of QCi to scale its
growth to expected levels over the longer term and the Company could lose momentum.
****
**We may be unable
to reduce the production cost sufficiently, which may prevent us from pricing our quantum systems competitively.**
Our revenue projections are dependent on the cost
per manufactured system decreasing over the next several years as our quantum computers advance. These cost projections are based on economies
of scale due to demand for our products and services, technological innovation and negotiations with third-party parts suppliers. If these
cost savings do not materialize, the production cost may be higher than projected, making our quantum computing products and services
less competitive than those offered by our competitors, which could have a material adverse effect on our business, financial condition
or results of operations.
**If our products and services fail to deliver
customer value to a broader range of customers than classical approaches, our business, financial condition and future prospects may be
harmed.**
Quantum advantage
refers to the moment when a quantum computer can compute faster than existing classical computers, while quantum supremacy is achieved
once quantum computers are powerful enough to complete calculations that traditional supercomputers cannot perform at all. Broad quantum
advantage is when quantum advantage is seen in many applications and developers prefer quantum computers to a traditional computer. No
current quantum computers have reached a broad quantum advantage and they may never reach such advantage. While achieving a broad quantum
advantage will be critical to the success of any quantum computing company, including us, it would not necessarily lead to commercial
viability of the technology that accomplished such advantage, nor would it mean that such system could outperform classical computers
in tasks other than the one used to determine a quantum advantage. As quantum computing technology continues to mature, broad quantum
advantage, and quantum supremacy, may take years or decades to be realized, if it ever is. If we cannot develop quantum computers that
have quantum advantage, customers may not continue to purchase our products and services. If other companies quantum computers
reach a broad quantum advantage prior to the time we reach such capabilities, it could lead to a loss of customers and the inability to
secure new customers. If any of these events occur, it could have a material adverse effect on our business, prospects, financial condition
or results of operations.
****
15
****
**The quantum computing industry is competitive
and we may not be successful in competing in this industry or establishing and maintaining confidence in our long-term business prospects
among current and future partners and customers.**
****
Since the QPhoton Merger, our business strategy
has broadened to include the manufacture of several lines of hardware in addition to the underlying software. As a result, we now operate
in markets that are rapidly evolving and highly competitive. We expect competition to intensify as the marketplace continues to mature
and new technologies and competitors enter. Our current competitors include:
|
| large,
well-established technology companies that generally compete across our products, including IBM, Quantinuum, Google, Microsoft and Amazon; |
|
|
| large
research organizations funded by sovereign nations such as China, Russia, Canada, Australia and the United Kingdom, and those in the
European Union; additional countries may decide to fund quantum computing programs in the future; |
|
|
| less-established
public and private companies with competing technology, including IonQ, Rigetti Computing, PsiQuantum, Infleqtion, Xanadu and D-Wave
Quantum, and companies located outside the United States; and |
|
|
|
|
new or emerging entrants seeking to develop competing technologies. | |
We compete based on various factors, including
technology, price, performance, multi-cloud availability, brand recognition and reputation, customer support and differentiated capabilities,
including ease of administration and use, scalability and reliability, data governance and security. Many of our competitors have substantially
greater brand recognition, customer relationships, and financial, technical and other resources than we do, including an experienced sales
force and sophisticated supply chain management. They may be able to respond more effectively than us to new or changing opportunities,
technologies, standards, customer requirements and buying practices. In addition, many countries are focused on developing quantum computing
solutions either in the private or public sector and may subsidize quantum computers, which may make it difficult for us to compete. Many
of these competitors do not face the same challenges we do in growing our business. In addition, other competitors might be able to compete
with us by bundling their other products in a way that does not allow us to offer a competitive solution.
Further, the industry might recognize the intrinsic
advantages of optical integrated circuits in information processing applications and our competitors could shift to a more direct competitive
approach using similar technologies, even with strong intellectual property protection.
Additionally, we must be able to achieve our objectives
in a timely manner such that we dont lose ground to competitors, including competing technologies. Because there are a large number
of market participants, including certain sovereign nations, focused on developing quantum computing technology, we must dedicate significant
resources to achieving any technical objectives on the timelines established by our management team. Any failure to achieve objectives
in a timely manner could adversely affect our business, operating results and financial condition.
For all of these reasons, competition may negatively
impact our ability to maintain and grow consumption of our platform or put downward pressure on our prices and gross margins, any of which
could materially harm our reputation, business, results of operations, and financial condition.
16
**We rely on access to high-performance third-party
classical computing through public clouds and high-performance computing centers to deliver quantum products and services to customers.
We may not be able to maintain connectivity with these resources, which could make it harder for us to reach customers or deliver products
and services in a cost-effective manner.**
Our products and services may from time to time
incorporate high-performance classical computing through public clouds to provide services to end users and our partners. These public
cloud services are predominantly on Amazon Web Services at the present time.
Any material change in our contractual and other
business relationships with Amazon Web Services or other cloud providers could result in reduced use of our products and services, increased
expenses, including service credit obligations, and harm our brand and reputation, any of which could have a material adverse effect on
our business, financial condition and results of operations.
Further, if our contractual and other business
relationships with our partners are terminated or suspended, either by our partner or by us, or suffer a material change to which we are
unable to adapt, such as the elimination of services or features on which we depend, we would be unable to provide our quantum computing
products and services business at the same scale and would experience significant delays and incur additional expense in transitioning
customers to a different public cloud provider.
**We depend on certain suppliers to source
products. Failure to maintain our relationship with any of these suppliers, or a failure to replace any of these suppliers, could have
a material adverse effect on our business, financial position, results of operations and cash flows.**
****
We buy our products and supplies from companies
that manufacture and source products from the United States and abroad. Our ability to develop and maintain relationships with qualified
suppliers who can satisfy our standards for quality and delivery in a timely and efficient manner is a significant challenge. Any failure
to maintain our relationship with any of our key suppliers, or a failure to replace any such supplier that is lost, could have a material
adverse effect on our business, financial position, results of operations and cash flows.
We may be required to replace a supplier if their
products do not meet our quality or safety standards, or if the United States government imposes restrictions on trade with certain countries,
such as China. In addition, our suppliers could discontinue selling products at any time for reasons that may or may not be in our control
or the suppliers control, including shortages of raw materials, environmental and social supply chain issues, public health emergencies,
labor disputes or weather conditions. Disruptions in transportation lines or geopolitical conditions including the ongoing war between
Russia and Ukraine, the war between Israel and Hamas, the state of the military conflict between Israel and Hezbollah or an invasion of
Taiwan by China, may also cause global supply chain issues that affect us or our suppliers. While we generally have multiple sources of
supply, we do rely on a single supplier for materials in some cases. The loss of, or substantial decrease in the availability of, products
from our suppliers, or the loss of a key supplier, temporarily or permanently, could result in a material shortage of products, which
could lead to price escalations that we may be unable to offset by our prices to our customers. When supply chain issues are later resolved
and prices return to normal levels, we may be required to reduce the prices at which we sell our products to our customers in order to
remain competitive. In addition, even where these risks do not materialize, we may incur costs as we prepare contingency plans to address
such risks. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier who is unwilling or
unable to satisfy our requirements with a supplier providing similar products. In addition, our suppliers ability to deliver products
may also be affected by raw material and commodity cost volatility or financing constraints caused by credit market conditions, which
could materially and negatively impact our net sales and operating costs, at least until alternate sources of supply are arranged. Any
delay or unavailability of key products required for our development activities in a timely or cost-effective manner could delay or prevent
us from further developing our products and services on our expected timelines or at all and could materially harm our business.
**Acquisitions or divestitures could result
in adverse impacts on our operations.**
In order to grow our business, we may acquire
additional assets or companies. For example, we acquired Luminar in February 2026. In connection with these acquisitions or any future
acquisitions, there can be no assurance that we will be able to identify, acquire or obtain the required regulatory approvals, or profitably
manage the additional businesses or successfully integrate any acquired businesses, products, or technologies without substantial expenses,
delays or other operational, regulatory or financial problems. In addition, any acquired businesses, products or technologies may not
achieve anticipated revenues and income growth.
17
Further, acquisitions may involve a number of
additional risks, including diversion of managements attention, failure to retain key personnel, or failure to attract the necessary
talent to manage organizational growth. We may become responsible for unexpected liabilities that were not discovered or disclosed in
the course of due diligence in connection with historical acquisitions and any future acquisitions. Additionally, acquisitions with international
operations expose us to greater international business risks. If we do not realize the expected benefits or synergies of an acquisition,
such as revenue gains or cost reductions, there could be a material adverse effect on our business, results of operations, and financial
condition.
We may also seek to divest portions of our businesses
which may no longer be aligned with our strategic initiatives and long-term objectives. Various factors could materially affect our ability
to successfully do so, including the availability of buyers willing to purchase the assets on terms acceptable to us, difficulties in
the separation of operations, the diversion of managements attention from other business concerns, the disruption of our business,
the potential loss of key employees, and the retention of uncertain contingent liabilities related to the divested business. We cannot
assure that we will be successful in managing these or any other significant risks that we encounter in divesting a business or product
line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations
and cash flows.
**TFLN Optical Chips manufacturers, suppliers and distributors are concentrated
primarily in China and other parts of East Asia, which is an area that is or may be subject to geopolitical uncertainty, trade disputes
and restrictions, environmental disasters, and other risks. Any disruption to the operations of these manufacturers or distributors could
cause significant delays in the production or shipment of our products and impact our financial condition.**
Our success also depends in part on the manufacturing
of TFLN Optical Chips for which we may rely, at least in part, on third-party manufacturers and suppliers. Unforeseen disruption of the
manufacture of TFLN Optical Chips could be caused by a number of events, including a maintenance outage, systems outage or other disruption,
power or equipment failure, fires, floods, earthquakes or other natural disasters, social unrest or terrorist activity, work stoppages,
public health concerns (including pandemics), regulatory measures, or other operational problems. Any disruption in the manufacture of
TFLN Optical Chips resulting from such events could cause significant delays in the development and production of our products.
In addition, we may depend on third-party TFLN
Optical Chips and wafer manufacturing partners or distributors who may be affected by changes in governmental policies, taxation, rising
inflation or interest rates, social instability, geopolitical conflicts and tensions, and diplomatic and social developments which are
outside of our control.
Furthermore, our industry generally relies on
a limited number of TFLN Optical Chips and wafer manufacturers whose operations tend to be concentrated in China and other parts of East
Asia, which makes us especially susceptible to adverse developments in these regions economic and political conditions, particularly
to the extent that such developments create an unfavorable business environment that significantly affects our operations. Our supply
chain could be adversely affected by geopolitical tensions, trade restrictions, export controls, tariffs or changs in United States or
foreign government policies affecting cross-border commerce. Although the governments of certain countries, including the United States,
have taken actions to make their countries more attractive for chip manufacturing operations, there can be no assurances that the current
geographic concentration of chip manufacturing will be meaningfully changed in the near term or at all.
If any of these events, or other macroeconomic trends, should cause
a prolonged disruption of operations that impact our third-party TFLN Optical Chips and wafer manufacturing partners, they may experience
operational downtimes or have to operate at reduced capacities, which could have a material adverse effect on our business, financial
condition, and results of operations.
****
**In order to compete, we must attract, retain
and motivate key associates, and the failure to do so could have an adverse effect on our business, financial condition and results of
operations.**
We depend on our executive officers and management
team to run our business. As we develop new business models and new ways of working, we will need to develop suitable skill sets within
our organization. In addition, our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified
and skilled employees that have highly technical set of skills. The current market for such positions is highly competitive. Qualified
individuals are in high demand and we may incur significant costs to attract and retain them. Moreover, the loss of any of our senior
management or other key employees or our inability to recruit and develop capable managers could adversely affect our ability to execute
our business plan and we may be unable to find adequate replacements.
**Even if we are successful in developing
our products and executing our strategy, competitors in the industry may achieve technological breakthroughs that render our quantum computing
systems obsolete or inferior to other products.**
****
Our continued growth and success depend on our
ability to innovate and develop quantum computing technology in a timely manner and effectively market these products. Without timely
innovation and development, our quantum computing products and services could be rendered obsolete or less competitive by changing customer
preferences or because of the introduction of a competitors newer technologies. We believe that many competing technologies will
require a technological breakthrough in one or more problems related to science, fundamental physics or manufacturing. While it is uncertain
whether such technological breakthroughs will occur in the next several years, that does not preclude the possibility that such technological
breakthroughs could eventually occur. Any technological breakthroughs that render our technology obsolete or inferior to other products
could have a material adverse effect on our business, financial condition or results of operations.
18
**The quantum computing industry is in its
early stages and volatile, and if it does not develop, if it develops slower than we anticipate, if it encounters negative publicity or
if our quantum computing products and services do not achieve commercial adoption, the growth of our business will be harmed.**
****
The nascent market for quantum computers is still
rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation
and industry standards, and changing customer demands and behaviors. Our success will depend to a substantial extent on the willingness
of our potential customers to use, and increase their utilization of, our products and services, as well as on our ability to demonstrate
the value of quantum computing to their respective organization, government agencies, and other purchasers of quantum computing offerings.
Negative publicity concerning our products and services or the quantum computing industry as a whole could limit market acceptance of
our offerings. If our clients and partners do not perceive the benefits of our products and services, or if they do not drive customer
engagement, then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual and industry concerns
or negative publicity regarding technophobic views in the context of quantum computing could limit market acceptance of our quantum computing
products and services. If any of these events occur, our business, prospects, financial condition and operating results could be harmed.
In addition, our growth and future demand for
our products is highly dependent upon the adoption by developers and customers of quantum computers, as well as on our ability to demonstrate
the value of quantum computing to our customers. Delays in future generations of our quantum computers or technical failures at other
quantum computing companies could limit acceptance of our products and services. Negative publicity concerning our products and services
or the quantum computing industry as a whole could limit acceptance of our products and services. While we believe that quantum computing
will solve many large-scale problems, it is possible that such problems may never be solvable by quantum computing technology. If our
customers and partners do not see the benefits of our products and services, or if our products and services do not drive commercial sales,
then demand for our products and services may not develop at all, or it may develop slower than we expect. If any of these events occur,
it could have a material adverse effect on our business, financial condition and results of operations.
**We have experienced in the past and could
also suffer future disruptions, outages, defects and other performance and quality problems with our quantum computing products and services,
our production technology partners or with the public cloud, data centers and internet infrastructure on which we rely.**
****
Our business depends on our quantum computing
systems being available through the cloud with a high level of reliability. We have experienced, and may in the future further experience,
disruptions, outages, defects and other performance and quality problems with our systems. We have also experienced, and may in the future
experience, disruptions, outages, defects and other performance and quality problems with the public cloud and internet infrastructure
on which our systems rely. These problems can be caused by a variety of factors, including failed introductions of new functionality,
vulnerabilities and defects in proprietary and open- source software, hardware components, human error or misconduct, capacity constraints,
design limitations, denial of service attacks or other security-related incidents, foreign objects or debris, weather, construction, supply
chain events, or accidents and other force majeure. We do not have a contractual right with our public cloud providers that compensates
us for any losses due to availability interruptions in the public cloud.
Any disruptions, outages, defects and other performance
and quality problems with our quantum computing system or with the public cloud, internet, and other infrastructure on which they rely
could result in reduced use of our systems, increased expenses, including service credit obligations, and harm to our brand and reputation,
any of which could have a material adverse effect on our business, financial condition and results of operations.
**Our future growth and success depend on
our ability to sell effectively to government entities and large enterprises.**
****
Our potential customers are likely to include
government agencies and large commercial enterprises. Therefore, our future success will depend on our ability to effectively sell our
products to such customers. Sales to these end-customers involve risks that may not be present (or that are present to a lesser extent)
with sales to non-governmental agencies or smaller customers. These risks include, but are not limited to, (i) increased purchasing power
and leverage held by such customers in negotiating contractual arrangements with us and (ii) longer sales cycles and the associated risk
that substantial time and resources may be spent on a potential end-customer that elects not to purchase our solutions. In addition, government
contracts generally include the ability of government agencies to terminate early which, if exercised, would result in a lower contract
value and lower than anticipated revenues. Such government contracts also may limit our ability to do business with foreign governments
or prevent us from selling our products in certain countries.
19
Government agencies and large organizations often
undertake a significant evaluation process that results in a lengthy sales cycle. Our contracts with government agencies are typically
structured in phases, with each phase subject to satisfaction of certain conditions. As a result, the actual scope of work performed pursuant
to any such contracts, in addition to related contract revenue, could be less than total contract value. In addition, product purchases
by such organizations are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and
other delays. Finally, these organizations typically have longer implementation cycles, require greater product functionality and scalability,
require a broader range of services, demand that vendors take on a larger share of risks, require acceptance provisions that can lead
to a delay in revenue recognition and expect greater payment flexibility. All of these factors can add further risk to business conducted
with these potential customers and could lead to lower revenue results than originally anticipated.
Additionally, changes in government spending could
negatively impact us. Our anticipated future revenues from the U.S. government are expected to result from contracts awarded under various
U.S. government programs. Cost cutting, including through consolidation and elimination of duplicative organizations, has become a major
initiative for within the U.S. government. Significant reduction in U.S. government spending could have adverse consequences on our prospects,
financial position, results of operations and business.
**Our quantum computing systems may not be
compatible with some or all industry-standard software and hardware in the future, which could harm our business.**
****
Since the QPhoton Merger, we have been focusing
more of our efforts on creating quantum computing hardware, in addition to refining the software development platform to access our hardware,
and application programing interfaces to access our systems. The industry is rapidly evolving, and customers have many choices for programming
languages, some of which may not be compatible with our own application programming interfaces. Our quantum computing development platform
is designed to be compatible with most major software languages. If a proprietary (not open source) software toolset became the standard
for quantum application development in the future by a competitor, however, usage of our hardware might be limited, which would have a
negative impact on the Company. Similarly, if a piece of hardware that we could not integrate with became a necessary component for quantum
computing (for instance, quantum networking), the result might have a negative impact on the Company.
**Cybersecurity risks and the failure to maintain
the integrity of data belonging to the Company could expose us to data loss, litigation and liability, and our reputation could be significantly
harmed.**
We may from time to time collect and retain large
volumes of data relating to our business and from our customers for business purposes, including for transactional and promotional purposes,
and our various information technology systems enter, process, summarize and report such data. The integrity and protection of this data
is critical to our business. Maintaining compliance with the evolving regulations and requirements applicable to data security and information
privacy protection could be difficult and may increase our expenses. In addition, a penetrated or compromised data system or the intentional,
inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent or unlawful use of data relating to our
company or our employees, independent distributors or preferred customers, which could harm our reputation, disrupt our operations, or
result in remedial and other costs, fines or lawsuits.
Remote work has become
more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections,
computers and devices outside our premises or network, including working at home, while in transit and in public locations. In addition,
future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities,
as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities systems and technologies.
Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it
may be difficult to integrate companies into our information technology environment and security program.
****
**Computer malware, viruses, hacking, phishing
attacks and spamming could harm our business and results of operations.**
Computer malware, viruses, physical or electronic
break-ins and similar disruptions could lead to interruption and delays in our services and operations and loss, misuse or theft of data.
Computer malware, viruses, computer hacking and phishing attacks against business networks have become more prevalent and may occur on
our systems in the future.
20
Any attempts by hackers to disrupt our internal
systems, if successful, could harm our business, be expensive to remedy and damage our reputation or brand. We could incur significant
expenses and losses related to direct attacks on our website or internal systems. Efforts to prevent hackers from entering our computer
systems are expensive to implement and may limit the functionality of our services. Though it is difficult to determine what, if any,
harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability
of our products and services and technical infrastructure may harm our reputation, brand and our ability to attract customers. Any significant
disruption to our website or internal computer systems could result in a loss of customers and could adversely affect our business and
results of operations.
We have previously experienced, and may in the
future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes,
third-party service providers, human or software errors and capacity constraints. If our software application is unavailable when customers
attempt to access it or it does not load as quickly as they expect, customers may seek other services.
Our quantum computer products rely on software
that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in
our software code may only be discovered after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our code
after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or difficultly
maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage to our reputation
or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial results.
We expect to continue to make significant investments
to maintain and improve the availability of our cloud- based products and services and to enable rapid releases of new features and products.
To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology
and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
****
**Unfavorable conditions in our industry or
the global economy could limit our ability to grow our business and negatively affect our results of operations.**
****
Our results of operations may vary based on the
impact of changes in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general
economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial
and credit market fluctuations, inflation, international trade relations, tariffs, public health emergencies (such as the recent COVID-19
pandemic), political turmoil, natural catastrophes, warfare, and terrorist attacks on the United States or elsewhere, could cause a decrease
in business investments, including the progress on development of quantum technologies, and negatively affect the growth of our business.
In addition, in challenging economic times, our current or potential future customers may experience cash flow problems and as a result
may modify, delay or cancel plans to purchase our products and services. Additionally, if our customers are not successful in generating
sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, amounts they owe. Moreover,
our key suppliers may reduce their output or become insolvent, thereby adversely affecting our ability to continue our research and development
activities or manufacture our products.
Furthermore, uncertain economic conditions may
make it more difficult for us to raise funds through borrowings or sales of debt or equity securities. We cannot predict the timing, location,
strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.
21
**Government actions and regulations, such
as tariffs and trade protection measures, especially in China and the United States, may adversely impact our business, including our
ability to obtain products from our suppliers**
Government actions and regulations, such as tariffs
and trade protection measures, may limit our ability to obtain products from our suppliers or sell our products and services to customers.
Political challenges between the United States and countries in which our suppliers are located and changes to trade policies, including
tariff rates and customs duties, trade relations between the United States and those countries and other macroeconomic issues could adversely
impact our business. During the last few years, including under the new Presidential administration, the United States has imposed tariffs
on certain products imported into the United States from China and some other countries, and China and some other countries have imposed
tariffs on U.S. imports in response. The U.S. government continues to add additional entities, in China and elsewhere, to restricted party
lists affecting the ability of U.S. companies to provide products and technology and, in certain cases, services, to these entities and,
in some cases, to receive products, technology or services from these entities. The U.S. government also continues to increase end-use
restrictions on the provision of products, technology and services to China and other countries including end-uses related to advanced
computing. The new U.S. presidential administration has signaled its intention to use U.S. trade policy, including tariffs and other trade
restrictions, as an important foreign policy tool presenting uncertainty regarding the impact of future trade policies on our business.
As such, there is also a possibility of future tariffs, trade protection measures or other restrictions imposed on our products or on
our customers by the United States, China or other countries that could have a material adverse effect on our business. Our technology
could be deemed a matter of national security and, as such, our customer base could be tightly restricted. We also may accept government
grants that place restrictions on the business ability to operate. Any such actions could impact our business operations and have
a material adverse effect on our business prospectus, financial condition and results of operations.
In addition, the Chinese
government exercises significant control over Chinas economy through the allocation of resources, control of the incurrence and
payment of foreign currency-denominated obligations, setting of monetary policy and provision of preferential treatment to particular
industries or companies. Changes in any of these policies, laws and regulations could adversely affect the overall economy in China or
our Chinese suppliers, which could harm our business through higher supply costs, reduced availability or both.
Also, due to concerns
with the security of products and services from certain telecommunications equipment and services companies based in China, U.S. Congress
has enacted bans on the use of certain Chinese-origin components or systems either in items sold to the U.S. government or in the internal
networks of government contractors and subcontractors (even if those networks are not used for government-related projects). Further,
the Chinese government has responded to these U.S. actions by developing an unreliable entity list, which may limit the ability of companies
on the list to engage in business with Chinese counterparties.
In June 2022, the import
restrictions contained in the Uyghur Forced Labor Prevention Act (UFLPA) became effective. The UFLPA creates a rebuttable
presumption that any goods mined, produced or manufactured, wholly or in part, in the Xinjiang Uyghur Autonomous Region (XUAR)
of China, or produced by a listed entity, were made with forced labor and would therefore not be entitled to entry at any U.S. port. Importers
may be required to present clear and convincing evidence that such goods are not made with forced labor. While we do not source items
from the XUAR or from listed parties, and we have increased our supply chain diligence, there is risk that our ability to import components
and products may be adversely affected by the UFLPA.
Given the relatively
fluid regulatory environment in China and the United States and uncertainty regarding how the U.S. government or Chinese and other foreign
governments will act with respect to tariffs and international trade agreements and policies, a trade war, further governmental action
related to tariffs or international trade policies, or additional tax or other regulatory changes in the future could directly and adversely
impact our financial results and results of operations. We cannot predict what actions may ultimately be taken with respect to trade relations
between the United States and China or other countries, what products may be subject to such actions or what actions may be taken by the
other countries in retaliation. If we are unable to obtain or use components for inclusion in our products, if component prices increase
significantly or if we are unable to export or sell our products to any of our customers, our business, liquidity, financial condition
and/or results of operations would be materially and adversely affected.
22
**We may become subject to legal proceedings
that could have a material adverse impact on our financial position and results of operations.**
From time to time and in the ordinary course of
our business, we and certain of our subsidiaries may become involved in various legal proceedings. All such legal proceedings are inherently
unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming and disruptive to our operations
and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts, injunctive relief or
other equitable relief that may affect how we operate our business. Similarly, if we settle such legal proceedings, it may affect how
we operate our business. Future court decisions, alternative dispute resolution awards, business expansion or legislative activity may
increase our exposure to litigation and regulatory investigations. In some cases, substantial noneconomic remedies or punitive damages
may be sought. Although we maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular
verdict, judgment or settlement that may be entered against us, that such coverage will prove to be adequate or that such coverage will
continue to remain available on acceptable terms, if at all. If we incur liability that exceeds our insurance coverage or that is not
within the scope of the coverage in legal proceedings brought against us, it could have an adverse effect on our business, financial condition
and results of operations.
****
**We intend to continue exploring strategic
business acquisitions and other business combinations and transactions, which are subject to inherent risks.**
In order to expand our products and services and
grow our market and client base, we may continue to seek and complete strategic business acquisitions and other combinations, investments,
or partnerships that we believe are complementary to our business. For example, in February 2026, we acquired Luminar. The identification
of suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our
management team from our current operations. The completion of such transactions also have inherent risks that may have a material adverse
effect on our business, financial condition, operating results or prospects, including, but not limited to: (i) failure to successfully
integrate the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to
maintain uniform standard controls, policies and procedures; (ii) diversion of managements attention from other business concerns;
(iii) entry into markets in which we have little or no direct prior experience; (iv)) failure to achieve projected synergies and performance
targets; (v) loss of clients or key personnel; (vi) incurrence of debt or assumption of known and unknown liabilities; (vii)) write-off
of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; (viii) dilutive issuances
of equity securities; and (ix) accounting deficiencies that could arise in connection with, or as a result of, such transactions, including
issues related to internal control over financial reporting and the time and cost associated with remedying such deficiencies. Even if
we successfully complete a strategic transaction, we may not be able to effectively integrate the acquired business, technology, systems,
control environment, solutions, personnel or operations into our business or not be able to achieve projected results or support the amount
of consideration paid for such acquired businesses or invested in such transactions. In addition, we may incur unexpected costs, claims
or liabilities during the strategic transaction or that we assume from the acquired company, or we may discover adverse conditions post-
acquisition for which we have limited or no recourse, and we may not achieve the anticipated benefits of any strategic transaction.
****
**We have identified material weaknesses
in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain
an effective system of internal control, which may result in material misstatements of our financial statements or cause us to fail to
meet our periodic reporting obligations.**
****
We have identified material weaknesses in
our internal controls over financial reporting as of December 31, 2024 and 2023. 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 our annual or interim financial statements will not be prevented or detected on a timely basis. Please see
Item 9A. Controls and Procedures included elsewhere in this Annual Report for more information about identified material
weaknesses.
23
We
are in the process of designing and implementing measures to improve our internal controls over financial reporting to remediate the
material weaknesses described in Item 9A. Controls and Procedures, primarily by implementing additional review procedures within our
accounting and finance department, hiring additional personnel within the Companys accounting and finance function, designing
and implementing information technology and application controls in our financially significant systems, providing internal resources
with enhanced access to accounting literature and research materials, engaging additional external accounting experts to supplement our
internal resources and increasing communication with third-party professionals with whom we consult regarding the application of accounting
standards on complex transactions and instruments.
While we are designing
and implementing measures to remediate the material weaknesses, we cannot predict the success of such measures or the outcome of our assessment
of these measures at this time. We can give no assurance that these measures will remediate the weaknesses in internal control or that
additional material weaknesses or significant deficiencies in our internal controls over financial reporting will not be identified in
the future. Our failure to implement and maintain effective internal controls over financial reporting could result in errors in our financial
statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations. Further,
any failure to implement and maintain effective internal controls over financial reporting, information technology and management processes
could adversely affect our financial results and the assessments by our independent registered public accounting firm and their attestation
reports, if applicable. Additionally, Astra may not be able to complete our evaluation, testing and any required remediation in a timely
fashion. Finally, our current controls and any new controls that we develop may become inadequate because of poor design and changes in
our business, including increased complexity resulting from any international expansion.
To comply with the requirements
of being a public company, we are undertaking various actions and expect to need to undertake additional actions, such as implementing
new internal controls and procedures and hiring additional accounting or internal audit staff. Failure to comply with the Sarbanes-Oxley
Act could potentially subject us to sanctions or investigations by the SEC, the Nasdaq Stock Market LLC (Nasdaq) or other
regulatory authorities, which would require additional financial and management resources.
If we are unable to certify
the effectiveness of our internal controls, or if our internal controls have material weaknesses, we may not detect errors in a timely
manner, our financial statements could be misstated, we could be subject to regulatory scrutiny and a loss of confidence by stakeholders,
which could harm our business, financial condition and results of operations and adversely affect the market price of our securities.
We may also face litigation as a result of the material weaknesses in our internal control over financial reporting. Any such litigation,
whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.
****
**Unstable market and economic conditions
may have serious adverse consequences on our business, financial condition and share price.**
****
From time to time the global economy, including
credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, inflation rates higher than historical norms, higher interest rates, bank
failures and uncertainty about economic stability. Any volatility or disruptions in market and economic conditions may have adverse consequences
on us or the third parties on whom we rely. If the equity and credit markets were to deteriorate, including as a result of political unrest
or war, it may make any necessary financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.
While inflation rates have during the last 18 months or so have been more in line with historical levels, the higher than anticipated
inflation rates experienced in the wake of the COVID-19 pandemic did, and any similar higher than normal and/or unexpectedly high inflation
rates in the future, may adversely affect us by increasing our costs, including labor and employee benefit costs, and costs for equipment
and system components associated with system development. In addition, higher inflation could also increase our customers operating
costs, which could result in reduced budgets for our customers and potentially less demand for our products and services. Any significant
increases in inflation and related increase in interest rates could have a material adverse effect on our business, results of operations
and financial condition. Further, subsequent decreases in inflation and interest rates may not result in a reduction of costs.
24
**We are subject to governmental export and
import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability
if we are not in compliance with applicable laws.**
****
Our products, technology and services are subject
to U.S. export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations,
and various economic and trade sanctions regulations administered by the U.S. Treasury Departments Office of Foreign Assets Control.
U.S. export control and economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products, technologies,
and services to U.S. Government embargoed or sanctioned countries, governments, persons and entities. In addition, certain products and
technology may be subject to export licensing or approval requirements. Exports of our products and technology must be made in compliance
with export control and sanctions laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees
could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines that may
be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers.
In addition, various countries regulate the import
of certain encryption technology, including through import permit and license requirements and have enacted laws that could limit our
ability to distribute our products and technologies or could limit our end customers ability to implement our services in those
countries. Changes in our products or technologies or changes in applicable export or import laws and regulations also may create delays
in the introduction and sale of our products and technologies in international markets or, in some cases, prevent the export or import
of our products and technologies to certain countries, governments or persons altogether. Any change in export or import laws and regulations,
shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies targeted
by such laws and regulations could also result in decreased use of our products and services or in our decreased ability to export or
sell our products and services to existing or potential customers. Any decreased use of our products and services or limitation on our
ability to export or sell our products and services would likely adversely affect our business, financial condition and results of operations.
We expect to incur significant costs in complying
with these regulations. Regulations related to quantum computing are currently evolving and we face risks associated with changes to these
regulations.
**We may become subject to product liability
claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.**
****
We may become subject to product liability claims,
even those without merit, which could harm our business prospects, operating results, and financial condition. We may face inherent risk
of exposure to claims in the event that our products do not perform as expected or malfunction. A successful product liability claim against
us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity
about our quantum computers and business and inhibit or prevent commercialization of other future quantum computers, which would have
material adverse effects on our brand, business, prospects and operating results. Any insurance coverage might not be sufficient to cover
all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside
of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure
additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we
do face liability for our products and are forced to make a claim under our policy.
25
**Risks Related to Intellectual Property**
****
**Any failure to obtain, maintain and protect
our intellectual property rights could impair our ability to protect and commercialize our proprietary products and technology and cause
us to lose our competitive advantage.**
Our success depends, in significant part, on our
ability to obtain, maintain, enforce and defend our intellectual property rights, including patents and trade secrets. We rely upon a
combination of the intellectual property protections afforded by patent, copyright, trademark and trade secret laws in the United States
and other jurisdictions, as well as license agreements and other contractual protections, to establish, maintain and enforce rights in
our proprietary technologies. In addition, we seek to protect our intellectual property rights through nondisclosure and invention assignment
agreements with our employees and consultants and through non-disclosure agreements with business partners and other third parties.
However, we may not be able to prevent unauthorized
use of our intellectual property. Our trade secrets may also be compromised, which could cause us to lose our competitive advantage. Third
parties may attempt to copy or otherwise obtain, use or infringe our intellectual property.
Monitoring and detecting unauthorized use of our
intellectual property is difficult and costly, and the steps we have taken or take in the future to prevent infringement or misappropriation
may not be sufficient. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert
managements attention, which could harm our business, results of operations, and financial condition. In addition, existing intellectual
property laws and contractual remedies may afford less protection than needed to safeguard our intellectual property portfolio, and third
parties may develop competitive offerings in a manner that leaves us with limited means to enforce our intellectual property rights against
them.
Patent, copyright, trademark and trade secret
laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property rights to the same extent
as do the laws of the United States. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of
the United States and efforts to protect against the unauthorized use of our intellectual property rights, technology and other proprietary
rights may be more expensive and difficult outside of the United States.
Failure to adequately protect our intellectual
property rights could result in our competitors using our intellectual property to offer products, potentially resulting in the loss of
some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, financial condition and operating
results.
**Our inability to secure patent protection
or enforce our patent rights could have a material adverse effect on our ability to prevent others from commercializing similar products
or technology.**
****
The application and registration of patents involves
complex legal and factual questions. As a result, we cannot be certain that the patent applications that we file will result in patents
being issued or that our patents (including licensed patents) and any future patents that do issue will afford protection against competitors
with similar technology. Numerous patents and pending patent applications owned by others exist in the fields in which we have developed
and are developing our products and services, and this may make it difficult for us to obtain certain patent coverage on our own. Any
of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable. Furthermore,
patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States,
and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued.
Even if our patent applications succeed, it is
still uncertain whether these patents (or any of the issued patents exclusively licensed to us) will be contested, circumvented, invalidated,
found to be unenforceable or limited in scope in the future. The rights granted under any issued patents may not provide us with meaningful
protection or competitive advantages. The intellectual property rights of others could bar us from licensing and exploiting any patents
that issue from our pending applications, and the claims under any patents that issue from our patent applications may not be broad enough
to prevent others from developing technologies that are similar or that achieve results similar to ours. In addition, patents issued to
us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of
which would increase costs and may adversely affect our business, prospects, financial condition and operating results.
26
**We may face patent infringement and other
intellectual property claims that could be costly to defend, result in injunctions and significant damage awards, or limit our ability
to use certain key technologies in the future, all of which could harm our business.**
****
Our success depends, in part, on our ability to
develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property
rights of third parties. However, we may not be aware that our products, services or technologies are infringing, misappropriating or
otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation
or violation.
For example, there may be issued patents of which
we are unaware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringed by our current or future
products, services or technologies. Also, because patent applications can take years to issue and are often afforded confidentiality for
some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover
our current or future products, services or technologies. The strength of our defenses will depend on the rights asserted, the interpretation
of these rights, and our ability to invalidate the asserted rights. However, we could be unsuccessful in advancing non-infringement and/or
invalidity arguments in our defense.
Although we carry general liability insurance,
our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.
We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our
business, financial condition or results of operations. Even if the claims do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating
results. Further, there could be public announcements of the intellectual property litigation, and if securities analysts, investors or
others perceive the potential impact to be negative or risks to be substantial, it could have an adverse effect on the price of our common
stock. The occurrence of infringement claims may grow as the market for our products, services and technologies grows. Accordingly, our
exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.
****
**Growing our customer base depends upon the
effective operation of our applications with operating systems, networks and standards that we do not control.**
**
We will be dependent on the interoperability of
our applications with operating systems that we do not control, and any changes in such systems that degrade our potential products
functionality or give preferential treatment to competitive products could adversely affect the usage of our applications on quantum processing
units. Additionally, in order to deliver high quality products, it is important that our products work well with a range of quantum computers,
conventional computers, systems, networks and standards that we do not control. We may not be successful in developing relationships with
key participants in the quantum computing industry or in developing products that operate effectively with these technologies, systems,
networks or standards.
**We may not be able to protect our source
code from copying if there is an unauthorized disclosure of source code.**
Source code, the detailed program commands for
our operating systems and other software programs, is critical to our business. While, from time to time, we may license portions of our
application and operating system source code to one or more licensees, we take significant measures to protect the secrecy of large portions
of our source code. If a significant portion of our source code leaks, however, we might lose future trade secret protection for that
source code. It may become easier for third parties to compete with our products by copying functionality, which could adversely affect
our revenue and operating margins.
**
27
**
**Risks Related to Our Common Stock**
**Our stock price has been and may continue
to be volatile or may decline regardless of our operating performance, and you may lose part or all of your investment.**
The market price of our common stock has in the
past and may going forward fluctuate widely in response to various factors, some of which are beyond our control, including:
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by competitors; |
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| actual
or anticipated growth rates relative to our competitors; |
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| the
publics response to press releases or other public announcements by us or third parties, including our filings with the Securities
and Exchange Commission (the SEC); |
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| economic,
legal and regulatory factors unrelated to our performance; |
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| any
future guidance that we may provide to the public, any changes in such guidance or any difference between our guidance and actual results; |
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| changes
in financial estimates or recommendations by any securities analysts who follow our common stock; |
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| speculation
by the press or investment community regarding our business; |
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| litigation; |
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| changes
in key personnel; and |
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sales of our common stock by our officers, directors and significant stockholders. |
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In addition, the stock markets, including the
Nasdaq on which our common stock is listed, have experienced extreme price and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies. These broad market fluctuations may materially affect our stock price,
regardless of our operating results. Furthermore, the market for our common stock historically has been limited and we cannot assure you
that an active trading market will ever be developed or maintained. The price at which investors purchase shares of our common stock may
not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility, as well as general economic,
market and political conditions, could reduce our market price. As a result, these factors may make it more difficult or impossible for
you to sell your shares of our common stock for a positive return on your investment. In the past, stockholders have instituted securities
class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial
costs and our resources and the attention of management could be diverted from our business.
**Future sales of shares of our common stock,
or the perception in the public markets that these sales may occur, may depress our stock price.**
The market price of our common stock could decline
significantly as a result of sales of a large number of shares of our common stock. In addition, if our significant stockholders sell
a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Any issuance of additional
common stock by us in the future, or warrants or options to purchase our common stock, if exercised, would result in dilution to our existing
stockholders. Such issuances could be made at a price that reflects a discount or a premium to the then-current trading price of our common
stock. Moreover, the perception in the public market that stockholders might sell shares of our stock or that we could make a significant
issuance of additional common stock in the future could depress the market for our shares. These sales, or the perception that these sales
might occur, could depress the market price of our common stock or make it more difficult for us to sell equity securities in the future
at a time and at a price that we deem appropriate.
28
**Delays in filing financial reports, internal
control weaknesses, and restatements could hinder our ability to maintain Form S-3 eligibility and adversely affect our business and stock
price.**
To maintain eligibility to use Form S-3, we must
be timely and current in our public reporting. There can be no guarantees that we will remain timely and current in our public reporting
in the future. Should we wish to register the offer and sale of our securities to the public without the ability to use Form S-3, both
our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute
any such transaction successfully and potentially harming our financial condition.
While we continue to evaluate steps to remediate
the material weaknesses in our internal control over financial reporting, as effective internal controls are necessary for us to provide
reliable financial reports and prevent fraud, we can give no assurance that the measures we have taken and plan to take in the future
will remediate the material weaknesses or that any additional material weaknesses or restatements of financial results will not arise
in the future due to a failure to implement and maintain adequate internal control over financial reporting, circumvention of these controls,
or otherwise. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately
have the intended effects. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls
and procedures may not be adequate to prevent or identify errors or to facilitate the fair presentation of our consolidated financial
statements. Failure to address and remediate any internal control weaknesses could affect our ability to maintain Form S-3 eligibility
and adversely affect our business, operations, and stock price.
**Shares of our currently issued and outstanding
stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price
of the shares of our common stock.**
Some of our outstanding shares of common stock
are restricted securities within the meaning of Rule 144 under the Securities Act. In addition, we have issued or obligated
to issue options to purchase common stock pursuant to certain employment, director and consultant agreements which shares of common stock,
when purchased pursuant to the exercise of such options, would also be considered restricted securities. As restricted securities,
these shares may be resold only pursuant to an effective registration statement or in accordance with the requirements of Rule 144 or
other applicable exemptions from registration under the Securities Act and applicable state securities laws. Rule 144 provides in essence
that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted securities for a period of at least
six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1% of the issuers outstanding shares of common stock or the average weekly trading volume during the four calendar
weeks prior to the sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person
who is not an Affiliate of the issuer and who has satisfied a one-year holding period. The resale of significant amounts of our common
stock under Rule 144 or under any other exemption from the registration requirements of the Securities Act, if available, or pursuant
to subsequent registrations of shares of our common stock, could cause the market price of our shares of common stock to decline significantly.
**We currently do not intend to pay dividends
on our common stock. As a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.**
We currently do not expect to declare or pay dividends
on our common stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends
on our common stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common
stock appreciates and you sell your shares at a profit.
**You may experience dilution of your ownership
interest due to the future issuance of additional shares of our common stock.**
We are in a capital-intensive business and we
do not have sufficient funds to finance the growth of our business or the costs of our development projects or to support our projected
capital expenditures indefinitely. As a result, we will very likely require additional funds from future equity or debt financings, which
may include the issuance of shares of preferred stock, convertible debt, or warrants to purchase shares of common stock, to purchase capital
equipment, complete the development of new products and pay the general and administrative costs of our business. We may in the future
issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common
stock. We are currently authorized to issue 250,000,000 shares of common stock. The potential issuance of additional shares of common
stock or of preferred stock or convertible debt may create downward pressure on the market price of our common stock. We may also issue
additional shares of common stock or other securities that are convertible into or exercisable for common stock in the future for capital
raising purposes or for other business purposes. Our future issuance of a substantial number of shares of common stock or the sale of
a substantial number of shares in the public market, or the perception that such issuances or sales could occur, could adversely affect
the prevailing market price of our common stock. A decline in the market price of our common stock could make it more difficult to raise
funds through future offerings of our common stock or securities convertible into common stock.
In addition, these new securities could contain
provisions, such as priorities on distributions and voting rights, that could affect the value of our existing shares of common stock.
**Our executive officers and directors possess
significant voting power with respect to our common stock, which will limit your influence on corporate matters.**
****
As of February 27, 2026, our directors and executive
officers collectively beneficially own approximately 12.4% of the shares of our common stock including the beneficial ownership of Dr.
Yuping Huang of 10.9% of the shares of our common stock.
29
****
As a result, our insiders have the ability to
significantly influence our management and affairs through the election and removal of the members of our board of directors (the Board)
and all other matters requiring stockholder approval, including any future merger, consolidation or sale of all or substantially all
of our assets. This concentrated voting power could discourage others from initiating any potential merger, takeover or other change-of-control
transaction that may otherwise be beneficial to our stockholders. Furthermore, this concentrated control will limit the practical effect
of your influence over our business and affairs, through any stockholder vote or otherwise. Any of these effects could depress the market
price of our common stock.
****
**Our articles of incorporation grant the
Board the power to issue additional shares of common and preferred shares and to designate other classes of preferred shares, all without
stockholder approval.**
Our authorized capital consists of 260,000,000
shares of capital stock of which 10,000,000 shares are authorized as preferred stock. The Board, without any action by our stockholders,
may designate and issue shares of preferred stock in such series as it deems appropriate and establish the rights, preferences and privileges
of such shares, including dividends, liquidation and voting rights, provided it is consistent with Delaware law. To date the Board has
authorized two classes of Preferred, Series A and Series B, for a total of 4,630,000 authorized shares, leaving an additional 5,370,000
preferred shares to be authorized at the discretion of the Board.
The rights of holders of our preferred stock that
may be issued could be superior to the rights of holders of our shares of common stock. The designation and issuance of shares of capital
stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock. Furthermore, any issuances
of additional stock (common or preferred) will dilute the percentage of ownership interest of then-current holders of our capital stock
and may dilute our book value per share.
**ITEM 1B. UNRESOLVED STAFF COMMENTS.**
Not applicable.
**ITEM 1C. CYBERSECURITY**
A robust and consistent approach to cybersecurity is critical to achieving
our strategic business objectives and protecting our intellectual property. As an advanced technology company developing quantum photonic
products, we face a wide range of cybersecurity threats such as ransomware and denial-of-service attacks that affect most industry sectors,
to attacks from highly sophisticated adversaries, including nation state actors, that target dual-use advanced technologies such as quantum
computing. Our customers, suppliers and other business partners face similar cybersecurity threats, and a cybersecurity incident impacting
us or any of these entities could materially adversely affect our operations, performance and results of operations.
The Board, through
the Risk Committee, is actively involved in oversight of the Companys risk management program, and cybersecurity represents an
important component of the Companys overall approach to enterprise risk management (ERM). The Companys cybersecurity
policies, standards, processes and practices are integrated into the Companys ERM program and are based on recognized frameworks
established by the National Institute of Standards and Technology, the International Organization for Standardization and other applicable
industry standards. In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that
is focused on preserving the confidentiality, security and availability of the information that the Company collects and stores by identifying,
preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
**Risk
Management and Strategy**
As
one of the critical elements of the Companys overall ERM approach, the Companys cybersecurity program is focused on the
following key areas:
| | | Governance: As discussed in more detail under the heading Governance, The Boards oversight of cybersecurity risk management is supported by the Risk Committee, which regularly interacts with the Companys ERM function, the Companys Information Technology Director (IT Director), other members of management and relevant management committees and councils, including managements Cybersecurity Council. | |
| | | | |
| | | Collaborative Approach: The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner, including assessments of materiality under applicable securities laws. | |
| | | | |
| | | Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Companys information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, antimalware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. | |
| | | | |
| | | Incident Response and Recovery Planning: The Company has established and maintains comprehensive incident response and recovery plans that fully address the Companys response to a cybersecurity incident, and such plans are tested and evaluated on a regular basis. | |
30
| | | Third-Party Risk Management: The Company maintains a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Companys systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems. | |
| | | | |
| | | Education and Awareness: The Company provides regular, mandatory training for personnel regarding cybersecurity threats as a means to equip the Companys personnel with effective tools to address cybersecurity threats, and to communicate the Companys evolving information security policies, standards, processes and practices. | |
The
Company engages in the periodic assessment and testing of the Companys policies, standards, processes and practices that are designed
to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop
exercises, threat modeling, vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures
and planning. The Company periodically engages third parties to perform assessments on our cybersecurity measures, including information
security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness.
The results of such assessments, audits and reviews are reported to the Risk Committee and the Board, and the Company adjusts its cybersecurity
policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews.
The Company has implemented
policies for its personnel, including awareness programs, travel security programs and other related cybersecurity best practices. The
information technology team manages the Companys cybersecurity policies, including employee training, with the ultimate goal of
preventing cybersecurity incidents, if possible, while also maintaining IT system performance and data integrity to minimize the business
impact should an incident occur. The Company is coordinating closely with the Boards Risk Committee to ensure that the Company
will implement the appropriate cybersecurity technologies to protect the Company and its intellectual property.
**Governance**
The
Board, in coordination with the Risk Committee, oversees the Companys ERM process, including the management of risks arising from
cybersecurity threats. The Board and the Risk Committee each receive regular presentations and reports on cybersecurity risks, which
address a wide range of topics including recent developments, evolving standards, vulnerability assessments, third-party and independent
reviews, the threat environment, technological trends and information security considerations arising with respect to the Companys
peers and third parties. The Board and the Risk Committee also receive prompt and timely information regarding any cybersecurity incident
that meets established reporting thresholds, including those that are determined to be potentially material, as well as ongoing updates
regarding any such incident until it has been addressed. To facilitate the success of the Companys cybersecurity risk management
program, multidisciplinary teams throughout the Company are deployed to address cybersecurity threats and to respond to cybersecurity
incidents. Through ongoing communications with these teams, the IT Director and the Risk Committee monitor the prevention, detection,
mitigation and remediation of cybersecurity threats and incidents on an ongoing basis, and report such threats and incidents to the Risk
Committee when appropriate. In the event of an incident, the Company has developed an incident response plan, which sets forth the steps
to be followed from incident detection and assessment to mitigation, recovery and notification and reporting, including notifying functional
areas (e.g. legal), as well as senior leadership and the Board, as appropriate.
The IT Director has served in various roles in information technology
and information security for over 30 years, including serving as Senior System Administrator, Principal Architect, and Director of Cloud
Engineering.
To
date, cybersecurity threats and any previously identified cybersecurity incidents have not materially affected the Companys business
strategy, results of operations, or financial condition, and the Company is not aware of any cybersecurity risks that are reasonably
likely to materially affect the Company.
Although
we take cybersecurity risks seriously, we may not be successful in preventing or mitigating a cybersecurity incident that could have
a material adverse effect on the Company. While the Company maintains cybersecurity insurance, the costs related to cybersecurity threats
or disruptions may not be fully insured. See Item 1A. Risk Factors for a discussion of cybersecurity risks.
31
**ITEM 2. PROPERTIES.**
We maintain our principal office at 5 Marine View Plaza, Suite 214,
Hoboken, NJ 07030. The Companys principal office is comprised of 16,390- square feet of laboratory and office space in a multistory,
multi-tenant building under a multi-year lease, most of which ends on May 31, 2028, with a portion of the lease ending July 31, 2030.
Additionally, the Company leases 9,261 square feet of manufacturing (semiconductor and photonic chip fabrication), laboratory, clean room,
and office space in a multi-tenant building in Tempe, AZ for 51-months ending November 30, 2028. The Company also has a short-term agreement
for approximately 800 square feet in a multi-tenant facility in Tysons, VA that provides 24/7 furnished co-working space, conference room
space, and other services on an as-needed basis. As a result of the LSI Acquisition, we also have a leased facility in Santa Barbara,
CA for 20,337 square feet which expires November 30, 2026, a leased facility in Wilmington, MA for 7,573 square feet that expires January
30, 2030, a lease in Cranbury, NJ for 16,464 square feet that expires March 31, 2028, and a leased facility in Beford, MA for 19,332 square
feet which expires August 31, 2028. Each of the LSI leases contains extension options.
**ITEM 3. LEGAL PROCEEDINGS.**
Except as listed below, there is no action, suit,
or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the
executive officers of the Company or our subsidiaries, threatened against or affecting the Company, our common stock, our subsidiaries,
or the Companys or its subsidiaries officers or directors in their capacities as such, in which an adverse decision could
have a material adverse effect on the Company.
*BV Advisory Partners, LLC Proceedings*
**
BV Advisory v. QCi Appraisal Action
**
BV Advisory Partners, LLC (BV Advisory)
was a shareholder of QPhoton, Inc., the predecessor in interest to the Companys subsidiary, QPhoton, LLC (both referred to as QPhoton
in this Legal Proceedings discussion). On October 13, 2022, BV Advisory filed a petition in the Court of Chancery of the State of Delaware
(the Delaware Chancery Court) seeking appraisal rights on the shares of common stock of QPhoton it owned (which shares represented
10% of the shares of common stock of QPhoton outstanding immediately prior to the Companys acquisition of QPhoton) pursuant to
Section 262 of the Delaware General Corporation Law.
**
BV Advisory v. QCi Breach of Contract Lawsuit
**
On March 1, 2021, QPhoton entered into a Note
Purchase Agreement with BV Advisory (the BV Note Purchase Agreement), pursuant to which, on March 1, 2021, March 23, 2021,
and July 9, 2021, QPhoton and BV Advisory entered into convertible promissory notes for $200,592, $150,000, and $150,000, respectively,
for a total of $500,592. The notes bore interest at a rate of 6% per annum and matured two years from the issuance date. On June 16, 2022,
the effective date of our acquisition of QPhoton, QPhoton tendered a cashiers check to BV Advisory in the amount of $535,684.24,
representing the full principal balance of the notes and accrued interest through June 16, 2022. On July 14, 2022, BV Advisory returned
the cashiers check and disputed the calculation of the amount paid to settle the notes.
**
On August 16, 2022, BV Advisory filed a complaint
in the Delaware Chancery Court naming the Company and certain of its directors and officers (among others) as defendants. BV Advisory
sought, among other relief, monetary damages from QPhoton for an alleged breach of the BV Note Purchase Agreement. After the Delaware
Chancery Court dismissed BV Advisorys other claims against the Company and QPhoton, on October 17, 2024, the Delaware Chancery
Court entered a Stipulation and Order dismissing BV Advisorys claim for breach of the BV Note Purchase Agreement, subject to BV
Advisorys right to elect to transfer its claim to the Superior Court of the state of Delaware (the Delaware Superior Court).
BV Advisory elected to transfer the claim for breach of the BV Note Purchase Agreement to the Delaware Superior Court. On November 12,
2024, BV Advisory filed a new complaint in the Delaware Superior Court, asserting a claim for breach of the BV Note Purchase Agreement
and for breach of the implied covenant of good faith and fair dealing.
32
QCi v. BV Advisory Injunction Lawsuit
**
On January 31, 2025, the Company filed a complaint
in Delaware Chancery Court against BV Advisory and Barksdale, asserting claims for defamation, breach of contract, conversion, aiding
and abetting conversion, and misappropriation of trade secrets based on their unauthorized possession and dissemination of certain of
the Companys confidential and privileged documents. The Company sought, among other relief, injunctive relief and damages.
Resolution
On July 17, 2025, the Company entered into a Confidential
Settlement Agreement and Release (the Settlement Agreement) with Barksdale and BV Advisory, pursuant to which, among other
things, (i) Barksdale, BV Advisory, and the Company agreed to settle all disputes between them without admissions of any kind and release
all Claims, as defined therein, that they might have against each other, on the terms and conditions set forth therein, (ii) the Company
agreed to pay $750,000 to BV Advisory and Barksdale, collectively, and issue 1,900,000 shares of its common stock (the Shares)
to Barksdale or entities designated by him, and (iii) the Company agreed to file a registration statement providing for the resale of
the Shares by July 31, 2025. On July 28, the Company filed such a resale registration statement on Form S-1, which the SEC declared effective
on August 4, 2025. BV Advisory had been both a lender to and shareholder of QPhoton.
*Securities Class Action Lawsuit*
On February 25, 2025, a class action lawsuit was
filed against the Company and certain of its current and past officers in the New Jersey District Court, by a plaintiff seeking to represent
a class of all persons who purchased the Companys securities between March 30, 2020 and January 15, 2025, alleging violations of
Section 10(b) and 20(a) of the Exchange Act. The complaint alleges that the Company made false and/or misleading statements and/or failed
to disclose material information about the Companys customers, contracts and business operations in its public statements and SEC
filings. The plaintiff seeks unspecified monetary damages plus attorneys fees and costs. In June 2025, the New Jersey District
Court designated a lead plaintiff who filed an amended operative complaint on or about August 26, 2025. The Company filed a motion to
dismiss the amended operative complaint on November 14, 2025. While the Companys motion to dismiss was pending, the lead
plaintiff filed a motion for leave to file a second amended complaint. The second amended complaint was subsequently filed on February
13, 2026. The Company intends to bring a motion to dismiss the second amended complaint. The motion is presently due on or
before March 13, 2025.
*Shareholder Derivative Action Lawsuit*
On March 31, 2025, a shareholder derivative action
(the March 2025 Derivative Action) was filed against certain of the Companys current and past officers and directors,
purportedly on behalf of the Company, in the United States District Court for the District of New Jersey, for alleged breaches of fiduciary
duties, unjust enrichment, abuse of control, waste of corporate assets, and violations of the Exchange Act by the named officers and directors.
The plaintiff seeks unspecified monetary damages plus attorneys fees and costs. No pre-litigation demand was made on the Companys
board of directors. The Company and its board of directors dispute the allegations in the complaint and intend to vigorously defend against
the asserted claims.
On May 6, 2025, a shareholder derivative action
(the May 2025 Derivative Action) was filed against certain of the Companys current and past officers and directors,
purportedly on behalf of the Company, in the United States District Court for the District of New Jersey, for alleged breaches of fiduciary
duties, gross mismanagement, waste of corporate assets, unjust enrichment, aiding and abetting breaches of fiduciary duties, and violations
of the Exchange Act. The plaintiff seeks unspecified monetary damages plus attorneys fees and costs. No pre-litigation demand was
made on the Companys board of directors. The Company and its board of directors dispute the allegations in the complaint and intend
to vigorously defend against the asserted claims
33
On June 19, 2025, a shareholder derivative action
(the June 2025 Derivative Action) was filed against certain of the Companys current and past officers and directors,
purportedly on behalf of the Company, in the United States District Court for the District of New Jersey, for alleged breaches of fiduciary
duties, waste, unjust enrichment, common law fraud, and violations of the Exchange Act. The plaintiff seeks unspecified monetary damages
plus attorneys fees and costs. The Company and its board of directors dispute the allegations in the complaint and intend to vigorously
defend against the asserted claims.
On September 25, 2025, a shareholder derivative
action (the September 2025 Derivative Action) was filed against certain of the Companys current and past officers
and directors, purportedly on behalf of the Company, in the Superior Court of New Jersey Chancery Division, Hudson County, for alleged
breaches of fiduciary duty, unjust enrichment, gross mismanagement, corporate waste, and aiding and abetting fiduciary duties. The Company
and its board of directors dispute the allegations in the complaint and intend to vigorously defend against the asserted claims.
The March 2025 Derivative Action, May 2025 Derivative
Action, June 2025 Derivative Action, and September 2025 Derivative Action, have each been stayed pending the resolution of the Companys
motion to dismiss the Securities Class Action which the Company and named defendants in that action plan to file on or before March 13,
2026.
**
*Arbitration over Stock Options*
Arbitration over Stock Options
In February 2025, the Company entered into arbitrations
with two former consultants regarding forfeiture of stock options. The Company had issued stock options to the former consultants in 2020
and 2021 and terminated their agreements in March 2024, at which time the Company informed the former consultants that any vested options
had to be exercised within three months of the termination date, per the Companys equity compensation plans. The former consultants
did not exercise their vested options and the options were forfeited. In December 2024, the former consultants claimed that they still
retained the right to exercise the options, which the Company rejected.
On February 23, 2026, with respect to the claims
brought by one of the two consultants, an arbitrator ruled in favor of the former consultant on 1 of the 7 claims. The arbitrator ruled
in favor of the Company on the remaining 6 claims. The relief granted to the consultant in the arbitrators partial award is confidential
and immaterial to the Companys financial condition, results of operations, and cash flows.
The Company has determined that the remaining
arbitration is not material to its financial condition, results of operations or cash flows, and therefore the Company is discontinuing
disclosure with respect to such proceeding.
*Concluded Proceedings*
The Company previously disclosed two legal matters
which were concluded during 2024. The defamation action filed by the Company in New Jersey Superior Court in December 2022 against BV
Advisory and other parties was dismissed on procedural grounds in May 2024. The receivership petition filed by BV Advisory against the
Company in July 2023 in the Delaware Chancery Court was dismissed without prejudice in May 2024.
**ITEM 4. MINE SAFETY DISCLOSURES.**
Not applicable.
34
****
**PART II**
**ITEM 5. MARKET FOR REGISTRANTS COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**
**Market Information**
Our common stock is listed on the Nasdaq Capital
Market under the symbol QUBT and commenced trading on July 15, 2021.
**Authorized Capital**
The Company is authorized by its Certificate of
Incorporation to issue an aggregate of 250,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of preferred
stock, of which 1,550,000 shares are designated as Series A Convertible Preferred Stock and 3,079,864 shares are designated as Series
B Preferred Stock. As of February 27, 2026, we had 224,538,254 shares of common stock issued and outstanding and no shares of preferred
stock issued and outstanding.
**Holders of Common Equity**
As of February 27, 2026, there were approximately
210 stockholders of record of our common stock. Because shares of our common stock are held by depositaries, brokers and other nominees,
the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.
**Dividend Information**
We have not paid any cash dividends to our holders
of common stock. The declaration of any future cash dividends is at the discretion of the Board and depends upon our earnings, if any,
our capital requirements and financial position, our general economic condition, and other pertinent conditions. It is our present intention
not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
**Securities Authorized for Issuance under Equity
Compensation Plans**
Please see Item 12, Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters under Part III of this Annual Report on Form 10-K,
which is incorporated by reference to our 2026 Proxy Statement, for information on where to find information required by Item 201(d) of
Regulation S-K.
**Unregistered Sales of Equity Securities and
Use of Proceeds**
****
During the year ended December 31, 2025, we have
issued securities that were not registered under the Securities Act, all of which were previously disclosed in a Quarterly Report on Form
10-Q or a Current Report on Form 8-K.
**Stock Performance Graph**
The following performance
graph and related information shall not be deemed soliciting material or to be filed with the SEC for purposes
of Section 18 of the Exchange Act, nor shall such information be incorporated by reference into any future filing under the Securities
Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such
filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate
it by reference into such filing.
35
The following graph depicts the total cumulative stockholder return
on our common stock from December 31, 2020 through December 31, 2025, relative to the performance of the Nasdaq and S&P 500 indexes.
The graph assumes an initial investment of $100.00 at the close of trading on December 31, 2020 and that all dividends paid by companies
included in these indices have been reinvested. The performance shown in the graph below is not intended to forecast or be indicative
of future stock price performance.
*
**ITEM 6. [Reserved]**
**ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**
The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes
included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including,
but not limited to, those discussed under Item 1A, Risk Factors. The following analysis generally discusses 2025 and 2024
items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023
that are not included in this Form 10-K can be found in Managements Discussion and Analysis of Financial Condition and Results
of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on March 20, 2025.*
**Overview**
****
QCi is a development stage company with limited
operations and revenue. The Company is developing quantum and ancillary non-quantum products for high-performance computing applications
based on proprietary photonics technology. QCis products are designed to operate at room temperature and low power at an affordable
cost in the areas of high-performance computing, sensing, and quantum cybersecurity. The Company has generated some revenue based on sales
of products and related services to date and is expanding its sales and marketing efforts. The Companys development team includes
optical engineers, technicians, mathematicians, physicists, and software developers.**
36
**Recent Developments**
On December 15, 2025, we entered into a Stock Purchase Agreement (the
Stock Purchase Agreement) with Luminar Technologies, Inc., a Delaware corporation (the Seller) and Luminar,
pursuant to which, subject to the terms and conditions set forth in the Stock Purchase Agreement, the Company agreed to acquire all of
the issued and outstanding shares of common stock of Luminar from the Seller (the Luminar Acquisition) for a total purchase
price of $110 million in cash (the Purchase Price). The Luminar Acquisition was completed on February 2, 2026. $11.0 million
of the Purchase Price was placed with an escrow agent in connection with the signing of the Stock Purchase Agreement. The escrowed amount
will remain with the escrow agent to cover certain limited indemnification obligations of the Seller pursuant to the Stock Purchase Agreement
until February 2, 2027.
The Seller, together with certain of its subsidiaries,
is a debtor in a voluntary Chapter 11 case before the United States Bankruptcy Court for the Southern District of Texas (the Bankruptcy
Court), which commenced on December 15, 2025. Luminar is not a debtor in such Chapter 11 case and is operating in the ordinary
course of business. Upon Bankruptcy Court approval, the Company was designated as the stalking horse bidder in connection
with a sale of Luminar under Section 363 of the Bankruptcy Code. The Luminar Acquisition was conducted through a Bankruptcy Court-supervised
process pursuant to Bankruptcy Court-approved bidding procedures and was subject to the receipt of higher or better offers from competing
bidders at an auction, approval of the sale by the Bankruptcy Court, and the satisfaction of certain conditions.
**Key Factors Affecting Our Performance**
Macroeconomic conditions, including inflation,
interest rates and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Companys
results of operations and financial condition. Our business may be affected by disruptions or delays to the federal government budget.
We are subject to a lengthy product commercialization timeline and a lengthy sales cycle. Beginning in the second quarter of 2025, new
U.S. tariffs were announced, including additional tariffs on imports from China, India, Japan, South Korea, Taiwan, Vietnam and the EU,
among others. In response, several countries have imposed, or threatened to impose, reciprocal tariffs on imports from the U.S. and other
retaliatory measures. Various modifications to the U.S. tariffs have been announced and further changes could be made in the future, which
may include additional sector-based tariffs or other measures. Tariffs and other measures that are applied to the Companys products
or their components can have a material adverse impact on the Companys business, results of operations and financial condition,
including impacting the Companys supply chain, components, pricing and gross margin. The ultimate impact remains uncertain and
will depend on several factors, including whether additional or incremental U.S. tariffs or other measures are announced or imposed, to
what extent other countries implement tariffs or other retaliatory measures in response, and the overall magnitude and duration of these
measures. Trade and other international disputes can have an adverse impact on the overall macroeconomic environment and result in shifts
and reductions in consumer spending and negative consumer sentiment for the Companys products and services, all of which can further
adversely affect the Companys business and results of operations.
37
**Results of Operations**
****
Our results of operations for the years ended
December 31, 2025 and 2024 is as follows (in thousands, except percentages):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
% Change | | |
|
Revenue: | |
| | |
| | |
| | |
|
Total revenue | |
$ | 682 | | |
$ | 373 | | |
| 83 | % | |
|
Gross profit | |
| 67 | | |
| 112 | | |
| (40 | )% | |
|
Gross profit margin | |
| 10 | % | |
| 30 | % | |
| | | |
|
Operating expenses: | |
| | | |
| | | |
| | | |
|
Research and development | |
| 20,473 | | |
| 11,318 | | |
| 81 | % | |
|
Sales and marketing | |
| 3,431 | | |
| 1,818 | | |
| 89 | % | |
|
General and administrative | |
| 27,240 | | |
| 12,913 | | |
| 111 | % | |
|
Total operating expenses | |
| 51,144 | | |
| 26,049 | | |
| 96 | % | |
|
Loss from operations | |
| (51,077 | ) | |
| (25,937 | ) | |
| 97 | % | |
|
Non-operating income and (expense): | |
| | | |
| | | |
| | | |
|
Interest and other income, net | |
| 20,718 | | |
| 423 | | |
| 4,798 | % | |
|
Interest expense | |
| (65 | ) | |
| (2,496 | ) | |
| (97 | )% | |
|
Change in fair value of derivative liability | |
| 11,750 | | |
| (40,532 | ) | |
| 129 | % | |
|
Total non-operating income (expense), net | |
| 32,403 | | |
| (42,605 | ) | |
| (176 | )% | |
|
Net loss | |
$ | (18,674 | ) | |
$ | (68,542 | ) | |
| (73 | )% | |
*Revenues*
**
The Companys revenues during the years ended December 31, 2025
and 2024 consisted of (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
% Change | | |
|
Services | |
$ | 368 | | |
$ | 346 | | |
| 6 | % | |
|
Products | |
| 314 | | |
| 27 | | |
| 1,063 | % | |
|
Total | |
$ | 682 | | |
$ | 373 | | |
| 83 | % | |
Revenues for the year ended December 31, 2025
were $682 thousand compared to $373 thousand for the year ended December 31, 2024, an increase of $309 thousand, or 83%. Revenue was derived
from sales of hardware products and professional services in 2025 and 2024, in each case provided to multiple commercial and government
customers under multi-month contracts. Product revenue increased substantially compared to 2024 due to successful sales of vibrometer
and quantum networking devices which were delivered during 2025. During 2025 we were able to sell more off the shelf products as opposed
to 2024 where we mostly provided services to create bespoke solutions for our customers. The year-over-year change was driven by changes
in the number of, size of and level of effort performed on active customer proof of concept and research and development services and
customer hardware contracts. In 2025, the Company continued to execute its business strategy to provide quantum-ready solutions for solving
real-world problems. While we have made significant progress toward this overarching objective, the generation of revenue from customers
has been slow to develop, in part due to the fact that quantum computing is a cutting-edge technology for most potential customers, who
are therefore proceeding cautiously with small, exploratory contracts to better understand its applicability to their requirements. Accordingly,
the Company has focused on providing professional services and research and development offerings to introduce customers to quantum-based
solutions to their operating needs as well as on customer education and building customer awareness as a means to generating sales. We
have developed and released multiple products, including commercial and research and development offerings and foundry services for TFLN
Optical Chips manufacturing that we are now in the process of marketing. As a result, we expect product revenues to continue to increase
going forward. The Company also started to recognize revenue for cloud-based access to the Dirac-3 quantum optimization system during
2025.
38
*Cost of Revenues*
Cost of revenue,
which consists of direct labor expenses, primarily salary costs for engineering and solutions staff delivering services, and other direct
component costs for custom hardware on research and development contracts, was $615 thousand for the year ended December 31, 2025, compared
to $261 thousand for the prior year, an increase of $354 thousand, or 136%. Cost of revenues for each of the years ended December 31,
2025 and 2024 consists primarily of salary expense. The increase for 2025 was primarily due to the increases in direct labor expenses
on R&D services contracts and custom hardware contracts, an increase in production overhead, and increased other direct costs (primarily
parts and materials) required to perform on the contracts during the 2025 compared to the prior year.
*Gross Margin*
Gross margin for the year ended December 31, 2025
was $67 thousand compared to $112 thousand for the prior year, a decrease of $45 thousand, or 40%. On a percentage basis, gross margin
was 10%, a decrease of 20% year-over-year. The decrease in gross margin was largely due to higher than anticipated direct labor expenses
required to complete the assembly and test of the first unit of a new hardware product. Cost information from the production of the first
unit will be used in adjusting pricing of subsequent product sales. Our lack of a scaled and distributed base of revenue generation by
product and sales channel can result in significant differences in gross margin between reporting periods. We anticipate product gross
margins will improve as we build additional units of each product.
*Operating Expenses*
Operating expenses of approximately $51.1 million
during the year ended December 31, 2025 increased as compared to approximately $26.0 million in 2024 primarily as a result of higher research
and development expenses, sales and marketing expenses and general and administrative expenses, as set forth in the below tables (in thousands,
except percentages).
|
| |
Year Ended December 31, | | |
% | | |
|
| |
2025 | | |
2024 | | |
Change | | |
|
Research and development | |
$ | 20,473 | | |
$ | 11,318 | | |
| 81 | % | |
|
| |
| | | |
| | | |
| | | |
39
Research and development expenses consist primarily
of labor expenses for employees that primarily engage in research and development efforts and non-labor expenses for the development of
hardware products and supporting software. We focus the bulk of our research and development activities on the continued development of
existing products and the development of new offerings for emerging market opportunities.
Research and development expenses during the year ended December 31,
2025 increased $9.2 million or 81% compared with 2024 primarily due to higher headcount and related payroll costs, higher recurring lab
equipment and consumables costs, and higher depreciation for long-lived laboratory equipment, partially offset by lower hosting services
expenses and lower stock based compensation expense. The Company is aggressively pursuing its technology roadmap and has hired additional
scientists, engineers and technicians in order to accelerate the development of key technologies and products.
|
| |
Year Ended December 31, | | |
% | | |
|
| |
2025 | | |
2024 | | |
Change | | |
|
Sales and marketing | |
$ | 3,431 | | |
$ | 1,818 | | |
| 89 | % | |
Sales and marketing expenses consist primarily
of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and
selling costs.
Sales and marketing expenses during the year ended
December 31, 2025 increased $1.6 million or 89% compared with 2024 primarily due to increases in the sales staff, higher tradeshow and
travel-related costs and increased marketing program costs. During the year ended December 31, 2025 the sales and marketing team participated
in 1or 2 conferences and trade shows per month, compared to 1 or 2 trade shows per quarter during 2024, including greater participation
in international quantum technology events, resulting in higher travel expenses.
|
| |
Year Ended December 31, | | |
% | | |
|
| |
2025 | | |
2024 | | |
Change | | |
|
General and administrative | |
$ | 27,240 | | |
$ | 12,913 | | |
| 111 | % | |
General and administrative expenses consist primarily
of compensation expenses for employees performing administrative functions, and professional fees incurred for legal, auditing and other
consulting services.
General and administrative expenses during the
year ended December 31, 2025 increased $14.3 million or 111% compared with 2024 primarily due to higher employee and advisor-related expenses
relating to development and implementation of internal financial controls, expansion of accounting staff, increased recruiting fees and
legal expenses related to multiple financings, mergers and acquisition activity, and ongoing litigation.
*Non-operating Income (Expense)*
**
The following table summarizes our non-operating
income (expense) for the years ended December 31, 2025 and 2024 (in thousands, except percentages).
|
| |
Year Ended December 31 | | |
% | | |
|
| |
2025 | | |
2024 | | |
Change | | |
|
Interest and other income, net | |
$ | 20,718 | | |
$ | 423 | | |
| 4,798 | % | |
|
Interest expense | |
| (65 | ) | |
| (2,496 | ) | |
| (97 | )% | |
|
Change in fair value of derivative and warrant liability | |
| 11,750 | | |
| (40,532 | ) | |
| 129 | % | |
|
Other income (expense), net | |
$ | 32,403 | | |
$ | (42,605 | ) | |
| (176 | )% | |
Interest and other income, net, during the year ended December 31,
2025 increased $20,295 or 4,798% compared with 2024 primarily due to the Company maintaining higher cash balances in mutual funds, deposit
and money market accounts, U.S. Treasuries and corporate bonds during as a result of the substantial amount of new funding the Company
raised in 2025.
Interest expense during the year ended December
31, 2025 decreased $2,431 or 97% compared with 2024 primarily due to a decrease of interest on financial liabilities as the related borrowings
were paid off during 2024. Interest expense during the year ended December 31, 2025 is related to late payroll tax filings.
Change in fair value of derivative and warrant liability during the
year ended December 31, 2025 increased $52,282 or 129% compared with 2024 as a result of the change in the fair value of the QPhoton Warrant
Liability (as defined below). The change in value of the warrant liability is a non-cash charge comprised of mark-to-market adjustments
for the QPhoton Warrants (as defined below). Future mark-to-market adjustments may result in losses if the Companys stock price
increases above the Companys closing bid price of $10.26 per share on December 31, 2025; such adjustments may alternatively result
in gains if the closing bid share price of the Companys common stock decreases. See Note 12, *Capital Stock*, in the accompanying
notes to our consolidated financial statements appearing elsewhere in this report for additional information on the QPhoton Warrants
The loss on change in value of derivative liability is entirely comprised
of mark-to-market adjustments for the QPhoton Warrants, as defined below in the accompanying notes to our consolidated financial statements
appearing elsewhere in this report, which had no carrying value as of December 31, 2023. Future mark-to-market adjustments may result
in continued losses if the price of the Companys common stock increases above the closing bid price of $16.55 per share at December
31, 2024; such adjustments may alternatively result in gains if the closing bid share price of the Companys common stock decreases.
See Note 12, *Capital Stock*, in the accompanying notes to our consolidated financial statements appearing elsewhere in this report
for additional information on the QPhoton Warrants.
40
**Liquidity and Capital Resources**
We have incurred net losses and experienced negative cash flows from
operations since inception. During the year ended December 31, 2025, the Company raised net proceeds of $1,475.1 million through the private
placement of equity. The Company has no lines of credit or short-term debt obligations outstanding. We expect to incur additional losses
and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs.
We also expect to incur additional integration and scaling costs associated with the LSI acquisition. As of December 31, 2025, the Company
had cash and cash equivalents of $737.9 million and short-term and long-term investments of $782.5 million.
We believe that our existing cash, cash equivalents
and investments will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months, although
we may choose to take advantage of opportunistic capital raising or refinancing transactions at any time.
Our primary uses of cash are to fund and invest
in our operations as we continue to grow our business. We will require a significant amount of cash for continued investment in our Foundry
Services offering, including but not limited to future-identified space for expansion of our AZ Chips Facility, as well as the construction
or acquisition of a high-volume chip manufacturing facility, as well as ongoing research and development for our non-linear quantum optical
products and photonics chips. Until such time as we can generate significant revenue from sales or subscriptions of our hardware offerings,
we expect to finance our operating and investing needs through our cash and cash equivalents and, equity and/or debt financings or other
capital sources, including but not limited to U.S. government grant and loan programs. We may, however, be unable to raise sufficient
funds or enter into such other arrangements, when needed, on favorable terms, or at all. In particular, uncertain and unfavorable conditions
in the United States and global macroeconomic environment, including inflationary pressures, interest rates, bank failures, and financial
and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all. To the extent that we raise
additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could
be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common
stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are
unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce
our product development and go-to-market efforts. There can be no assurances that the Company will be able to secure additional equity
and/or debt investments or achieve an adequate sales level. We believe, however, that the Companys existing cash and cash equivalents,
together with any cash generated from operations and the proceeds from any additional equity or debt issuances will be sufficient to meet
the Companys liquidity needs for at least the next 12 months.
The following table summarizes total current assets,
liabilities and working capital at December 31, 2025, compared to December 31, 2024 (in thousands):
|
| |
December31, 2025 | | |
December31, 2024 | | |
Increase/ (Decrease) | | |
|
Current assets | |
$ | 1,133,720 | | |
$ | 79,151 | | |
$ | 1,054,569 | | |
|
Current liabilities | |
$ | 11,074 | | |
$ | 4,559 | | |
$ | 6,515 | | |
|
Working capital (deficit) | |
$ | 1,122,646 | | |
$ | 74,592 | | |
$ | 1,048,054 | | |
At December 31, 2025, we had working capital of
$1,122.7 million as compared to working capital of $74.6 million at December 31, 2024, an increase of $1,048.0 million. The increase in
working capital is primarily attributable to an increase in cash and available-for-sale debt securities from the net proceeds of our sales
of our sales of 86.3 million shares of common stock for an aggregate of $1,475.1 million during 2025.
On a long-term basis, our liquidity is dependent
on continuation and expansion of operations and receipt of revenues. Demand for the Companys products and services will be dependent
on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions,
which are cyclical in nature. As revenues will be derived from the sales of our products and services, our business operations may be
adversely affected by the products and services offered by our competitors and any prolonged recession periods.
*Cash Flows*
The following table summarizes our cash flow for
the years ended December 31, 2025 and 2024 (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
|
Net cash used in operating activities | |
$ | (30,294 | ) | |
$ | (16,213 | ) | |
|
Net cash used in investing activities | |
| (788,327 | ) | |
| (6,036 | ) | |
|
Net cash provided by financing activities | |
| 1,477,556 | | |
| 99,135 | | |
|
Net increase in cash and cash equivalents | |
$ | 658,935 | | |
$ | 76,886 | | |
41
**Cash Flows from Operating Activities**
Net cash used in operating activities for the years ended December
31, 2025 and 2024 was $30.3 million and $16.2 million, respectively, in each case primarily as a result of our net loss in each period
offset by noncash adjustments for stock-based compensation, mark-to-market valuation adjustments on derivative liabilities, and depreciation
and amortization.
**Cash Flows from Investing Activities**
Net cash used in investing activities for the
years ended December 31, 2025 and 2024 was $788.3 million and $6.0 million, respectively, and was attributable to our purchase of computer
hardware, laboratory equipment and TFLN Chips manufacturing equipment, as well as the purchase of $1,197.9 million in available-for-sale-debt
securities offset by $376.3 million in proceeds from sales of available-for-sale-debt securities.
**Cash Flows from Financing Activities**
Net cash provided by financing activities for
the years ended December 31, 2025 and 2024 was $1,477.6 million and $99.1 million, respectively. Cash flows provided by financing activities
during year ended December 31, 2025 were primarily attributable to net proceeds from our stock issuances.
On a long-term basis, our liquidity is dependent
on continuation and expansion of operations and receipt of revenues. Demand for the Companys products and services will be dependent
on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions,
which are cyclical in nature. As revenues will be derived from the sales of our products and services, our business operations may be
adversely affected by the products and services offered by our competitors and any prolonged recession periods.
**Critical Accounting Estimates**
Certain of our accounting policies require the
application of significant judgment by our management, and such judgments are reflected in the amounts reported in our consolidated financial
statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination
of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information
provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly
from the estimates contained in our consolidated financial statements.
*Fair Value of Stock-based Compensation*
We recognize stock-based compensation expense
for all share-based payment awards in accordance with ASC 718, *Compensation - Stock Compensation*. Stock-based compensation expense
for expected-to-vest awards is valued under the single-option approach and amortized on a straight-line basis, accounting for actual forfeitures
as they occur. We utilize the Black-Scholes pricing model in order to determine the fair value of stock-based option awards. The Black-Scholes
pricing model requires various highly subjective assumptions including volatility, expected option life, and risk-free interest rate.
The assumptions used in calculating the fair value of share-based payment awards represent managements best estimates. These estimates
involve inherent uncertainties and the application of management judgment. If factors change and different assumptions are used, our stock-based
compensation expense could be materially different in the future.
*Fair Value of Derivative Liability*
Determining the fair market value of the QPhoton
Warrants, which were included in the merger consideration paid to the stockholders of QPhoton (the QPhoton Merger Consideration),
is a critical accounting estimate. The QPhoton Warrants are comprised of warrants to purchase up to 7,028,337 shares of the Companys
common stock at an exercise price of $0.0001 per share (the QPhoton Warrants) and are exercisable when and if stock options
and warrants issued by the Company and outstanding as of June 15, 2022 are exercised. The Merger Consideration for shareholders Yuping
Huang and The Trustees of the Stevens Institute of Technology was issued in 2022. A third alleged shareholder, BV Advisory, rejected the
Merger Consideration and commenced litigation in Delaware Chancery Court (see Note 10, *Contingencies - Legal Proceedings*, in this
Form 10-K for additional information and Item 3, *Legal Proceedings*, in this Form 10-K for a full discussion). That litigation was
resolved in 2025. Accordingly, as of December 31, 2025 and 2024, we had only issued 6,325,503 of the QPhoton Warrants. In determining
the fair market value of the QPhoton Warrants, the Company determines which underlying options and warrants are in-the-money or out-of-the-money
at period end by comparing to the bid price of the Companys common stock, then accounts for changes period-over-period by realizing
a mark-to-market gain or loss for the period.
42
An additional critical accounting estimates involves
determining the fair value of the conversion features inherent in the Streeterville Convertible Note (the Streeterville Derivative
Liability), which involves inherent uncertainties and the application of management judgement. The Streeterville Derivative Liability
will be mark-to-market adjusted on a quarterly basis and accreted as interest expense while the Streeterville Convertible Note is outstanding.
The Streeterville Convertible Note was paid off in 2024.
*Fair Market Value and Useful Life of Intangible
Assets*
Determining the fair market value and useful life
of the intangible assets acquired by the Company through the QPhoton Merger is another critical accounting estimate. In the absence of
market pricing for the intangible assets, the Company relied on independent third-party appraisal experts and comparison with similar
transactions to arrive at estimates of value as well as useful life. The Company will perform periodic assessments of the intangible assets
for impairment, but if any of the initial estimates are incorrect, that could result in a calculation of amortization expense that is
too high or too low.
*Valuation Allowances for Deferred Taxes*
**
Our income tax expense, deferred tax assets and
liabilities, and reserves for unrecognized tax benefits reflect managements assessment of estimated current and future income taxes
to be paid. We are subject to income taxes in the United States. Significant judgments and estimates are required in determining the consolidated
income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits.
Deferred tax assets and liabilities arise from
temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements,
which are expected to result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets
within the jurisdiction from which they arise, for all material jurisdictions, we consider all available positive and negative evidence,
including scheduled reversals of deferred tax balances, projected future taxable income, tax-planning strategies and results of recent
operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future
state, federal and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future
taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying businesses.
In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating results.
As of December 31, 2025,
we had federal and state net operating loss (NOL) carryforwards of approximately $158.1 million, or $27.1 million on a tax-effected
basis. We believe that it is more likely than not that the benefit from these NOL carryforwards will not be realized. Accordingly, we
have provided a full valuation allowance on any potential deferred tax assets relating to these NOL carryforwards. If our assumptions
change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on
deferred tax assets as of December 31, 2025, will be accounted for as a reduction of income tax expense.
The calculation of our
tax liabilities involves evaluating uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions
across our global operations. ASC 740, *Income Taxes*, states that a tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be sustained upon examination, including the resolution of any related appeals
or litigation processes, on the basis of the technical merits.
We record unrecognized tax benefits as liabilities
in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not
previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a tax payment that
is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as
increases or decreases to income tax expense in the period in which new information is made available.
43
We believe that none of the unrecognized tax benefits may be recognized
by the end of 2026.
**
*Legal and Other Contingencies*
The outcomes of legal
proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a
legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred
and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors,
the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these
factors could materially impact our consolidated financial statements.
**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.**
We are exposed to market risks in the ordinary
course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial
market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates, interest
rates and inflation.
**Interest Rate Risk**
****
As of December 31, 2025, we had cash and cash equivalents of $737.9
million and investments in marketable securities of $379.4 million with maturities of less than one year. The goals of our investment
policy are liquidity and capital preservation. We believe that we do not have any material exposure to changes in the fair value of our
cash equivalents or marketable securities as a result of changes in interest rates due to the short-term nature of these assets. A hypothetical
100 basis point increase in interest rates as of December 31, 2025 would not have had a material impact on the fair value of our cash
equivalents or marketable securities due to their short-term maturities. We do not enter into investments for trading or speculative purposes
and have not used any derivative financial instruments to manage our interest rate risk exposure.
**Foreign Currency Exchange Risk**
****
All of our operations are based in the
United States and all of our sales transactions are currently denominated in U.S. dollars. However, due to our use of some
international vendors, an immaterial portion of our cost of sales and operating expenses are denominated in currencies other than
the U.S. dollar, principally the British Pound Sterling. Changes in the exchange rate between the U.S. dollar and foreign currencies
in which we incur expenses affect the translated value and relative level of sales and net income that we report from one period to
the next. During the year ended December 31, we incurred a loss on foreign exchange transactions of $9 thousand as compared to $0 in
2024. This amount was not material to our consolidated financial statements.
****
**Impact of Inflation**
We do not believe that inflation has had a material
effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant
inflationary pressures it could diminish our margin thereby limiting our profits, especially if we are not able to fully offset such higher
costs. Our inability or failure to do so could harm our business, financial condition, and results of operations.
**Other Risks**
We do not have material exposure to commodity
price risk, equity price risk, or other significant market risks.
****
**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.**
The financial statements and supplementary data
required by this item, including the report of our independent registered public accounting firm and the notes thereto, are included commencing
at page F-1 of this Annual Report on Form 10-K and incorporated herein by reference.
**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.**
None.
**ITEM 9A. CONTROLS AND PROCEDURES.**
*Evaluation of Disclosure Controls and Procedures*
We maintain disclosure controls and procedures, as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed
in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal
financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, our management recognized that disclosure controls and procedures, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally,
in designing disclosure controls and procedures, our management was necessarily required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
44
As of the end of the period covered by this Annual
Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our principal
executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on such evaluation,
our principal executive officer and principal financial officer concluded that as of December 31, 2025, our disclosure controls and procedures
were not effective due to the material weaknesses in our internal control over financial reporting described below.
**Report of Management on Internal Control over
Financial Reporting**
Company management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act). The Companys internal control over financial reporting is a process designed by, or under the supervision of,
our principal executive and principal financial officers and effected by the Board, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Company management has assessed the effectiveness
of the Companys internal control over financial reporting as of December 31, 2025. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework
(2013).
Based on this assessment, management has determined
that the Companys internal control over financial reporting was not effective as of December 31, 2025 due to the material weaknesses
noted below.
*Material Weakness in Internal Control over
Financial Reporting*
A material weakness,
as defined by the Public Company Accounting Oversight Board, 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 our annual or interim financial statements
will not be prevented or detected on a timely basis.
The ineffectiveness of the Companys internal control over financial
reporting was due to the following material weaknesses, which are common to many small companies with limited staff:
|
| We
did not design and maintain an effective control environment commensurate with our financial
reporting requirements. During the year, we lacked a sufficient number of trained professionals
with (i) an appropriate level of accounting knowledge, training and experience to appropriately
analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate
level of knowledge and experience to establish effective processes and controls. Additionally,
the limited personnel resulted in an inability to consistently establish appropriate authorities
and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among
other things, insufficient segregation of duties in our finance and accounting functions. |
|
45
The
material weakness in the control environment contributed to the following additional material weaknesses:
|
| We
did not design and maintain an effective risk assessment process at a precise enough level
to identify new and evolving risks of material misstatement in our financial statements.
Specifically, changes to existing controls or the implementation of new controls have not
been sufficient to respond to changes to the risks of material misstatement to financial
reporting; and |
|
|
| We
did not design and maintain effective controls over IT general controls for information systems
that are relevant to the preparation of our financial statements. Specifically, we did not
design and maintain: |
|
|
o | user access controls to ensure appropriate segregation of
duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate company personnel; |
|
|
o | program change management controls to ensure that IT program
and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented
appropriately; |
|
|
o | computer operations controls to ensure that data backups are
authorized and monitored; and |
|
|
o | review of reports for third-party service organizations associated
with IT systems and related complementary user entity controls maintained by management. |
|
The material weaknesses
above did not result in a material misstatement to the consolidated financial statements as presented in this Annual Report on Form 10-K.
The effectiveness of the Companys internal control over financial reporting as of December 31, 2025, has been audited by BPM LLP,
the Company's independent registered public accounting firm, as stated in their report which appears in Part IV, Item 15 of this Annual
Report on Form 10-K.
**Managements Plan to Remediate the
Material Weaknesses**
The Company has been implementing and continues to implement measures
designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed,
implemented, and operating effectively. During 2025, the Company strengthened its accounting function through the hiring of five full-time
accounting professionals, including a Controller and Manager of Technical Accounting, to enhance oversight, technical expertise, and execution
of key financial reporting processes. In addition to identifying and remediating design deficiencies in its processes, the Company has
formally documented its procedures for many of the significant accounting and financial reporting processes, including implementation
of procedures for revenue recognition and segregation of duties. The other remediation actions planned include:
|
|
(i) |
further documentation and implementation of control procedures and
the implementation of control monitoring; | |
|
|
|
| |
|
|
(ii) |
identify and remedy gaps in our information technology general controls specifically related to the areas of security, user access, restricted access and change management; and | |
|
|
|
| |
|
|
(iii) |
design and implement risk assessment processes
to identify and address new and evolving risks associated with financial reporting. | |
We are committed to maintaining a strong internal
control environment and believe that these remediation efforts will represent significant improvements in our control environment. Our
management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls
and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements
or improvements, as necessary and as funds allow.
46
*Remediation of Previously
Identified Material Weakness*
The previously identified
material weaknesses over inadequate controls related to revenue recognition and insufficient written policies and procedures for accounting
and financial reporting with respect to the requirements and application of both accounting principles generally accepted in the United
States of America and SEC Guidelines have been remediated.
*Attestation Report
of Independent Registered Public Accounting Firm*
The effectiveness of
the Companys internal control over financial reporting as of December 31, 2025, has been audited by BPM, an independent registered
public accounting firm, as stated in its report included herein.
*Changes in Internal
Control over Financial Reporting*
As discussed above, we
are implementing certain measures to remediate the remaining material weaknesses identified in the design and operation of our internal
control over financial reporting. Other than those measures, except for the changes discussed above, there have been no changes in our
internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter
ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
**ITEM 9B. OTHER INFORMATION.**
**Rule 10b5-1 Trading
Plans**
During the three months
ended December31, 2025, certain executive officers and directors of the Company (each, a Plan Participant) entered
into Rule 10b5-1 trading plan (a Rule 10b5-1Trading Plan) to sell shares of the Companys common stock, in each
case, subject to any applicable volume limitations. No shares were traded under the Trading Plan during the year ended December 31, 2025.
The table below provides
certain information regarding each Plan Participants Rule 10b5-1 Trading Plan.
| Name | | Title | | Plan Date | | Earliest Selling
Start Date | | Maximum Shares That May Be Sold Under the Plan | | Plan Expiration
Date | |
| Carl Weimer | | Director | | November 18, 2025 | | March 19, 2026 | | 100,000 | (1) | September 30, 2026 | |
****
|
(1) | The plan was established for the purposes of facilitating the
potential exercise of vested stock options that are due to expire in January 2028, and the associated sale of shares. |
|
****
A
Rule 10b5-1 Trading Plan is a written document that pre-establishes the amounts, prices and dates (or formulas for determining the amounts,
prices and dates) of future purchases or sales of the Companys common stock, including, if applicable, shares issued upon exercise
of stock options or vesting of restricted stock units.
****
Each Plan Participants
Rule 10b5-1 Trading Plan wasadoptedduring an authorized trading period and when such Plan Participant was not in possession
of material non-public information and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act.
*The information set
forth below is included for the purpose of providing disclosure under Item 5.02(e) of Form 8-K.*
**2026 Executive Compensation
Plan**
On February 17, 2021,
the Board established an executive compensation framework for fiscal year 2026 (the 2026 Executive Compensation Framework)
as part of its review of target incentive compensation for our executive officers.
Under the terms of the
2026 Executive Compensation Framework, each of the eligible executive officers are expected to have their salary targeted at the 25th
percentile average of comparable companies, as determined by our compensation consultant, Pearl Meyer & Partners, LLC. Eligible executive
officers may be eligible to receive a cash bonus that will vary in amount depending on our success in achieving certain performance targets
including with respect to achieving $30 million in revenue. In addition, eligible executive officers may also be eligible to receive long
term incentive equity grants comprised of 50% restricted stock units, 30% performance stock units (PSUs) and 20%
stock options. PSUs are based on three year targets comprised 50% of revenue and backlog and 50% total shareholder return. Individual
bonuses are computed based 50% on the company goal, 50% on individual goals. Our Board and/or our compensation committee retains full
discretion to modify or deviate from the framework described above. The foregoing description is intended to summarize our Boards
current compensation framework and is not intended to constitute a binding compensatory plan or arrangement.
****
**ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS.**
****
Not applicable.
47
**PART III**
**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE**
The information required by this item is incorporated
by reference to our definitive proxy statement for our 2026 annual meeting of stockholders. The definitive proxy statement will be filed
with the SEC within 120 days after December 31, 2025.
**ITEM 11. EXECUTIVE COMPENSATION**
****
The information required by this item is incorporated
by reference to our definitive proxy statement for our 2026 annual meeting of stockholders. The definitive proxy statement will be filed
with the SEC within 120 days after December 31, 2025.
**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**
****
The information required by this item is incorporated
by reference to our definitive proxy statement for our 2026 annual meeting of stockholders. The definitive proxy statement will be filed
with the SEC within 120 days after December 31, 2025.
**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**
****
The information required by this item is incorporated
by reference to our definitive proxy statement for our 2026 annual meeting of stockholders. The definitive proxy statement will be filed
with the SEC within 120 days after December 31, 2025.
**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**
****
The information required by this item is incorporated
by reference to our definitive proxy statement for our 2026 annual meeting of stockholders. The definitive proxy statement will be filed
with the SEC within 120 days after December 31, 2025.
48
**PART IV**
**ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.**
****
|
Exhibit |
|
|
|
Reference |
|
Filed or Furnished | |
|
Number |
|
Exhibit Description |
|
Form |
|
Exhibit |
|
Filing Date |
|
Herewith | |
|
2.1 |
|
Agreement and Plan of Merger by and among Quantum Computing Inc., Project Alpha Merger Sub I, Inc., Project Alpha Merger Sub II, LLC, QPhoton, Inc., and Yuping Huang, dated as of May 18, 2022 |
|
8-K |
|
10.1 |
|
05/23/2022 |
|
| |
|
3.1(i) |
|
Amended and Restated Certificate of Incorporation |
|
10-K/A |
|
3.1(i) |
|
07/10/2023 |
|
| |
|
3.1(ii) |
|
Certificate of Designations of the Series A Convertible Preferred Stock |
|
8-K |
|
3.1 |
|
11/17/2021 |
|
| |
|
3.1(iii) |
|
Certificate of Amendment of Certificate of Designations of Series A Convertible Preferred Stock of Quantum Computing Inc., filed with the Delaware Secretary of State on December 16, 2021 |
|
8-K |
|
3.1 |
|
12/17/2021 |
|
| |
|
3.1(iv) |
|
Certificate of Designation with respect to the Series B Preferred Stock, par value $0.0001 per share, dated June 14, 2022 |
|
8-K |
|
3.1 |
|
06/21/2022 |
|
| |
|
3.2 |
|
Amended and Restated By-laws |
|
10-K/A |
|
3.2 |
|
07/10/2023 |
|
| |
|
4.1 |
|
Common Stock Specimen |
|
10-12(g) |
|
4.1 |
|
01/09/2019 |
|
| |
|
4.2 |
|
Description of Securities |
|
10-K |
|
4.4 |
|
04/01/2024 |
|
| |
|
4.3 |
|
Form of Placement Agent Warrant |
|
8-K |
|
4.1 |
|
12/12/2024 |
|
| |
|
4.4 |
|
Form of Placement Agent Warrant |
|
8-K |
|
4.1 |
|
01/08/2025 |
|
| |
|
4.5 |
|
Form of Placement Agent Warrant |
|
10-K |
|
4.5 |
|
03/20/2025 |
|
|
|
4.6 |
|
Unsecured Promissory Note issued by QPhoton, Inc. to Quantum Computing, Inc., in the amount of $1,250,000, dated February 18, 2022 |
|
8-K |
|
10.2 |
|
02/23/2022 |
|
| |
|
10.1* |
|
2019 Quantum Computing Inc. Equity and Incentive Plan |
|
S-1 |
|
10.8 |
|
11/22/2019 |
|
| |
|
10.2* |
|
Form Director Agreement |
|
8-K |
|
10.1 |
|
02/23/2021 |
|
| |
49
|
10.3 |
|
Note Purchase Agreement, dated as of February 18, 2022, between Quantum Computing Inc. and QPhoton, Inc. |
|
8-K |
|
10.1 |
|
02/23/2022 |
|
| |
|
10.4 |
|
Escrow Agreement, dated as of June 16, 2022, by and among Quantum Computing Inc., Yuping Huang and Worldwide Stock Transfer, LLC |
|
8-K |
|
10.2 |
|
06/21/2022 |
|
| |
|
10.5 |
|
Stockholders Agreement by and among Quantum Computing, Inc. and each of the Stockholders set forth on Exhibit A thereto, dated as of June 16, 2022 |
|
8-K |
|
10.3 |
|
06/21/2022 |
|
| |
|
10.6 |
|
Form Registration Rights Agreement |
|
8-K |
|
10.4 |
|
06/21/2022 |
|
| |
|
10.7* |
|
Quantum Computing Inc. 2022 Equity and Incentive Plan |
|
10-K/A |
|
10.42 |
|
07/10/2023 |
|
| |
|
10.8 |
|
Series A Preferred Redemption and Waiver Agreement, dated as of March 19, 2024 |
|
8-K |
|
10.1 |
|
03/25/2024 |
|
| |
|
10.9 |
|
Secured Promissory Note issued to Streeterville Capital, LLC, dated August 6, 2024 |
|
8-K |
|
4.1 |
|
08/12/2024 |
|
| |
|
10.10 |
|
Guaranty by QPhoton, LLC, Qubittech International, Inc., Qubittech, Inc., and QI Solutions, Inc., dated August 6, 2024 |
|
8-K |
|
10.4 |
|
08/12/2024 |
|
| |
|
10.11 |
|
Separation Agreement and General Release dated April 15, 2025, by and between Quantum Computing, Inc. and Dr. William McGann |
|
8-K |
|
10.1 |
|
04/16/2025 |
|
| |
|
10.12* |
|
Employment Agreement between Christopher Roberts and Quantum Computing, Inc., dated as of June 20, 2025 |
|
8-K |
|
10.1 |
|
06/20/2025 |
|
| |
|
10.13* |
|
Quantum Computing, Inc. Non-Employee Director Compensation Policy |
|
|
|
|
|
|
|
X | |
|
10.14 |
|
Stock Purchase Agreement, dated as of December 15, 2025, by and among the Company, Luminar Technologies, Inc. and Luminar Semiconductor, Inc. |
|
8-K |
|
2.1 |
|
12/15/2025 |
|
| |
|
10.15* |
|
Employment Agreement, dated as of December 16, 2025, by and between Quantum Computing Inc. and Yuping Huang |
|
8-K |
|
10.1 |
|
12/17/2025 |
|
| |
|
14.1 |
|
Quantum Computing Inc. Code of Ethics |
|
8-K |
|
14.1 |
|
09/25/2024 |
|
| |
|
19.1 |
|
Quantum Computing Inc. Insider Trading Policy |
|
10-K |
|
19.1 |
|
03/20/2025 |
|
| |
|
21.1 |
|
List of Subsidiaries |
|
|
|
|
|
|
|
X | |
|
23.1 |
|
Consent of BPM LLP, Independent Registered Public Accounting Firm |
|
|
|
|
|
|
|
X | |
|
31.1 |
|
Principal Executive Officer Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X | |
|
31.2 |
|
Principal Financial Officer Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X | |
|
32.1 |
|
Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X | |
|
32.2 |
|
Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley |
|
|
|
|
|
|
|
X | |
|
97.1 |
|
Policy relating to recovery of erroneously awarded compensation. |
|
10-K |
|
97.1 |
|
04/01/2024 |
|
| |
|
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
|
|
X | |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Linkbase Document |
|
|
|
|
|
|
|
X | |
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
X | |
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
X | |
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
X | |
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
X | |
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
|
X | |
|
* | Indicates
a management contract or compensatory plan or arrangement. |
|
50
****
**SIGNATURES**
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Date: March 2, 2026 |
Quantum Computing Inc. | |
|
|
|
| |
|
|
By: |
/s/ Dr. Yuping Huang | |
|
|
|
Dr. Yuping Huang | |
|
|
|
Chief Executive Officer | |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on
the dates indicated.
|
Name |
|
Capacity |
|
Date | |
|
|
|
|
|
| |
|
/s/ Yuping Huang |
|
Chairman of the Board of Directors and Chief Executive Officer |
|
March 2, 2026 | |
|
Yuping Huang |
|
(Principal Executive Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Christopher Roberts |
|
Chief Financial Officer, Treasurer |
|
March 2, 2026 | |
|
Christopher Roberts |
|
(Principal Financial Officer and
Principal Accounting Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Michael Turmelle |
|
Director |
|
March 2, 2026 | |
|
Michael Turmelle |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Robert Fagenson |
|
Vice Chairman of the Board of Directors |
|
March 2, 2026 | |
|
Robert Fagenson |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Dr. Carl Weimer |
|
Director |
|
March 2, 2026 | |
|
Dr. Carl Weimer |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Dr. Javad Shabani |
|
Director |
|
March 2, 2026 | |
|
Dr. Javad Shabani |
|
|
|
| |
|
|
|
|
|
| |
|
/s/ Eric Schwartz |
|
Director |
|
March 2, 2026 | |
|
Eric Schwartz |
|
|
|
| |
51
**QUANTUM COMPUTING INC.**
Index to the Consolidated
Financial Statements
| Description | | Page | |
| Reports of Independent Registered Public Accounting Firm (PCAOB ID207) | | F-2 | |
| Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024 | | F-5 | |
| Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2025, 2024 and 2023 | | F-6 | |
| Consolidated Statements of Mezzanine and Stockholders Equity for the Years Ended December 31, 2025, 2024 and 2023 | | F-7 | |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023 | | F-8 | |
| Notes to the Consolidated Financial Statements | | F-9 | |
F-1
**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
To the Board of Directors and
Stockholders of Quantum Computing, Inc.
**Opinion
on the Consolidated Financial Statements**
We have audited the accompanying
consolidated balance sheets of Quantum Computing, Inc. (a Delaware Corporation) and its subsidiaries (the Company) as
of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive loss, mezzanine and
stockholders equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes
(collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December31, 2025 and 2024,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United States) (PCAOB), the Companys internal control over financial
reporting as of December31, 2025, based on criteria established in *Internal ControlIntegrated Framework (2013)* issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2026, expressed an adverse opinion.
**Basis
for Opinion**
These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
**Critical Audit Matter**
****
The critical audit matter communicated below is
a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated
to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
*Valuation of Warrant Liabilities*
As described in Note 12, on June 16,
2022, the Company merged with QPhoton, Inc., which was accounted for as a business combination using the acquisition method of accounting.
In conjunction with the merger, the Company issued warrants that become exercisable when and if stock options and warrants outstanding
as of the time of the merger are exercised. The Company is accounting for these warrants as a derivative liability and is valued at $7.8
million as of December 31, 2025 and resulted in a mark-to-market gain of $11.8 million in the year ended December 31, 2025.
The principal considerations for our determination
that performing procedures relating to the valuation of the derivative liability is a critical audit matter due to the significant amount
of judgment by management required in estimating the fair value of the warrants, including the use of valuation methodologies that were
sensitive to significant assumptions, specifically the probability of the underlying options and warrants being exercised, which is affected
by expected future market or economic conditions, which in turn led to significant auditor judgment, subjectivity and effort in performing
audit procedures and evaluating audit evidence relating to the analysis.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among
others, assessing the appropriateness of the valuation methodologies and testing the significant assumptions discussed above, specifically
the probability of the underlying options and warrants being exercise, and other factors considered by management in developing the model.
****
We have
served as the Companys auditor since 2024.
/s/ BPM LLP
San Jose, California
March 2, 2026
****
F-2
****
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM**
To the Board of Directors and
Stockholders of Quantum Computing, Inc
****
**Opinion on Internal Control
Over Financial Reporting**
We have
audited the internal control over financial reporting of Quantum Computing, Inc (a Delaware corporation) and its subsidiaries (the Company)
as of December 31, 2025 based on *Internal ControlIntegrated Framework (2013)* issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on
the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting
as of December 31, 2025, based on criteria established in *Internal ControlIntegrated Framework (2013)*issued by COSO.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets as of December 31, 2025 and 2024 and the related consolidated statements of
operations and comprehensive loss, mezzanine and stockholders equity, and cash flows for each of the three years in the period ended
December 31, 2025 and the related notes (collectively referred to as the consolidated financial statements) of the
Company, and our report dated March 2, 2026 expressed an unqualified opinion on those consolidated financial statements.
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 Companys annual or interim financial statements will not be prevented or detected
on a timely basis. The following material weaknesses have been identified and included in Report of Management on Internal Control over
Financial Reporting appearing under Item 9A:
|
i. | The Company did not
design and maintain an effective control environment commensurate with its financial reporting requirements. During the year, the Company
lacked a sufficient number of trained professionals with (a) an appropriate level of accounting knowledge, training and experience to
appropriately analyze, record and disclose accounting matters timely and accurately, and (b) an appropriate level of knowledge and experience
to establish effective processes and controls. Additionally, the limited personnel resulted in an inability to consistently establish
appropriate authorities and responsibilities in pursuit of financial reporting objectives, as demonstrated by, among other things, insufficient
segregation of duties in the Companys finance and accounting functions; |
|
|
ii. | The Company did not
design and maintain an effective risk assessment process at a precise enough level to identify new and evolving risks of material misstatement
in their financial statements. Specifically, changes to existing controls or the implementation of new controls have not been sufficient
to respond to changes to the risks of material misstatement to financial reporting; and |
|
|
iii. | The Company did not
design and maintain effective controls over information technology general controls for information systems that are relevant to the
preparation of its consolidated financial statements. Specifically, the Company did not design and maintain: |
|
|
a. | user access controls
to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs,
and data to appropriate company personnel; |
|
|
b. | program change management
controls to ensure that information technology program and data changes affecting financial information technology applications and underlying
accounting records are identified, tested, authorized, and implemented appropriately; |
|
|
c. | computer operations
controls to ensure that data backups are authorized and monitored; and |
|
|
d. | review of reports for
third-party service organizations associated with IT systems and related complementary user entity controls maintained by management. |
|
F-3
**Basis for Opinion**
The Companys
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted
our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
**Definition and Limitations
of Internal Control Over Financial Reporting**
A companys
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on
the consolidated financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
****
/s/ BPM LLP****
San Jose, California
March 2, 2026
F-4
**QUANTUM COMPUTING INC.**
Consolidated Balance Sheets
*(In thousands, except par value)*
****
|
| |
December31, | | |
December31, | | |
|
| |
2025 | | |
2024 | | |
|
Assets | |
| | |
| | |
|
Current assets: | |
| | |
| | |
|
Cash and cash equivalents | |
$ | 737,880 | | |
$ | 78,945 | | |
|
Accounts receivable, net | |
| 519 | | |
| 27 | | |
|
Inventory | |
| 352 | | |
| 18 | | |
|
Loans receivable, net | |
| - | | |
| - | | |
|
Short Term Investments | |
| 379,421 | | |
| - | | |
|
Accrued interest receivable | |
| 3,634 | | |
| - | | |
|
Prepaid expenses and other current assets | |
| 11,914 | | |
| 161 | | |
|
Total current assets | |
| 1,133,720 | | |
| 79,151 | | |
|
Property and equipment, net | |
| 12,971 | | |
| 8,212 | | |
|
Operating lease right-of-use assets | |
| 2,353 | | |
| 1,522 | | |
|
Intangible assets, net | |
| 6,500 | | |
| 8,972 | | |
|
Goodwill | |
| 55,573 | | |
| 55,573 | | |
|
Long-term investments | |
| 403,121 | | |
| - | | |
|
Accrued interest receivable - long term | |
| 4,551 | | |
| - | | |
|
Other non-current assets | |
| 131 | | |
| 129 | | |
|
Total assets | |
$ | 1,618,920 | | |
$ | 153,559 | | |
|
| |
| | | |
| | | |
|
Liabilities and Stockholders Equity | |
| | | |
| | | |
|
Current liabilities: | |
| | | |
| | | |
|
Accounts payable | |
$ | 778 | | |
$ | 1,372 | | |
|
Accrued expenses | |
| 9,135 | | |
| 2,134 | | |
|
Deferred revenue | |
| 395 | | |
| 79 | | |
|
Other current liabilities | |
| 766 | | |
| 974 | | |
|
Total current liabilities | |
| 11,074 | | |
| 4,559 | | |
|
Derivative liability | |
| 7,773 | | |
| 40,532 | | |
|
Operating lease liabilities | |
| 1,808 | | |
| 1,181 | | |
|
Total liabilities | |
| 20,655 | | |
| 46,272 | | |
|
Contingencies (see Note 10) | |
| | | |
| | | |
|
Stockholders equity: | |
| | | |
| | | |
|
Preferred stock, $0.0001 par value, 1,550 shares Series A Preferred authorized; no shares issued and outstanding as of December 31, 2025 and 2024, respectively; 3,080 thousand shares of Series B Preferred Stock authorized; no shares issued and outstanding as of December 31, 2025 and 2024, respectively | |
| - | | |
| - | | |
|
Common stock, $0.0001 par value, 250,000 thousand shares authorized; 224,165 and 129,012 shares issued and outstanding as of December 31, 2025 and 2024, respectively | |
| 22 | | |
| 13 | | |
|
Additional paid-in capital | |
| 1,816,494 | | |
| 307,756 | | |
|
Accumulated deficit | |
| (219,156 | ) | |
| (200,482 | ) | |
|
Accumulated other comprehensive income | |
| 905 | | |
| - | | |
|
Total stockholders equity | |
| 1,598,265 | | |
| 107,287 | | |
|
Total liabilities and mezzanine and stockholders equity | |
$ | 1,618,920 | | |
$ | 153,559 | | |
*The accompanying notes are an integral part
of these consolidated financial statements.*
**
F-5
****
**QUANTUM COMPUTING INC.**
Consolidated Statements of Operations and Comprehensive
Loss
*(In thousands, except per share data)*
|
| |
Year Ended | | |
|
| |
December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Total revenue | |
$ | 682 | | |
$ | 373 | | |
$ | 358 | | |
|
Cost of revenue | |
| 615 | | |
| 261 | | |
| 196 | | |
|
Gross profit | |
| 67 | | |
| 112 | | |
| 162 | | |
|
Operating expenses | |
| | | |
| | | |
| | | |
|
Research and development | |
| 20,473 | | |
| 11,318 | | |
| 8,891 | | |
|
Sales and marketing | |
| 3,431 | | |
| 1,818 | | |
| 1,806 | | |
|
General and administrative | |
| 27,240 | | |
| 12,913 | | |
| 15,708 | | |
|
Total operating expenses | |
| 51,144 | | |
| 26,049 | | |
| 26,405 | | |
|
Loss from operations | |
| (51,077 | ) | |
| (25,937 | ) | |
| (26,243 | ) | |
|
Non-operating income (expense) | |
| | | |
| | | |
| | | |
|
Interest and other income, net | |
| 20,718 | | |
| 423 | | |
| 295 | | |
|
Interest expense | |
| (65 | ) | |
| (2,496 | ) | |
| (1,602 | ) | |
|
Change in fair value of derivative liability | |
| 11,750 | | |
| (40,532 | ) | |
| 528 | | |
|
Loss before income tax provision | |
| (18,674 | ) | |
| (68,542 | ) | |
| (27,022 | ) | |
|
Income tax provision | |
| - | | |
| - | | |
| - | | |
|
Net Loss | |
| (18,674 | ) | |
| (68,542 | ) | |
| (27,022 | ) | |
|
| |
| | | |
| | | |
| | | |
|
Less: Series A convertible preferred stock dividends | |
| - | | |
| - | | |
| 861 | | |
|
Net loss attributable to common stockholders | |
| (18,674 | ) | |
| (68,542 | ) | |
| (27,883 | ) | |
|
Other comprehensive income (loss): | |
| | | |
| | | |
| | | |
|
Unrealized gain on available-for-sale
debt securities (net of tax) | |
| 905 | | |
| - | | |
| - | | |
|
Total comprehensive income (loss) | |
$ | (17,769 | ) | |
$ | (68,542 | ) | |
$ | (27,883 | ) | |
|
| |
| | | |
| | | |
| | | |
|
Loss per share: | |
| | | |
| | | |
| | | |
|
Basic and Diluted | |
$ | (0.11 | ) | |
$ | (0.73 | ) | |
$ | (0.42 | ) | |
|
| |
| | | |
| | | |
| | | |
|
Weighted average shares used in computing net loss per common share: | |
| | | |
| | | |
| | | |
|
Basic and Diluted | |
| 164,492 | | |
| 93,881 | | |
| 66,611 | | |
**
*The accompanying notes are an integral part
of these consolidated financial statements.*
**
F-6
**QUANTUM COMPUTING INC.**
Consolidated Statements of Mezzanine and Stockholders
Equity
*(In thousands, except per share data)*
|
| |
Year Ended December 31, | | |
|
| |
| | |
SeriesA | | |
| | |
| | |
Additional | | |
| | |
Accumulated Other | | |
Total | | |
|
| |
Mezzanine | | |
Preferred Stock | | |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Comprehensive | | |
Stockholders | | |
|
| |
Equity | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
(Loss)Income | | |
Equity | | |
|
Balances, January 1, 2023 | |
$ | - | | |
| 1,500 | | |
$ | - | | |
| 55,963 | | |
$ | 6 | | |
$ | 169,175 | | |
$ | (104,057 | ) | |
$ | - | | |
$ | 65,124 | | |
|
Issuance of shares for cash | |
| - | | |
| - | | |
| - | | |
| 17,572 | | |
| 2 | | |
| 24,728 | | |
| - | | |
| - | | |
| 24,730 | | |
|
Conversion of preferred stock | |
| - | | |
| (10 | ) | |
| - | | |
| 11 | | |
| - | | |
| 1 | | |
| - | | |
| - | | |
| 1 | | |
|
Preferred stock dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (861 | ) | |
| - | | |
| (861 | ) | |
|
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| 2,330 | | |
| - | | |
| 4,238 | | |
| - | | |
| - | | |
| 4,238 | | |
|
Stock-based compensation for services | |
| - | | |
| - | | |
| - | | |
| 1,575 | | |
| - | | |
| 2,493 | | |
| - | | |
| - | | |
| 2,493 | | |
|
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (27,022 | ) | |
| - | | |
| (27,022 | ) | |
|
Balances, December 31, 2023 | |
| - | | |
| 1,490 | | |
| - | | |
| 77,451 | | |
| 8 | | |
| 200,635 | | |
| (131,940 | ) | |
| - | | |
| 68,703 | | |
|
Issuance of shares for cash | |
| - | | |
| - | | |
| - | | |
| 49,679 | | |
| 5 | | |
| 106,761 | | |
| - | | |
| - | | |
| 106,766 | | |
|
Conversion of Series A preferred stock to common stock | |
| (4,097 | ) | |
| (745 | ) | |
| - | | |
| 745 | | |
| - | | |
| 4,097 | | |
| - | | |
| - | | |
| 4,097 | | |
|
Reclassification of Series A preferred stock to mezzanine equity | |
| 8,195 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (8,195 | ) | |
| - | | |
| - | | |
| (8,195 | ) | |
|
Repurchase of redeemable shares | |
| (4,098 | ) | |
| (745 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| 995 | | |
| - | | |
| 4,322 | | |
| - | | |
| - | | |
| 4,322 | | |
|
Stock-based compensation for services | |
| - | | |
| - | | |
| - | | |
| 142 | | |
| - | | |
| 136 | | |
| - | | |
| - | | |
| 136 | | |
|
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (68,542 | ) | |
| - | | |
| (68,542 | ) | |
|
Balances, December 31, 2024 | |
| - | | |
| - | | |
| - | | |
| 129,012 | | |
| 13 | | |
| 307,756 | | |
| (200,482 | ) | |
| - | | |
| 107,287 | | |
|
Issuance of shares for cash | |
| - | | |
| - | | |
| - | | |
| 86,250 | | |
| 8 | | |
| 1,475,136 | | |
| - | | |
| - | | |
| 1,475,144 | | |
|
Issuance of shares related to exercise of warrants | |
| - | | |
| - | | |
| - | | |
| 3,477 | | |
| 1 | | |
| 23,420 | | |
| - | | |
| - | | |
| 23,421 | | |
|
Stock-based compensation | |
| - | | |
| - | | |
| - | | |
| 5,426 | | |
| - | | |
| 10,163 | | |
| - | | |
| - | | |
| 10,163 | | |
|
Stock-based compensation for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 19 | | |
| - | | |
| - | | |
| 19 | | |
|
Issuance of shares related to stock option exercises | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (18,674 | ) | |
| - | | |
| (18,674 | ) | |
|
Unrealized gains on available-for-sale debt securities | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 905 | | |
| 905 | | |
|
Balances, December 31, 2025 | |
$ | - | | |
| - | | |
$ | - | | |
| 224,165 | | |
$ | 22 | | |
$ | 1,816,494 | | |
$ | (219,156 | ) | |
$ | 905 | | |
$ | 1,598,265 | | |
*The accompanying notes are an integral part
of these consolidated financial statements.*
**
F-7
**QUANTUM COMPUTING INC.**
Consolidated Statements of Cash Flows
*(In thousands)*
|
|
|
Year Ended December 31, |
| |
|
|
|
2025 |
|
|
2024 |
|
|
2023 |
| |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| |
|
Net loss |
|
$ |
(18,674 |
) |
|
$ |
(68,542 |
) |
|
$ |
(27,022 |
) | |
|
Adjustments to reconcile net loss to net cash used in operations |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and intangibles amortization |
|
|
4,403 |
|
|
|
3,798 |
|
|
|
3,307 |
| |
|
Amortization of issuance costs |
|
|
- |
|
|
|
2,059 |
|
|
|
925 |
| |
|
Change in fair value of derivative liability |
|
|
(11,750 |
) |
|
|
40,532 |
|
|
|
(528 |
) | |
|
Change in value of derivative |
|
|
- |
|
|
|
(666 |
) |
|
|
- |
| |
|
Provision for credit losses |
|
|
- |
|
|
|
279 |
|
|
|
279 |
| |
|
Amortization of operating lease right-of-use assets |
|
|
540 |
|
|
|
294 |
|
|
|
222 |
| |
|
Stock-based compensation expense |
|
|
8,659 |
|
|
|
5,782 |
|
|
|
4,271 |
| |
|
Stock-based compensation expense for services |
|
|
18 |
|
|
|
23 |
|
|
|
284 |
| |
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable |
|
|
(492 |
) |
|
|
38 |
|
|
|
(52 |
) | |
|
Inventory |
|
|
(334 |
) |
|
|
55 |
|
|
|
(70 |
) | |
|
Accrued interest receivable |
|
|
(8,185 |
) |
|
|
- |
|
|
|
- |
| |
|
Prepaid expenses and other current assets |
|
|
(11,753 |
) |
|
|
16 |
|
|
|
(110 |
) | |
|
Other non-current assets |
|
|
(2 |
) |
|
|
- |
|
|
|
(69 |
) | |
|
Accounts payable |
|
|
(594 |
) |
|
|
(90 |
) |
|
|
596 |
| |
|
Deferred revenue |
|
|
316 |
|
|
|
79 |
|
|
|
- |
| |
|
Accrued expenses and other current liabilities |
|
|
7,966 |
|
|
|
362 |
|
|
|
(112 |
) | |
|
Operating lease liabilities |
|
|
(412 |
) |
|
|
(236 |
) |
|
|
(241 |
) | |
|
Net cash used in operating activities |
|
|
(30,294 |
) |
|
|
(16,213 |
) |
|
|
(18,315 |
) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Purchase of property and equipment |
|
|
(6,690 |
) |
|
|
(6,036 |
) |
|
|
(2,112 |
) | |
|
Issuance of loan receivable |
|
|
- |
|
|
|
- |
|
|
|
(500 |
) | |
|
Purchases of available-for-sale debt securities |
|
|
(1,197,865 |
) |
|
|
- |
|
|
|
- |
| |
|
Proceeds from sales of available-for-sale debt securities |
|
|
376,331 |
|
|
|
- |
|
|
|
- |
| |
|
Proceeds from maturities of available-for-sale debt securities |
|
|
39,904 |
|
|
|
- |
|
|
|
- |
| |
|
Other recognized losses (gains) |
|
|
(7 |
) |
|
|
- |
|
|
|
- |
| |
|
Net cash used in investing activities |
|
|
(788,327 |
) |
|
|
(6,036 |
) |
|
|
(2,612 |
) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Proceeds raised from financial liabilities, net of issuance costs |
|
|
- |
|
|
|
6,995 |
|
|
|
- |
| |
|
Payments of financial liabilities, net of interest |
|
|
- |
|
|
|
(10,313 |
) |
|
|
(6,187 |
) | |
|
Series A Preferred stock dividend payments |
|
|
- |
|
|
|
(215 |
) |
|
|
(865 |
) | |
|
Repurchase of Series A preferred stock |
|
|
- |
|
|
|
(4,098 |
) |
|
|
- |
| |
|
Proceeds from stock issuance related to ATM facility |
|
|
- |
|
|
|
- |
|
|
|
- |
| |
|
Net proceeds from exercise of warrants |
|
|
2,412 |
|
|
|
- |
|
|
|
- |
| |
|
Net proceeds from issuance of common stock |
|
|
1,475,144 |
|
|
|
106,766 |
|
|
|
24,730 |
| |
|
Net cash provided by financing activities |
|
|
1,477,556 |
|
|
|
99,135 |
|
|
|
17,678 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net increase (decrease) in cash |
|
|
658,935 |
|
|
|
76,886 |
|
|
|
(3,249 |
) | |
|
Cash and cash equivalents, beginning of period |
|
|
78,945 |
|
|
|
2,059 |
|
|
|
5,308 |
| |
|
Cash and cash equivalents, end of period |
|
$ |
737,880 |
|
|
$ |
78,945 |
|
|
$ |
2,059 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash paid for interest |
|
$ |
- |
|
|
$ |
268 |
|
|
$ |
813 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair value of derivative liability reclassed to additional paid-in capital due to exercise of warrants |
|
$ |
21,009 |
|
|
$ |
- |
|
|
$ |
- |
| |
|
Issuance of stock expensed from 2024, awarded in 2025 |
|
$ |
1,507 |
|
|
$ |
- |
|
|
$ |
- |
| |
|
Leased assets obtained in exchange for new operating lease liabilities |
|
$ |
1,371 |
|
|
$ |
765 |
|
|
$ |
- |
| |
|
Reclassification of Series A preferred stock to mezzanine equity |
|
$ |
- |
|
|
$ |
8,195 |
|
|
$ |
- |
| |
|
Valuation of derivative associated with convertible financial liability |
|
$ |
- |
|
|
$ |
666 |
|
|
$ |
- |
| |
|
Conversion of Series A preferred to common stock |
|
$ |
- |
|
|
$ |
4,097 |
|
|
$ |
- |
| |
*The accompanying notes are an integral part
of these consolidated financial statements.*
**
F-8
**QUANTUM COMPUTING INC.**
Notes to Consolidated Financial Statements
December 31, 2025
**Note 1 Nature of the Organization and
Business**
*Corporate History*
Quantum Computing Inc. (QCi or the
Company) was formed in the State of Nevada on July 25, 2001, under its original name, Ticketcart, Inc., which was changed
to Innovative Beverage Group Holdings, Inc. in 2009. The Company redomiciled to Delaware on February 22, 2018 and changed its name to
Quantum Computing Inc. Effective July 20, 2018, the trading symbol for the Companys common stock, par value $0.0001, on the OTC
Market changed from IBGH to QUBT. On July 15, 2021, the Company uplisted to The Nasdaq Stock Market LLC. On
June 16, 2022, the Company merged (the QPhoton Merger) with QPhoton, Inc. (QPhoton), a developer of quantum
photonic systems and related technologies and applications. The QPhoton Merger enabled us to develop hardware applications integrated
with the Companys software platform, Qatalyst, that existed before the QPhoton Merger.
*Nature of Business*
QCi is an American company utilizing integrated
photonics and non-linear quantum optics to develop and deliver machines for quantum computing, reservoir computing, and remote sensing,
imaging and cybersecurity applications based on patented and proprietary photonics technology. QCis products are designed to operate
at room temperature and at very low power levels compared to other quantum systems currently available in the market, such as superconducting,
ion-trap, or annealing architectures. Our core photonics technology enables the execution of a go-to-market strategy which emphasizes
scalability, accessibility and affordability. Our quantum machines, supported by professional services through our Quantum Solutions
offering, enable subject matter experts (SMEs) and end users to deliver critical business solutions involving highly complex optimization
problems.
The leading application of our quantum offerings
today is our Entropy Quantum Computing (EQC). Our longer-term product development plan is to migrate the EQCs current
design, as well as other product designs based on discrete components, to a set of TFLN optical integrated circuits built on TFLN wafers.
*Liquidity*
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the continuity of operations, the realization of assets, and the satisfaction of liabilities
in the normal course of business. We have not achieved a level of sales adequate to support the Companys cost structure. Cash and
cash equivalents on hand were $737.9 million and $790.7 million in investments and accrued interest as of December 31, 2025. The Company
has historically incurred losses and negative cash flows from operations. During the year ended December 31, 2025, the Company issued
86.3 million shares of common stock for net proceeds of $1,475.1 million. As of December 31, 2025, the Company also had an accumulated
deficit of $219.2 million and working capital of $1,122.7 million. As a result, the Company has adequate cash and cash equivalents on
hand to meet its obligations over the next 12 months.
**Note 2 Significant Accounting Policies:**
*Basis of Presentation and Principles of Consolidation:*
The Company prepares its consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) as determined
by the Financial Accounting Standards Board (the FASB), including ASC 810, *Consolidation*. The accompanying consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation. The Companys fiscal year end is December 31.
F-9
*Risk and Uncertainties*
The Company is subject to certain risks and uncertainties
and believes changes in any of the following areas could have a material adverse effect on the Companys future consolidated financial
position or consolidated results of operations or cash flows: new product development, including market receptivity; litigation or claims
against the Company based on intellectual property, patent, product regulation or other factors; competition from other products; general
economic conditions; the ability to attract and retain qualified employees; and, ultimately, to sustain profitable operations.
**
*Reclassifications*
**
Certain reclassifications have been made to the fiscal year 2024 and
2023 consolidated financial statements to conform to the fiscal year 2025 presentation. The reclassifications had no impact on net loss,
total assets, total liabilities, or stockholders equity.
**
*Use of Estimates*
These consolidated financial statements have been
prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during
the reporting period. Some of the more significant estimates required to be made by management include the valuation of goodwill and intangible
assets, deferred tax assets, equity-based transactions and liquidity assessment. Actual results may differ from these estimates.
**
*Cash and Cash Equivalents*
Highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents. The Company maintains its cash in mutual funds and deposit and money
market accounts with high quality financial institutions which, at times, may exceed federally insured limits. As of December 31, 2025
and December 31, 2024, the Company had $720.6 million and $78.9 million, respectively, in cash equivalents invested in mutual funds. The
Company has not experienced any losses on these deposits and believes it is not exposed to significant credit risk on cash.
*Marketable Securities: Available-For-Sale Debt
Securities*
The Company invests excess cash balances in marketable
debt securities. The Company classifies investments in marketable debt securities as available-for-sale. Management determines the appropriate
classification of its investments in available-for-sale debt securities at the time of purchase and reevaluates such designation as of
each reporting date. The Company reports available-for-sale debt securities at fair value at each balance sheet date, and includes any
unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of shareholders
equity. Realized gains and losses are determined using the specific-identification method, and are included in interest and other income,
net in the consolidated statements of operations and comprehensive loss. The Company classifies available-for-sale debt securities as
current or non-current based on managements intentions or maturity of the securities.
The Company evaluates securities for impairment
at the end of each reporting period. Impairment is evaluated considering numerous factors, and their relative significance varies depending
on the situation. Factors considered include whether a decline in fair value below the amortized cost basis is due to credit-related factors
or non-credit-related factors, the financial condition and near-term prospects of the issuer, and the Companys intent and ability to
hold the investment to allow for an anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the
balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit- related is recognized in other comprehensive
income (loss), net of applicable taxes.
*Revenue*
The Company recognizes revenue in accordance with
ASC 606 *Revenue from Contracts with Customers*, by analyzing contracts with its customers using a five-step approach:
|
|
1. |
Identify the contract | |
|
|
2. |
Identify the performance obligations | |
F-10
|
3. |
Determine the transaction price | |
|
|
|
| |
|
|
4. |
Allocate the transaction price to the performance obligations | |
|
|
|
| |
|
|
5. |
Recognize revenue when performance obligations are satisfied | |
The revenue the Company has recognized in the
years ended December 31, 2025, 2024 and 2023 were primarily derived from contracts to perform professional services. Revenue from time
and materials-based contracts is recognized as the direct hours worked during the period times the contractual hourly rate, plus direct
materials and other direct costs as appropriate, plus negotiated materials handling burdens, if any. Revenue from units-based contracts
is recognized as the number of units delivered or performed during the period times the contractual unit price. Revenue from fixed price
contracts is recognized as work is performed with estimated profits recorded on a percentage of completion basis. The Company has no cost-plus
type contracts at this time.
The Company includes depreciation and amortization
expenses in manufacturing overhead, which is a component of cost of revenue. However, at the present time manufacturing overhead, including
depreciation and amortization expense related to production equipment, is not material and the primary components of cost of revenue are
direct labor and direct materials, with a small amount of shipping expenses.
The Companys revenue consists of (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Services | |
$ | 368 | | |
$ | 346 | | |
$ | 353 | | |
|
Products | |
| 314 | | |
| 27 | | |
| 5 | | |
|
Total | |
$ | 682 | | |
$ | 373 | | |
$ | 358 | | |
The Company disaggregates revenue from contracts
with customers based on the timing of transfer of goods or services to customers (point-in-time or over time) and geographic region based
on the shipping location of the customer. The geographic regions that are tracked for the years ended December 31, 2025, 2024 and 2023
are the Americas and Europe.
Total net sales based on the disaggregation criteria
described above are as follows (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
| |
Point-in-Time | | |
OverTime | | |
Total | | |
Point-in-Time | | |
OverTime | | |
Total | | |
Point-in-Time | | |
OverTime | | |
Total | | |
|
Americas | |
$ | 21 | | |
$ | 571 | | |
$ | 592 | | |
$ | 27 | | |
$ | 346 | | |
$ | 373 | | |
$ | 5 | | |
$ | 337 | | |
$ | 342 | | |
|
Europe | |
| 53 | | |
| 12 | | |
| 65 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16 | | |
| 16 | | |
|
Asia | |
| 23 | | |
| 2 | | |
| 25 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Total | |
$ | 97 | | |
$ | 585 | | |
$ | 682 | | |
$ | 27 | | |
$ | 346 | | |
$ | 373 | | |
$ | 5 | | |
$ | 353 | | |
$ | 358 | | |
**
F-11
*Accounts Receivable*
Accounts receivable consists of amounts due from
customers for work performed on contracts. The Company records accounts receivable at their net realizable value. Periodically the Company
evaluates its accounts receivable to establish a provision for credit losses, when deemed necessary, based on the history of past write-offs,
collections and current credit conditions. The customer accounts receivable are considered fully collectible in the years ended December
31, 2025, December 31, 2024 and December 31, 2023.
*Provision for Credit Losses*
The Company estimates losses on loans and other
financial instruments in accordance with Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial
Instruments. ASU 2016-13 introduces the current expected credit losses (CECL) methodology for estimating allowances for
credit losses. The CECL framework requires the Company to measure all expected credit losses for financial assets held at the reporting
date based on historical experience, current conditions and reasonable and supporting forecasts. Under CECL, the allowance for credit
losses is measured as the difference between the financial assets cost basis and the net amount expected to be collected on the
financial asset. CECL allows us to use information about past events including historical loan loss experience, current conditions, and
reasonable and supportable forecasts to assess the collectability of the financial assets. The receivables for financial assets as of
December 31, 2025 and 2024 are not considered fully collectible and thus management has recorded a provision for credit losses. See Note
11, *Loan Receivable*, for additional information.
*Inventory*
Inventory is stated at the lower of cost or net
realizable value. Cost is determined on a standard cost basis which approximates actual cost on a first in-first out method. Lower of
cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors.
Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired
inventory and are charged to cost of revenue. Once the cost of the inventory is reduced, a new lower-cost basis for that inventory is
established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established
cost basis. Factors influencing these adjustments include changes in demand, product life cycle and development plans, component cost
trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors
differ from our estimates.
*Operating Leases*
The Company determines if an arrangement is a
lease at inception. Operating lease right-of-use (ROU) assets are included in right-of-use assets, net on the consolidated
balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities
and non-current operating lease liabilities, respectively, on the consolidated balance sheets.
Operating lease ROU assets and operating lease
liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Companys
leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement
date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense
for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less
are not recorded on the consolidated balance sheet. All of our operating leases are comprised of office space leases, and as of December
31, 2025 and 2024, we had no finance leases.
**
*Valuation of Goodwill*
The Company reviews goodwill for impairment on an annual basis or whenever
events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an annual impairment test
by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by
which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount
of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill carrying amount of the
reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The Company has determined that it has
a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to assess impairment,
its common stock price is an important component of the fair value calculation. If the Companys stock price continues to experience
significant price and volume fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment
in future periods. The Company performed its annual impairment test during the fourth quarter of fiscal 2025 and 2024 and determined that
its goodwill was not impaired. As of December 31, 2025 and 2024, we had not identified any factors that indicated there was an impairment
of our goodwill and determined that no additional impairment analysis was then required. There were no impairments recorded for any period
presented.
F-12
*Property and Equipment*
Property and equipment are stated at cost or contributed
value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives,
and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term.
The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Maintenance and repairs are charged
against expense as incurred.
**
*Impairment of Long-Lived Assets*
The Company has long-lived assets such as tangible
property and equipment, identified intangible assets consisting of acquired patents and core technology. When events or changes in circumstances
occur that could indicate the carrying value of long-lived assets may not be recoverable, the Company assesses recoverability by determining
whether the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If the
undiscounted cash flow is less, an impairment charge is recognized for the excess of the carrying amounts of these assets over the fair
values. Fair values are determined by discounted future cash flows, appraisals or other methods.
During years ended December 31, 2025, 2024 and
2023, the Company did not record any impairment from long-lived assets.
**
*Research and Development Cost**s***
Research and development costs include costs directly
attributable to the conduct of research and development programs, including the cost of services provided by outside contractors, acquiring
work-in-progress intellectual property, development, and mandatory compliance fees and contractual obligations. All costs associated with
research and development are expensed as incurred.
*Software Development Cost**s***
Software development costs incurred subsequent
to the establishment of technological feasibility for software intended to be sold, licensed or otherwise marketed to customers will be
capitalized, but development costs not meeting the criteria for capitalization are expensed as incurred. With respect to internal use
software, the Company will capitalize such development costs incurred during the application development stage, but development costs
incurred prior to that stage will be expensed as incurred. No amortization expense will be recorded until the software is ready for its
intended use. To date the Company has not incurred any material capitalizable software development costs.
**
*Stock-based Compensation*
Stock-based compensation expense for awards expected
to vest is recognized using the straight-line attribution method over the requisite service period and reflects actual forfeitures as
they occur. We estimate the fair value of stock option awards on the grant date using the Black-Scholes option pricing model. The Black-Scholes
model requires the use of several highly subjective assumptions, including expected volatility, expected option life, and the risk-free
interest rate. These assumptions represent managements best estimates, and changes in these estimates could have a material impact
on the amount of stock-based compensation expense recognized in future periods.
F-13
*Income Taxes*
The Company uses the asset and liability method
of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences
are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax assets where, based upon the available evidence, management
concludes that it is more-likely-than-not that the deferred tax assets will not be realized. Realization of deferred tax assets is also
dependent upon future earnings, if any, the timing and amount of which are uncertain.
The Company records a liability for the uncertain
tax positions taken or expected to be taken on the Companys tax return when it is more-likely-than-not that the tax position might
be challenged despite the Companys belief that the tax return positions are fully supportable, and additional taxes will be due
as a result. To the extent that the assessment of such tax positions changes, for example, based on the outcome of a tax audit, the change
in estimate is recorded in the period in which the determination is made. The provision for income taxes includes the impact of provisions
for uncertain tax positions.
*Net Loss Per Share:*
Basic net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is
computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the
number of additional common shares that would have been outstanding if the common share equivalents had been issued (computed using the
If-Converted method), unless the effect of such issuances would have been anti-dilutive.
The following table sets forth the computation
of basic and diluted loss per share (in thousands, except for per share data):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Basic net income (loss) per common share: | |
| | |
| | |
| | |
|
Numerator: | |
| | |
| | |
| | |
|
Net loss | |
$ | (18,674 | ) | |
$ | (68,542 | ) | |
$ | (27,022 | ) | |
|
Less: Series A convertible preferred stock dividends | |
| - | | |
| - | | |
| 861 | | |
|
Net loss available to common stockholders | |
| (18,674 | ) | |
| (68,542 | ) | |
| (27,883 | ) | |
|
| |
| | | |
| | | |
| | | |
|
Denominator: | |
| | | |
| | | |
| | | |
|
Weighted average outstanding shares of common share - basic | |
| 164,492 | | |
| 93,881 | | |
| 66,611 | | |
|
Loss per common share basic and diluted | |
$ | (0.11 | ) | |
$ | (0.73 | ) | |
$ | (0.42 | ) | |
Net loss per share is based on the weighted average
number of common shares and common share equivalents outstanding during the period.
F-14
In periods with a reported net loss, the effect
of anti-dilutive stock options, unvested restricted common stock and warrants are excluded and diluted loss per share is equal to basic
loss per share. Due to a net loss in the years ended December 31, 2025, 2024 and 2023, there were no dilutive securities and hence basic
and diluted loss per share were the same. The following is a summary of the weighted average common stock equivalents for the securities
outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their
effect would be anti-dilutive (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Warrants | |
| 1,599 | | |
| 2,583 | | |
| 6,053 | | |
|
Options | |
| 5,510 | | |
| 12,907 | | |
| 12,280 | | |
|
Unvested restricted common stock | |
| 1,200 | | |
| 2,997 | | |
| 1,192 | | |
|
Total potentially dilutive shares | |
| 8,309 | | |
| 18,487 | | |
| 19,525 | | |
As all potentially dilutive securities are anti-dilutive
as of December 31, 2025, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each period.
*Recently Adopted Accounting Standards*
**
On December 14, 2023, the FASB issued Accounting Standard Update (ASU)
2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under ASU 2023-09, entities are required to uniformly classify
and present greater disaggregation of information in the rate reconciliation and income taxes paid. ASU 2023-09 is intended to benefit
users of the consolidated financial statements by improving transparency and decision usefulness of income tax disclosures. The new standard
is effective for annual periods beginning after December 15, 2024 for public companies. The Company adopted ASU 2023-09 as of January
1, 2025. The standard did not have a material effect on the Companys consolidated financial statements.
**
*Recently Issued Accounting Pronouncements Not
Yet Adopted*
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise
discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial
position or results of operations upon adoption.
In November 2024, the FASB issued ASU 2024-03,
*Income Statement Reporting Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses* (ASU 2024-03),
which requires public entities to provide disaggregated disclosures of certain expense captions presented on the face of the income statement
into specific categories within the notes to the consolidated financial statements. ASU 2024-03 is effective for the Companys annual
periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption
permitted. The ASU may be applied either on a prospective or retrospective basis. The Company is currently evaluating the impact of the
adoption of ASU 2024-03 on its consolidated financial statements and related disclosures.
On July 30, 2025, the FASB issued ASU 2025-05, *Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets*, which amends ASC 326-20 to
provide a practical expedient (for all entities) and an accounting policy election (for all entities, other than public business entities,
that elect the practical expedient) related to the estimation of expected credit losses for current accounts receivable and current contract
assets that arise from transactions accounted for under ASC 606. The standard is effective for annual reporting periods beginning after
December 15, 2025, including interim periods, and allows for early adoption. The Company is currently evaluating the impact on its consolidated
financial statements and related disclosures.
F-15
In December 2025, the FASB issued ASU No. 2025-11,*Interim
Reporting (Topic 270): Narrow-Scope Improvements*(ASU 2025-11), which clarifies interim disclosure requirements and the applicability
of Topic 270. The guidance will be effective for interim periods beginning January 1, 2028. Early adoption is permitted. Upon adoption,
the guidance can be applied prospectively or retrospectively. We do not expect the adoption of this guidance to have a material impact
on our consolidated financial statements.
**Note 3 Segment Reporting**
**
Our Chief Operating Decision Maker (CODM),
the Chief Executive Officer, manages the Companys business activities as a single operating and reportable segment at the consolidated
level. Accordingly, our CODM uses consolidated net income (loss) to measure segment profit or loss, allocate resources and assess performance.
Further, the CODM reviews and utilizes natural expenses, such as employee wages and benefits at a consolidated level, to manage the Companys
operations and strategic growth initiatives.
The following table presents segment information
of revenue, significant expenses and net loss (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Revenue | |
$ | 682 | | |
$ | 373 | | |
$ | 358 | | |
|
Less: | |
| | | |
| | | |
| | | |
|
Salaries and employee related costs | |
| 14,609 | | |
| 9,534 | | |
| 9,745 | | |
|
Stock-based compensation | |
| 8,677 | | |
| 5,805 | | |
| 4,555 | | |
|
Rent and facilities | |
| 1,574 | | |
| 751 | | |
| 575 | | |
|
Professional services and legal fees | |
| 14,483 | | |
| 2,959 | | |
| 3,963 | | |
|
Technology & IT costs | |
| 3,067 | | |
| 1,062 | | |
| 1,198 | | |
|
Other sales and marketing costs | |
| 2,457 | | |
| 734 | | |
| 1,471 | | |
|
Direct and indirect materials | |
| - | | |
| 99 | | |
| 39 | | |
|
Depreciation and amortization expense | |
| 4,404 | | |
| 3,798 | | |
| 3,307 | | |
|
Other operational expense | |
| 2,488 | | |
| 1,667 | | |
| 1,787 | | |
|
Operating loss | |
| (51,077 | ) | |
| (25,937 | ) | |
| (26,243 | ) | |
|
Other income (loss) | |
| | | |
| | | |
| | | |
|
Interest and other income (expense), net | |
| 20,718 | | |
| 423 | | |
| 295 | | |
|
Interest expense | |
| (65 | ) | |
| (2,496 | ) | |
| (1,602 | ) | |
|
Change in fair value of derivative liability | |
| 11,750 | | |
| (40,532 | ) | |
| 528 | | |
|
Segment net loss | |
$ | (18,674 | ) | |
$ | (68,542 | ) | |
$ | (27,022 | ) | |
**Note 4 Fair Value
Measurements**
The carrying amount of certain financial instruments
held by the Company, such as cash equivalents, accounts receivable, contract assets and liabilities, accounts payable, and accrued and
other current liabilities, approximate fair value due to their short maturities. The carrying amount of the liabilities for the convertible
preferred stock warrants represent their fair value. The carrying amounts of the Companys borrowings and lease liabilities approximate
fair value due to the market interest rates that these obligations bear and interest rates currently available to the Company.
F-16
Fair value is defined as the exchange price that
would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level
valuation hierarchy for disclosure of fair value measurements as follows:
|
|
Level 1 |
Unadjusted quoted prices in active markets for identical assets or liabilities; | |
|
|
Level 2 |
Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and | |
|
|
Level 3 |
Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. | |
See Note 12, *Capital Stock*, for a full
discussion of the warrant liability.
The following tables present information about
the Companys financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized
to determine such fair values (in thousands):
|
| |
December 31, 2025 | | |
|
| |
| | |
Quoted Prices in Active Markets for | | |
Significant Other | | |
Significant | | |
|
| |
Aggregate Estimated Fair Value | | |
Identical Assets
(Level 1) | | |
Observable Inputs
(Level 2) | | |
Unobservable Inputs
(Level 3) | | |
|
Assets classified as cash equivalents: | |
| | |
| | |
| | |
| | |
|
Mutual funds | |
$ | 720,579 | | |
$ | 720,579 | | |
$ | - | | |
$ | - | | |
|
| |
$ | 720,579 | | |
$ | 720,579 | | |
$ | - | | |
$ | - | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
Assets classified as marketable securities: available-for-sale debt securities | |
| | | |
| | | |
| | | |
| | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
U.S. Treasuries | |
$ | 426,446 | | |
$ | 426,446 | | |
$ | - | | |
$ | - | | |
|
Corporate debt securities | |
| 356,096 | | |
| - | | |
| 356,096 | | |
| - | | |
|
| |
$ | 782,542 | | |
$ | 426,446 | | |
$ | 356,096 | | |
$ | - | | |
|
| |
December 31, 2024 | | |
|
| |
| | |
QuotedPrices
inActive Markets for | | |
Significant Other | | |
Significant | | |
|
| |
Aggregate Estimated Fair Value | | |
Identical
Assets
(Level 1) | | |
Observable Inputs
(Level 2) | | |
Unobservable Inputs
(Level 3) | | |
|
Assets classified as cash equivalents: | |
| | |
| | |
| | |
| | |
|
Mutual funds | |
$ | 78,945 | | |
$ | 78,945 | | |
$ | - | | |
$ | - | | |
|
| |
$ | 78,945 | | |
$ | 78,945 | | |
$ | - | | |
$ | - | | |
The Company estimates the fair value of available-for-sale
debt securities using actual trade and indicative prices sourced from third-party providers on a daily basis to estimate the fair value.
If observed market prices are not available (for example securities with short maturities and infrequent secondary market trades), the
securities are priced using a valuation model maximizing observable inputs, including market interest rates.
As of December31, 2025 and 2024, the Company did not have any
non-financial assets measured at fair value on a recurring basis.During the years ended December 31, 2025, 2024 and 2023, there
were no transfers between levels.
F-17
**Note 5 Available-For-Sale Debt Securities**
The following table summarizes available-for sale debt securities held
by the Company as of December 31, 2025:
|
| |
Remaining | |
| | |
Gross | | |
Gross | | |
| | |
|
| |
Contractual | |
Amortized | | |
Unrealized | | |
Unrealized | | |
| | |
|
| |
Maturity | |
Cost | | |
Gains | | |
Losses | | |
Fair Value | | |
|
U.S. Treasuries | |
< 1 year | |
$ | 274,232 | | |
$ | 117 | | |
$ | - | | |
$ | 274,349 | | |
|
| |
1 - 3 years | |
| 151,844 | | |
| 253 | | |
| - | | |
| 152,097 | | |
|
| |
3 - 5 years | |
| - | | |
| - | | |
| - | | |
| - | | |
|
Corporate debt securities | |
< 1 year | |
| 104,890 | | |
| 182 | | |
| - | | |
| 105,072 | | |
|
| |
1 - 3 years | |
| 244,250 | | |
| 361 | | |
| - | | |
| 244,611 | | |
|
| |
3 - 5 years | |
| 6,421 | | |
| - | | |
| (8 | ) | |
| 6,413 | | |
|
Total available-for-sale debt securities | |
| |
$ | 781,637 | | |
$ | 913 | | |
$ | (8 | ) | |
$ | 782,542 | | |
The Company may from time to time sell its available-for-sale
debt securities. There were $7 thousand in realized gains on sales of available-for-sale debt securities for the year ended December 31,
2025. The Companys investment portfolio includes callable securities that may be called prior to maturity.
The aggregated net unrealized gain on available-for-sale debt securities in the amount of $905 thousand has been recognized in accumulated
other comprehensive loss in the Companys consolidated balance sheet as of December 31, 2025.
As of December 31, 2024, the Company held no available-for-sale
debt securities and therefore there were no amounts reclassified out of other comprehensive income (loss), net of tax during the year
ended December 31, 2025.
**Note 6 Intangible Assets, net**
As a result of the merger with QPhoton in June
2022, the Company has the following amounts related to intangible assets, net (in thousands):
|
| |
December 31, 2025 | | |
December 31, 2024 | | |
|
| |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
|
Non-compete agreement with founder | |
$ | 3,251 | | |
$ | (3,251 | ) | |
$ | - | | |
$ | 3,251 | | |
$ | (2,800 | ) | |
$ | 451 | | |
|
Website domain name and trademark | |
| 1,009 | | |
| (724 | ) | |
| 285 | | |
| 1,009 | | |
| (521 | ) | |
| 488 | | |
|
Technology and licensed patents | |
| 12,731 | | |
| (6,516 | ) | |
| 6,215 | | |
| 12,731 | | |
| (4,698 | ) | |
| 8,033 | | |
|
Total | |
$ | 16,991 | | |
$ | (8,019 | ) | |
$ | 6,500 | | |
$ | 16,991 | | |
$ | (8,019 | ) | |
$ | 8,972 | | |
The amortization expense of the Companys
intangible assets for the years ended December 31, 2025, 2024 and 2023 was approximately $2.5 million, $3.1 million and $3.1 million,
respectively. The Company expects future amortization expense to be the following (in thousands):
|
| |
Amortization | | |
|
2026 | |
$ | 2,021 | | |
|
2027 | |
| 1,903 | | |
|
2028 | |
| 1,819 | | |
|
2029 | |
| 757 | | |
|
Total | |
$ | 6,500 | | |
F-18
**Note 7 Income Taxes**
The Company has no material income tax paid or
accrued for year ended December 31, 2025 and December 31, 2024.
The Companys effective tax rate differs
from the federal statutory tax rate mainly due to non deductible officer compensation, stock based compensation and non taxable mark to
market warrant adjustment and valuation allowance against the net deferred tax assets. As of December 31, 2025, the company has adopted
ASU 2023-09 prospectively. A reconciliation of the U.S. statutory tax rate to our effective tax rate as of December 31, 2025 according
to the new standard is presented below:
|
| |
December31,
2025 | | |
| | |
|
Tax at Statutory Rate | |
$ | (3,731,486 | ) | |
| 21 | % | |
|
State income taxes, net of federal benefit | |
| | | |
| 0 | % | |
|
Tax
Credits: | |
| | | |
| | | |
|
R&D credits | |
| (470,761 | ) | |
| 3 | % | |
|
Non
taxable or non deductible items: | |
| | | |
| | | |
|
Section 162(m) officer compensation limitation | |
| 6,461,438 | | |
| -36 | % | |
|
Stock based compensation windfall | |
| (9,088,130 | ) | |
| 51 | % | |
|
Warrant mark-to-market adjustments | |
| (2,467,450 | ) | |
| 14 | % | |
|
Other permanent differences | |
| 47,686 | | |
| 0 | % | |
|
Change in valuation allowance | |
| 3,670,897 | | |
| -21 | % | |
|
Other: | |
| | | |
| | | |
|
True up of prior year deferred tax items | |
| 3,528 | | |
| 0 | % | |
|
True up of stock based compensation | |
| 5,574,279 | | |
| -31 | % | |
|
Tax
Expense | |
$ | 0 | | |
| 0 | % | |
The reconciliation of the U.S. statutory tax
rate to our effective tax rate as of December 31, 2024 and December 31, 2023 according to the standard before ASU 2023-09 is presented
below:
****
|
| |
2024 | | |
2023 | | |
|
Federal statutory income tax rate | |
| 21.0 | % | |
| 21.0 | % | |
|
State income taxes, net of federal benefit | |
| (3.1 | )% | |
| 0.0 | % | |
|
Warrant mark-to-market adjustments | |
| (12.4 | )% | |
| 2.0 | % | |
|
Change in business credits | |
| 0.5 | % | |
| 0.0 | % | |
|
Other permanent differences | |
| (0.1 | )% | |
| (0.3 | )% | |
|
True-ups | |
| 0.0 | % | |
| 0.0 | % | |
|
Change in deferred tax asset valuation allowance | |
| (6.0 | )% | |
| (22.3 | )% | |
|
Effective income tax rate | |
| 0.0 | % | |
| 0.4 | % | |
The Company has deferred tax assets and liabilities
as follows:
|
| |
Year Ended December, 31 | | |
|
| |
2025 | | |
2024 | | |
|
Deferred Tax Assets | |
| | |
| | |
|
Accrued Expenses | |
| 1,617 | | |
| 95 | | |
|
Lease Liability | |
| 658 | | |
| 356 | | |
|
Allowance for Bad Debts | |
| 142 | | |
| 123 | | |
|
Other | |
| 19 | | |
| 17 | | |
|
NOLs | |
| 27,083 | | |
| 18,833 | | |
|
Research and Development Credits | |
| 1,086 | | |
| 615 | | |
|
Capitalized Research and Development Expenses | |
| 6,244 | | |
| 2,559 | | |
|
Stock Based Compensation | |
| 3,708 | | |
| 10,538 | | |
|
Gross Deferred Tax Assets | |
| 40,557 | | |
| 33,136 | | |
|
| |
| | | |
| | | |
|
Deferred Tax Liabilities | |
| | | |
| | | |
|
Unrealized Gain and loss | |
| (244 | ) | |
| - | | |
|
Intangibles | |
| (1,856 | ) | |
| (1,885 | ) | |
|
ROU | |
| (601 | ) | |
| (334 | ) | |
|
Total Deferred Tax Liabilities | |
| (2,700 | ) | |
| (2,220 | ) | |
|
| |
| | | |
| | | |
|
Net Deferred Tax Assets and Liabilities | |
| 37,857 | | |
| 30,916 | | |
|
Valuation Allowance | |
| (37,857 | ) | |
| (30,916 | ) | |
|
Net Deferred Tax Assets & Liabilities | |
| - | | |
| - | | |
F-19
As of December 31, 2025, the Company had
federal and state net operating loss carryforwards of approximately $118.9 million and $39.2 million, respectively. All of the federal
NOL carryforwards were generated during 2018 or later and will carryforward indefinitely but will be subject to 80% taxable income limitation
beginning tax years after December 31, 2021, as provided by the Coronavirus Aid, Relief, and Economic Security (CARES)
Act (PL 116-136). State net operating loss will begin to expire in 2043 for state tax purposes. The Company had federal research and
development tax credits of approximately $1.6 million, which begins to expire in 2043. The Company had no state tax credits. Furthermore,
the utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result
of ownership changes that have occurred previously or may occur in the future. Under Sections 382 and 383 of the Internal Revenue Code,
a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change NOLs and other
tax attributes otherwise available to offset future taxable income and/or tax liability. An ownership change is defined as a cumulative
change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period. The Companys ability
to use its NOLs or tax credit carryforwards may be restricted.
As of December 31, 2025, the significant components
of the Companys net deferred tax assets included stock-based compensation of $3.7 million, capitalized research and development
expenditures of approximately $6.2 million, and accrued expenses of $1.6 million. The most significant component of deferred tax liability
which was used to offset gross deferred tax asset includes deferred tax liability of $1.9 million related to intangibles. The Company
believes that it is more likely than not that the benefit from the net deferred tax assets will not be realized. Accordingly, it has provided
a full valuation allowance on any potential deferred tax assets. The Company has valuation allowance against the net deferred tax assets
of $37.9 million. The valuation allowance increased by approximately $6.9 million for the period ending December 31, 2025. The provision
for income taxes is not material in the years presented due to there being no taxable income.
As of December 31, 2024, the Company had federal
and state net operating loss carryforwards of approximately $89.3 million and $7 million, respectively. The Company has federal R&D
credit carryforwards of approximately $878 thousand. The Company has no state R&D credit carryforwards. The significant components
of the Companys net deferred tax assets included stock-based compensation of $14 million, and capitalized research and development
expenditure of approximately $3 million. The Company believes that it was more likely than not that the benefit from the net deferred
tax assets will not be realized. Accordingly, the Company assessed a valuation allowance of $31 million in the period ended December 31,
2024.
****
*Uncertain Tax Positions*
The Company files income tax returns in the
U.S. federal jurisdiction and various state jurisdictions, with varying statutes of limitations. All tax years remain open to
examination due to the carryover of unused net operating losses that are being carried forward for tax purposes.
The Companys policy is to account for interest
and penalties as income tax expense. As of December 31, 2025, the Company had no interest related to unrecognized tax benefits, and no
amounts for penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any
significant change of the Companys unrecognized tax benefits within twelve months of this reporting date.
**
The Company has unrecognized tax benefits related
to research and development credit carryforwards. A full valuation allowance has been provided against the Companys research and
development credits. Therefore, any adjustments to these unrecognized tax benefits would be offset by corresponding adjustments to the
valuation allowance, resulting in no impact on the consolidated balance sheet or statement of operations.
|
| |
Year end December 31 | | |
|
| |
2025 | | |
2024 | | |
|
Beginning balance | |
$ | 263,541 | | |
$ | | | |
|
Changes related to tax positions taken in the prior year | |
| | | |
| 95,767 | | |
|
Changes related to tax positions taken in the current year | |
| 201,755 | | |
| 167,774 | | |
|
Ending balance | |
$ | 465,296 | | |
$ | 263,541 | | |
F-20
**Note 8 Property and Equipment, net**
The Companys property and equipment, net
are primarily located at the Companys leased facilities in Hoboken, NJ and Tempe, AZ and consist of (in thousands):
|
| |
December31, | | |
|
Classification | |
2025 | | |
2024 | | |
|
Computer and laboratory equipment | |
$ | 13,070 | | |
$ | 8,438 | | |
|
Network equipment | |
| 35 | | |
| 29 | | |
|
Furniture and fixtures | |
| 99 | | |
| 37 | | |
|
Software | |
| 374 | | |
| 77 | | |
|
Leasehold improvements | |
| 2,303 | | |
| 597 | | |
|
Total cost of property and equipment | |
| 15,881 | | |
| 9,178 | | |
|
Accumulated depreciation | |
| (2,910 | ) | |
| (966 | ) | |
|
Property and equipment, net | |
$ | 12,971 | | |
$ | 8,212 | | |
The Company recorded depreciation expense of $1.9 million, $694 thousand and $203 thousand during the years ended December 31, 2025, 2024 and 2023, respectively, using useful lives
of the Companys long-lived assets as follows:
| | | Estimated Useful Life (Years) | |
| Computer and laboratory equipment | | 5 | |
| Network equipment | | 4 | |
| Furniture and fixtures | | 7 | |
| Software | | 3 | |
| Leasehold improvements | | Lessor of lease term or 5 | |
Maintenance and repairs are charged to operations
when incurred. When property and equipment are sold or otherwise disposed, the asset account and related accumulated depreciation and
amortization accounts are relieved, and any gain or loss is included in other income or expense. There were no significant gains or losses
during the years ended December 31, 2025, 2024 and 2023, respectively.
F-21
**Note 9 Financial Liabilities**
*Secured Promissory Note*
On August 6, 2024, the Company entered into a Securities Purchase Agreement
(the Secured SPA) with Streeterville Capital, LLC (Streeterville), pursuant to which the Company issued and
sold to Streeterville a Secured Convertible Promissory Note (the Streeterville Convertible Note) in the original principal
amount of $8.25 million. The principal amount includes an original issue discount of $750 thousand. Streeterville paid $7.5 million in
cash for the Streeterville Convertible Note. The Streeterville Convertible Note accrues interest at a rate of 10% per annum and has a
maturity date of February 6, 2026, unless earlier prepaid, redeemed or accelerated in accordance with its terms prior to such date. The
Company intends to use the net proceeds from the sale of the Streeterville Convertible Note primarily for general working capital purposes,
including for (i) operations as the Company increases its sales and marketing efforts; (ii) capital expenditures in outfitting its chip
fabrication facility in Tempe, AZ; and (iii) for any other planned or unplanned expenditures that might arise in support of the Companys
business plan. Ascendiant Capital Markets, LLC served as the placement agent on the transaction and received a fee of $450 thousand, and
the Company recognized $55 thousand in other issuance costs, primarily for legal services. The Company repaid the Streeterville Convertible
Note on November 18, 2024. As of December 31, 2025, there was no outstanding balance and the Company has no further obligations with respect
to the Secured SPA or Streeterville Convertible Note.
*Unsecured Promissory Note*
On September 23, 2022, the Company entered into a note purchase agreement
(the Unsecured NPA) with Streeterville Capital, LLC (Streeterville), pursuant to which Streeterville purchased
an unsecured promissory note (the Note or the Streeterville Unsecured Note) in the initial principal amount
of $8.25 million. The Streeterville Unsecured Note bore interest at 10% per annum. The maturity date of the Note was defined as 18 months
from the date of its issuance (the Maturity Date). The Streeterville Unsecured Note carried an original issue discount of
$750 thousand, which was included in the principal balance of the Note. If the Company had elected to prepay the Streeterville Unsecured
Note prior to the Maturity Date, it would have paid to Streeterville 120% of the portion of the Outstanding Balance the Company would
have elected to prepay. There was an outstanding balance of $1.9 million as of December 31, 2023. As of December 31, 2024, Streeterville
had redeemed the full principal amount of the Unsecured NPA, there was no outstanding balance and the Company has no further obligations
with respect to the Unsecured NPA or Streeterville Unsecured Note.
*Note Purchase Agreement the Company
and Wholly-Owned Subsidiary QPhoton*
On February 18, 2022, the Company entered into
a Note Purchase Agreement (the QCi Note Purchase Agreement) with QPhoton, pursuant to which the Company agreed to loan money
to QPhoton using two unsecured promissory notes (each, a QCi Note), each in the principal amount of $1.25 million, subject
to the terms and conditions of the QCi Note Purchase Agreement. Also, on February 18, 2022, pursuant to the terms of the QCi Note Purchase
Agreement, the Company loaned the principal amount of $1.25 million to QPhoton. On April 1, 2022, pursuant to the terms of the QCi Note
Purchase Agreement, the Company loaned the principal amount of $1.25 million to QPhoton, for a total loan under the two QCi Notes of $2.5
million.
The QCi Note Purchase Agreement contains customary representations
and warranties by QPhoton and the Company, as well as a most favored nations provision for the benefit of the Company. The
QCi Notes issued under the QCi Note Purchase Agreement, including the QCi Notes issued on February 18, 2022 and April 1, 2022, provide
that the indebtedness evidenced by the applicable QCi Note bears simple interest at the rate of 6% per annum (or 15% per annum during
the occurrence of an event of default, as defined in the QCi Notes), and becomes due and payable in full on the earlier of (i) March 1,
2023, subject to extension by one year at the option of QPhoton, (ii) a change of control (as defined in the QCi Notes) of QPhoton or
(iii) an event of default. As a result of the merger, the QCi Note and accrued interest is eliminated through consolidation. However,
the two QCi Notes were not forgiven or converted to equity, remain outstanding under the terms and conditions of the QCi Note Purchase
Agreement, and are eliminated in consolidation for presentation purposes in these consolidated financial statements.
F-22
**Note 10 Contingencies**
*Indemnification Arrangements*
We enter into standard indemnification arrangements
in our ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified
parties for losses suffered or incurred by the indemnified parties (generally our business partners or customers) in connection with any
trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to our products. The
term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount
of future payments we could be required to make under these agreements is not determinable. We have never incurred costs to defend lawsuits
or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is
minimal.
We have entered into indemnification agreements
with our directors and officers that may require us to indemnify our directors and officers against liabilities that may arise by reason
of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature. These
agreements also require us to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified
and to make good faith determination whether or not it is practicable for us to obtain directors and officers insurance. We currently
have directors and officers liability insurance.
*Legal Proceedings*
From time to time, we may be involved in legal
proceedings arising in the ordinary course of business. In general, management believes that ordinary course of business matters will
not have a material adverse effect on our financial position or results of operations and are adequately covered by our liability insurance.
However, it is possible that consolidated cash flows or results of operations could be materially affected in any particular period by
the unfavorable resolution of one of more of these contingencies or because of the diversion of managements attention and the incurrence
of significant expenses.
See Part I, Item 3, *Legal Proceedings*,
in this Form 10-K for additional details on the status of motions on the following proceedings.
BV Advisory v. QCi Breach Lawsuit
At the time of the QPhoton Merger in June 2022,
QPhoton had an outstanding balance of principal and interest due to BV Advisory Partners LLC (BV Advisory) based on a note
purchase agreement that QPhoton had entered into with BV Advisory on March 1, 2021 (the BV Note Purchase Agreement). Accordingly,
the Company had recorded an estimated payable, recognized as other current liabilities on the condensed consolidated financial statements,
based on best available information in the amount of $536 thousand as of December 31, 2024. During the quarter ended September 30, 2025,
this amount was repaid in full.
On August 16, 2022, BV Advisory filed a complaint in the Court of Chancery
of the State of Delaware naming QPhoton, the Company and certain of the Companys directors and officers (among others) as defendants
seeking, among other relief, monetary damages for an alleged breach of the BV Note Purchase Agreement. During the year ended December
31, 2024, BV Advisorys other claims were dismissed by the Delaware Chancery Court and BV Advisory transferred its claim for breach
of the BV Note Purchase Agreement to the Delaware Superior Court. On July 17, 2025, the Company, Keith Barksdale (Barksdale
the managing member of BV Advisory), and BV Advisory entered into a settlement agreement (the Settlement Agreement) pursuant
to which BV Advisory, dismissed its claims under the BV Note Purchase Agreement with prejudice. The terms of the settlement agreement
are summarized in Part I, Item 3, *Legal Proceedings*.
F-23
BV Advisory v. QCi Appraisal Action
BV Advisory Partners, LLC (BV Advisory) was a shareholder of QPhoton, Inc., the predecessor in
interest to the Companys subsidiary, QPhoton, LLC (both referred to as QPhoton in this Legal Proceedings discussion).
On October 13, 2022, BV Advisory filed a petition in the Court of Chancery of the State of Delaware (the Delaware Chancery Court)
seeking appraisal rights on the shares of common stock of QPhoton it owned (which shares represented 10% of the shares of common stock
of QPhoton outstanding immediately prior to the Companys acquisition of QPhoton) pursuant to Section 262 of the Delaware General
Corporation Law. Pursuant to the Settlement Agreement, the Company agreed to issue to Barksdale or his designees 1.9 million shares of
the Companys common stock and BV Advisory dismissed its claims under the appraisal action with prejudice. The terms of the settlement
agreement are summarized in Part I, Item 3, *Legal Proceedings*.
*QCi v. BV Advisory Injunction Lawsuit*
On January 31, 2025, the Company filed a complaint in Delaware Chancery
Court against BV Defendants (BV Advisory and its principal Keith Barksdale) asserting claims for defamation, breach of contract, conversion,
aiding and abetting conversion, and misappropriation of trade secrets based on the BV Defendants unauthorized possession and dissemination
of certain of the Companys confidential and privileged documents. The Company sought, among other relief, injunctive relief and
damages. On February 11, 2025, the Court granted the Companys motion for temporary restraining order and instructed the parties
to negotiate an expedited case schedule. On July 17, 2025, the Company, Barksdale and BV Advisory entered into the Settlement Agreement
pursuant to which the Company dismissed its claims against BV Advisory with prejudice. The terms of the settlement agreement are summarized
in Part I, Item 3, *Legal Proceedings*.
*Securities Class Action Lawsuit*
On February 25, 2025, a class action lawsuit was filed against the Company and certain of its current and past
officers in the New Jersey District Court, by a plaintiff seeking to represent a class of all persons who purchased the Companys
securities between March 30, 2020 and January 15, 2025, alleging violations of Section 10(b) and 20(a) of the Exchange Act. The complaint
alleges that the Company made false and/or misleading statements and/or failed to disclose material information about the Companys
customers, contracts and business operations in its public statements and SEC filings. The plaintiff seeks unspecified monetary damages
plus attorneys fees and costs. In June 2025, the New Jersey District Court designated a lead plaintiff who filed an amended operative
complaint on or about August 26, 2025. The Company filed a motion to dismiss the amended operative complaint on November 14, 2025.
While the Companys motion to dismiss was pending, the lead plaintiff filed a motion for leave to file a second amended complaint.
The second amended complaint was subsequently filed on February 13, 2026. The Company intends to bring a motion to dismiss the second
amended complaint. The motion is presently due on or before March 13, 2025. The Company disputes the allegations in the amended
complaint, intends to vigorously defend against the claims asserted, and does not believe it is necessary to accrue a litigation reserve
at this time.
*Shareholder Derivative Action Lawsuits*
On March 31, 2025, a shareholder derivative action
(the March 2025 Derivative Action) was filed against certain of the Companys current and past officers and directors,
purportedly on behalf of the Company, in the United States District Court for the District of New Jersey, for alleged breaches of fiduciary
duties, unjust enrichment, abuse of control, waste of corporate assets, and violations of the Exchange Act by the named officers and directors.
The plaintiff seeks unspecified monetary damages plus attorneys fees and costs. No pre-litigation demand was made on the Companys
board of directors. The Company and its board of directors dispute the allegations in the complaint and intend to vigorously defend against
the asserted claims.
F-24
On May 6, 2025, a shareholder derivative action
(the May 2025 Derivative Action) was filed against certain of the Companys current and past officers and directors,
purportedly on behalf of the Company, in the United States District Court for the District of New Jersey, for alleged breaches of fiduciary
duties, gross mismanagement, waste of corporate assets, unjust enrichment, aiding and abetting breaches of fiduciary duties, and violations
of the Exchange Act. The plaintiff seeks unspecified monetary damages plus attorneys fees and costs. No pre-litigation demand was
made on the Companys board of directors. The Company and its board of directors dispute the allegations in the complaint and intend
to vigorously defend against the asserted claims
On June 19, 2025, a shareholder derivative action
(the June 2025 Derivative Action) was filed against certain of the Companys current and past officers and directors,
purportedly on behalf of the Company, in the United States District Court for the District of New Jersey, for alleged breaches of fiduciary
duties, waste, unjust enrichment, common law fraud, and violations of the Exchange Act. The plaintiff seeks unspecified monetary damages
plus attorneys fees and costs. The Company and its board of directors dispute the allegations in the complaint and intend to vigorously
defend against the asserted claims.
On September 25, 2025, a shareholder derivative
action (the September 2025 Derivative Action) was filed against certain of the Companys current and past officers
and directors, purportedly on behalf of the Company, in the Superior Court of New Jersey Chancery Division, Hudson County, for alleged
breaches of fiduciary duty, unjust enrichment, gross mismanagement, corporate waste, and aiding and abetting fiduciary duties. The Company
and its board of directors dispute the allegations in the complaint and intend to vigorously defend against the asserted claims.
The March 2025 Derivative Action, May 2025 Derivative
Action, June 2025 Derivative Action, and September 2025 Derivative Action, have each been stayed pending the resolution of the Companys
motion to dismiss the Securities Class Action which the Company and named defendants in that action plan to file on or before March 13,
2026. The Company disputes the allegations in the amended complaint, intends to vigorously defend against the claims asserted, and does
not believe it is necessary to accrue a litigation reserve at this time.
*Arbitration over Stock Options*
In February 2025, the Company entered into arbitrations
with two former consultants regarding forfeiture of stock options. The Company had issued stock options to the former consultants in 2020
and 2021 and terminated their consulting agreements in March 2024, at which time the Company informed the former consultants that any
vested options had to be exercised within three months of the termination date, per the Companys equity compensation plans. The
former consultants did not exercise their vested options and the options were forfeited. In December 2024, the former consultants claimed
that they still retained the right to exercise the options, which the Company rejected.
On February 23, 2026, with respect to the claims
by one of the two consultants an arbitrator ruled in favor of the former consultant on 1 of the 7 claims. The arbitrator ruled in favor
of the Company on the remaining 6 claims. The amount of award is confidential, however, the Company has accrued for the judgment as of
December 31, 2025 and the award is immaterial to the Companys financial condition, results of operations and cash flows. The Company
has determined that the remaining arbitration is not material to its financial condition, results of operations or cash flows, and therefore
the Company is discontinuing disclosure with respect to such proceeding.
F-25
**Note 11 Loan Receivable**
On May 16, 2023, the Company entered into a Summary
of Proposed Terms (the Letter of Intent) with millionways, Inc (millionways) to provide bridge loans to millionways
and enter into due diligence to acquire up to 100% of the AI firm. On June 6, 2023, the Company entered into a note purchase agreement
(the MW Agreement) with millionways, pursuant to which the Company agreed to purchase from millionways up to three unsecured
promissory notes (each, a MW Note), in an aggregate principal amount of up to $2.0 million, subject to the terms and conditions
of the MW Agreement. Also on June 6, 2023, pursuant to the terms of the MW Agreement, the Company purchased the MW Notes from millionways
and loaned an aggregate principal amount of $500 thousand to millionways.
The MW Agreement contains customary representations
and warranties by millionways and the Company, as well as a most favored nations provision for the benefit of the Company.
The MW Notes issued under the MW Agreement, including the MW Notes issued on June 6, 2023, provide that the indebtedness evidenced by
the applicable MW Note bears simple interest at the rate of 10% per annum (or 15% per annum during the occurrence of an event of default,
as defined in the MW Notes), and becomes due and payable in full on the earlier of (i) May 16, 2024, (ii) a change of control (as defined
in the MW Notes) of millionways, (iii) dollar-for-dollar prepayment for additional capital received through any vehicle from a third party
or (iv) an event of default.
The Company reserved $558 thousand of the outstanding $558 thousand
receivable as uncollectible based on credit risk in the consolidated financial statements as of December 31, 2025 and 2024. However, the
Company is actively seeking collection of the entire balance, including principal and interest.
**Note 12 Capital Stock**
*Authorized Classes of Stock*
As of December, 2025, the Companys Board
of Directors has authorized two classes of preferred stock. The Board has authorized 1,550,000 shares of preferred stock as Series A preferred
stock, par value $0.0001 per share, none of which are issued and outstanding at December 31, 2025 and 2024. The Board has also authorized
3,079,864 shares of preferred stock as Series B preferred stock, par value $0.0001 per share, none of which are issued and outstanding
at December 31, 2025 and 2024.
**
*Series A Convertible Preferred Offering*
From November 10, 2021 through November 17, 2021,
the Company conducted a private placement offering (the Private Placement) pursuant to securities purchase agreements (the
Preferred Stock SPAs) with 7 accredited investors (the Series A Investors), whereby the Series A Investors
purchased from the Company an aggregate of 1,545,459 shares of the Companys newly created Series A convertible preferred stock,
par value $0.0001 per share (the Series A Preferred Stock) and warrants to purchase 1,545,459 shares of the Companys
common stock (the Preferred Warrants) for an aggregate purchase price of $8.5 million. The Private Placement was completed
and closed to further investment on November 17, 2021.
The Preferred Warrants were two-year warrants
to purchase shares of the Companys common stock at an exercise price of $7.00 per share, subject to adjustment, and as of December
31, 2023, all of the Preferred Warrants had expired unexercised.
In connection with the Preferred Stock SPAs, the
Company and the Series A Investors entered into a registration rights agreement pursuant to which on April 27, 2022 the Company filed
a Registration Statement on Form S-3 to register the resale of the shares of common stock. The SEC declared the Form S-3 effective on
June 2, 2022.
On March 19, 2024, the Company entered into a
Redemption and Waiver Agreement (the Series A Redemption Agreement) with the current holders (the Series A Holders)
of the Series A Preferred Stock. Accordingly, $8.195 million of additional paid in capital was reclassified from shareholders equity
to mezzanine equity (the Mezzanine Equity) on the Companys condensed consolidated balance sheet as of March 31, 2024,
in accordance with Accounting Series Release No. 268, *Presentation in Financial Statements of Redeemable Preferred Stocks*.
The Mezzanine Equity is valued at the date of the Private Placement issuance. Pursuant to the Series A Redemption Agreement, the Company
agreed to redeem all outstanding shares of Series A Preferred Stock for an aggregate cash purchase price of $8,195,000, or $5.50 per share,
at its sole discretion, in 18 monthly payments. In addition, the Series A Holders agreed to waive, on a month-by-month basis following
each monthly payment, certain rights granted to them in (i) the Certificate of Designations of the Series A Preferred Stock, including
for the accrual and payment of accrued and future dividends; and (ii) the Preferred Stock SPA. As of December 31, 2024 and December 31,
2025, there were no shares of Series A Preferred Stock outstanding. During the year ended December 31, 2024, the Company redeemed 745,047
shares of Series A Preferred Stock for approximately $4.1 million in cash paid to the Series A Holders.
During November 2024 and December 2024, the Series
A Holders converted 744,957 shares of Series A Preferred Stock into 744,957 shares of the Companys common stock. As of December,
2024, there were no shares of Series A Preferred Stock issued and outstanding and the Mezzanine Equity valuation was reduced to zero.
F-26
**
*At-the-Market Facility*
On October 28, 2022, the Company filed a shelf
registration statement on Form S-3 under the Securities Act of 1933, as amended, which the SEC declared effective on November 8, 2022
(the 2022 shelf). Under the 2022 Shelf at the time of effectiveness, the Company had the ability to raise up to $100 million
by selling common stock, preferred stock, debt securities, warrants and units. On December 5, 2022, the Company entered into an At-the-Market
Issuance Sales Agreement (the ATM Agreement) with Ascendiant Capital Markets, LLC (Ascendiant) whereby the
Company may, but is not obligated to, offer and sell, from time to time, shares of its common stock (the ATM Facility),
and incorporated the ATM Agreement into the 2022 Shelf by amendment that the SEC declared effective January 10, 2023. On August 17, 2023,
the Company and Ascendiant entered into an amendment to the ATM Agreement, increasing the amount of common stock that the Company could
offer and sell via the ATM Facility from $25 million to $50 million (the ATM Upsize). Following the ATM Upsize, the Company
filed a prospectus supplement, dated August 18, 2023, with the SEC and became able to offer and sell shares of the Companys common
stock having an aggregate offering price of up to $27,362,717 via the ATM Facility.
The Company did not sell any shares through the
ATM Facility during the year ended December 31, 2025. During the years ended December 31, 2024 and 2023, the Company sold 23,679,391 and
17,571,926 shares of common stock, respectively, through its At-The-Market (ATM) facility, managed by Ascendiant Capital Markets, LLC,
at an average price of $1.21. The Company received net proceeds of $48.5 million, of which $23.8 million and $24.7 was received during
the years ended December 31, 2024 and 2023, respectively.
**
*Private Placement Offering*
**
On January 7, 2025, the Company entered into securities
purchase agreements (the January SPAs) for a private placement offering (the January Private Placement) to
sell an aggregate of 8,163,266 shares (the January Placement Shares) of the Companys common stock at a purchase price
of $12.25 per share. The January Private Placement closed on January 9, 2025, and resulted in gross proceeds of $100 million before deducting
placement agent commissions and other offering expenses of $6.4 million. Furthermore, the Company filed a registration statement registering
the resale of the January Placement Shares on January 2, 2025, which the SEC declared effective February 3, 2025.
**
In conjunction with the January SPAs, the Company
also entered into a placement agency agreement with Titan Partners Group LLC, a division of American Capital Partners, LLC (Titan),
dated January 7, 2025, pursuant to which Titan acted as the exclusive placement agent for the Company in connection with the January SPAs.
The Company agreed to pay Titan a cash fee of 6% of the gross proceeds from the January SPAs and to issue to the December Placement Agent
(or its designees) 326,531 five-year warrants (representing 4% of the securities sold in the Offerings), which will be exercisable beginning
on July 6, 2025, and have an initial exercise price per share of the Companys common stock of $14.0875.
On June 22, 2025, the Company entered into
securities purchase agreements (the Purchase Agreements) pursuant to which the Company agreed to issue to the Purchasers
(as defined therein), in a private placement (the Placement), an aggregate of 14,035,089 shares (the Placement Shares)
of the Companys common stock at a purchase price of $14.25 per share. The closing of the Placement occurred on June 24, 2025. The
Placement resulted in gross proceeds of approximately $200 million before deducting placement agent commissions and other offering expenses
of $12 million.
The Company was required to file a registration
statement providing for the resale of the Placement Shares by July 9, 2025, and it filed the registration statement on Form S-1 on July
3, 2025, which the SEC declared effective on July 14, 2025.
Pursuant to the Purchase Agreements and the Placement
Agency Agreement (as defined below), the Company agreed not to issue, enter into any agreement to issue, or announce the issuance or proposed
issuance of any shares of its common stock or common stock equivalents, or file any registration statement or any amendment or supplement
thereto, through September 7, 2025, subject to certain customary exceptions, without the consent of the Placement Agent.
F-27
*Placement Agency Agreement*
The Company also entered into a Placement Agency
Agreement (the Placement Agency Agreement) with Titan, dated June 22, 2025, pursuant to which Titan acted as the exclusive
placement agent for the Company in connection with the Placement. The Company agreed to pay Titan a cash fee based on the total size of
the Placement according to a formula set forth in the Placement Agency Agreement. In addition, the Company agreed to reimburse Titan for
up to $100,000 of its fees and expenses in connection with the Placement.
The Placement Agency Agreement contains customary
representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company,
other obligations of the parties, and termination provisions.
*Lock-Up Agreements*
Pursuant to Lock-Up Agreements with the Company,
the Companys directors and executive officers agreed for a period of 60 days after the closing date of the Placement, subject to
certain exceptions, not to directly or indirectly offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of, directly
or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to,
any shares of the Companys common stock or securities convertible, exchangeable or exercisable into common stock, that they beneficially
own, hold, or thereafter acquire, or make any demand for or exercise any right or cause to be filed a registration, including any amendments
thereto, with respect to the registration of any common stock or common stock equivalents or publicly disclose the intention to do any
of the foregoing.
*Private Placement Offering*
On September 21, 2025, the Company entered into
securities purchase agreements (the September Purchase Agreements) pursuant to which the Company agreed to issue to the
Purchasers (as defined therein), in a private placement (the September Placement), an aggregate of 26,867,276 shares (the
September Placement Shares) of the Companys common stock. The closing of the September Placement occurred on September
24, 2025. The September Placement resulted in gross proceeds of approximately $500 million before deducting placement agent commissions
and other offering expenses.
The Company was required to file a registration
statement providing for the resale of the September Placement Shares by October 9, 2025. The Company filed a registration statement on
Form S-3ASR on October 1, 2025.
Pursuant to the September Purchase Agreements
and the September Placement Agency Agreement (as defined below), the Company has agreed not to issue, enter into any agreement to issue,
or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock equivalents, or file any registration statement
or any amendment or supplement thereto, for a period of 75 days after the closing date of the September Placement, subject to certain
customary exceptions, without the consent of the Placement Agent and the Purchasers.
*Placement Agency Agreement*
The Company also entered into a Placement Agency
Agreement (the September Placement Agency Agreement) with Titan dated September 21, 2025, pursuant to which Titan acted
as the exclusive placement agent for the Company in connection with the September Placement. The Company agreed to pay Titan a 5% cash
fee based on the total size of the September Placement, as set forth in the September Placement Agency Agreement. In addition, the Company
agreed to reimburse Titan for up to $100,000 of its fees and expenses in connection with the September Placement.
The September Placement Agency Agreement contains
customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of
the Company, other obligations of the parties, and termination provisions.
F-28
*Lock-Up Agreements*
Pursuant to Lock-Up Agreements with the Company,
the Companys directors and executive officers agreed for a period of 60 days after the closing date of the September Placement,
subject to certain exceptions, not to directly or indirectly offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of,
directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect
to, any shares of the Companys common stock or securities convertible, exchangeable or exercisable into common stock, that they
beneficially own, hold, or thereafter acquire, or make any demand for or exercise any right or cause to be filed a registration, including
any amendments thereto, with respect to the registration of any common stock or common stock equivalents or publicly disclose the intention
to do any of the foregoing.
*Private Placement Offering*
On October 5, 2025, the Company entered into securities
purchase agreements (the October Purchase Agreements) pursuant to which the Company agreed to issue to the Purchasers (as
defined therein), in a private placement (the October Placement), an aggregate of 37,183,937 shares (the October
Placement Shares) of the Companys common stock. The closing of the October Placement occurred on October 8, 2025. The October
Placement resulted in gross proceeds of approximately $750 million before deducting placement agent commissions and other offering expenses.
The Company was required to file a registration
statement providing for the resale of the October Placement Shares by October 23, 2025. The Company filed such registration statement
on Form S-3ASR on October 10, 2025.
Pursuant to the October Purchase Agreements and
the October Placement Agency Agreement (as defined below), the Company has agreed not to issue, enter into any agreement to issue, or
announce the issuance or proposed issuance of any shares of Common Stock or Common Stock equivalents, or file any registration statement
or any amendment or supplement thereto, for a period of 75 days after the closing date of the October Placement, subject to certain customary
exceptions, without the consent of Titan and the Purchasers.
**
*Placement Agency Agreement*
The Company also entered into a Placement Agency
Agreement (the October Placement Agency Agreement) with Titan dated October 5, 2025, pursuant to which Titan acted as the
exclusive placement agent for the Company in connection with the October Placement. The Company agreed to pay Titan a 4% cash fee based
on the total size of the October Placement, as set forth in the October Placement Agency Agreement. In addition, the Company agreed to
reimburse Titan for up to $100,000 of its fees and expenses in connection with the October Placement.
The October Placement Agency Agreement contains
customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of
the Company, other obligations of the parties, and termination provisions.
**
*Lock-Up Agreements*
Pursuant to Lock-Up Agreements with the Company,
the Companys directors and executive officers agreed for a period of 60 days after the closing date of the October Placement, subject
to certain exceptions, not to directly or indirectly offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of, directly
or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to,
any shares of the Companys common stock or securities convertible, exchangeable or exercisable into Common Stock, that they beneficially
own, hold, or thereafter acquire, or make any demand for or exercise any right or cause to be filed a registration, including any amendments
thereto, with respect to the registration of any common stock or common stock equivalents or publicly disclose the intention to do any
of the foregoing.
The total amount of net proceeds raised during
the year ended December 31, 2025 was $1,475.1 million, which includes $2.4 million resulting from exercise of warrants.
F-29
Registered Direct Offering
On November 14, 2024, the Company entered into
securities purchase agreements (the November RDO SPAs) for a registered direct offering (the November RDO)
to sell an aggregate of 16 million shares of the Companys common stock, par value $0.0001 per share, at a purchase price of $2.50
per share (the November RDO Shares), resulting in gross proceeds of $40 million, before deducting placement agent commissions
and other offering expenses. On November 18, 2024, the Company completed the sale of the November RDO Shares and announced its intention
to use the net proceeds from the November RDO for the repayment of debt, working capital, and general corporate purposes. Specifically,
the Company used approximately $9.3 million of the gross proceeds to pay in full the Streeterville Convertible Note.
In conjunction with the November RDO SPAs, the
Company also entered into a placement agency agreement with Titan Partners Group LLC (Titan), a division of American Capital
Partners, LLC (the November Placement Agent) dated November 14, 2024, pursuant to which the November Placement Agent will
act as the exclusive placement agent for the Company in connection with the November RDO. The Company agreed to pay the November Placement
Agent a cash fee of 7.25% of the gross proceeds from the November RDO and to issue to the November Placement Agent (or its designees)
800,000 five-year warrants representing 5% of the securities sold in the November RDO, which will be exercisable beginning on May 13,
2025, and have an initial exercise price per share of the Companys common stock of $2.875. In addition, the Company agreed to reimburse
the November Placement Agent for up to $100,000 of its fees and expenses in connection with the November RDO.
*Registered Direct and Private Placement Offerings*
On December 10, 2024, the Company entered into
securities purchase agreements (the December RDO SPAs) for a registered direct offering (the December RDO),
an aggregate of 1,540,000 shares of the Companys common stock, par value $0.0001 per share, at a purchase price of $5.00 per share.
Also on December 10, 2024, the Company entered into securities purchase agreements (the December Placement SPAs and together
with the December RDO SPAs, the Purchase Agreements), pursuant to which the Company agreed to issue in a concurrent private
placement (the December Private Placement and together with the December RDO, the December SPAs), an aggregate
of 8,460,000 shares (the December Placement Shares) of common stock at a purchase price of $5.00 per share. The December
SPAs closed on December 12, 2024. The December RDO resulted in gross proceeds of $7.7 million and the December Private Placement resulted
in gross proceeds of $42.3 million, in each case before deducting placement agent commissions and other offering expenses. Furthermore,
the Company filed a registration statement providing for the resale of the December Placement Shares on December 20, 2024, which went
effective January 6, 2025.
In conjunction with the December SPAs, the Company
also entered into a placement agency agreement with Titan (the December Placement Agent), dated December 10, 2024, pursuant
to which the December Placement Agent will act as the exclusive placement agent for the Company in connection with the December SPAs.
The Company agreed to pay the December Placement Agent a cash fee of 7% of the gross proceeds from the December SPAs and to issue to the
December Placement Agent (or its designees) 500,000 five-year warrants (representing 5% of the securities sold in the Offerings), which
will be exercisable beginning on June 8, 2025, and have an initial exercise price per share of the Companys common stock of $5.75.
In addition, the Company agreed to reimburse the December Placement Agent for up to $100,000 of its fees and expenses in connection with
the December SPAs.
The combined amount of net proceeds raised from
the ATM and RDOs was $106.8 million and $24.7 million for the years ended December 31, 2024 and 2023, respectively.
F-30
**
*Warrants*
The table below summarizes the warrants outstanding
at December 31, 2025 (in thousands, except exercise prices):
| Issuance Date | | Expiration Date | | Exercise Price | | | Issued | | | Exercised | | | Forfeited / Canceled | | | Warrants Outstanding | | |
| August 18, 2020 | | August18,2025 | | $ | 2.00 | | | | 171 | | | | (171 | ) | | | - | | | | - | | |
| June 16, 2022 | | May 9, 2027 | | $ | 0.0001 | | | | 6,325 | | | | (1,187 | ) | | | (4,338 | ) | | | 800 | | |
| November 18, 2024 | | November18,2029 | | $ | 2.875 | | | | 800 | | | | (304 | ) | | | - | | | | 496 | | |
| December 12, 2024 | | December 12, 2029 | | $ | 5.75 | | | | 500 | | | | (100 | ) | | | - | | | | 400 | | |
| January 9. 2025 | | January 9, 2030 | | $ | 14.0875 | | | | 327 | | | | (65 | ) | | | - | | | | 262 | | |
| | | | | | | | | | | | | | | | | | | | | | 1,958 | | |
In connection with a restricted stock units offering
in June 2020, the Company issued warrants in August 2020 to purchase 171,000 shares of the Companys common stock, at an exercise
price of $2.00. As of December 31, 2025, all of these warrants were exercised.
On June 16, 2022, the Company issued 6.3 million QPhoton Warrants to
purchase shares of the Companys common stock at an exercise price of $0.0001 per share. Those warrants are exercisable when and
if stock options and warrants issued by the Company and outstanding as of June 15, 2022 (the Underlying Options) are exercised.
As of December 31, 2025, the Company expects 758 thousand (the In-the-Money QPhoton Warrants) of the 800 thousand outstanding QPhoton
Warrants are likely to be exercised as the exercise prices of the Underlying Options associated with the In-the-Money QPhoton Warrants
are below the closing of the Companys bid stock price of $10.26 per share as of December 31, 2025. The 6.3 million issued warrants
represent a portion of the 7.0 million QPhoton Warrants, having been received by two former QPhoton shareholders. A third shareholder
rejected the Merger Consideration and commenced litigation, and as of December 31, 2025 that litigation was resolved and the associated
702,834 warrants were forfeited, of which 481,949 would have been canceled to date due to forfeitures of Underlying Options. See Part
I, Item 3, Legal Proceedings, for additional information on the status of the litigation.
During the year ended December 31, 2025, a total of 469,306 of the
Placement Agent warrants were exercised by principals of Titan Capital Partners, resulting in proceeds to the Company of $2.4 million.
The warrants exercised were 304,000 at an exercise price of $2.875, 100,000 at an exercise price of $5.75 and 65,306 at an exercise price
of $14.0875. In addition, during the year ended December 31, 2025 1.187 million QPhoton warrants were exercised, at an exercise price
of $0.0001, resulting in proceeds to the Company of $119. Due to the exercise of these QPhoton warrants, $21.0 million of the derivative
liability was reclassified to additional paid-in capital during the year ended December 31, 2025. Total shares issued due to exercise
of all warrants during the year ended December 31, 2025, were 1,677,439 (including 1.656 million shares from exercise of the Placement
Agent warrants) and proceeds to the Company from all warrant exercises during the year ended December 31, 2025 were $2.411 million.
As of December 31, 2025, of the 6.3 million QPhoton Warrants issued,
approximately 69% have been forfeited because the corresponding Underlying Options had expired or been forfeited. Further, as discussed
in Note 4, Fair Value of Financial Instruments, the QPhoton Warrants are considered Level 3 liabilities for fair value measurement on
the valuation hierarchy. In determining the fair market value of the QPhoton Warrants, the Company determines which underlying options
and warrants are in-the-money or out-of-the-money at period end by comparing to the bid price of the Companys common stock and
then accounting for changes period-over-period by realizing a mark-to-market gain or loss for the period. Due to the difference between
the exercise price and the market value of the Companys common stock as of the consolidated balance sheet dates and the probability
of the underlying options and warrants being exercised are the only significant inputs in the valuation of the warrant liability. The
market value of the Companys stock was $10.26 per share and $16.55 per share as of December 31, 2025 and December 31, 2024, respectively
(the Balance Sheet Date Stock Prices), and the probability of exercise was determined based on whether the exercise price
of the underlying options and warrants was above or below the Balance Sheet Date Stock Prices, resulting in the QPhoton Warrants being
out-of-the-money or in-the-money, respectively. Accordingly, the Company recognized a mark-to-market gain of $11.8 million, a mark-to-market
loss of $40.5 million and a mark-to-market gain of $528 thousand during the years ended December 31, 2025, 2024 and 2023, respectively.
In addition, due to the exercise of QPhoton warrants, $21.0 million of the derivative liability was reclassified to additional paid-in
capital during the year ended December 31, 2025. As of December 31, 2025 and 2024, the QPhoton Warrants have a carrying value of $7.8
million and $40.5 million, respectively, as a liability on the Companys consolidated balance sheets.
F-31
**Note 13 Stock-based Compensation**
**Incentive Plans**
****
The Quantum Computing Inc. 2019 Equity and Incentive
Plan, as amended in 2021 (the 2019 Plan) enabled the Company to grant incentive stock options or nonqualified stock options
and other equity awards to employees, directors and consultants of the Company up to a total of 3.0 million shares of common stock, all
of which have been issued.
On July 5, 2022, the Board of Directors adopted
the Quantum Computing Inc. 2022 Equity and Incentive Plan (the 2022 Plan) and was approved by a majority of the shareholders
in September 2022. The 2022 Plan initially provided for the issuance of up to 16.0 million shares of the Companys common stock
and includes provisions for annual automatic evergreen increases of 1,000,000 shares of common stock. As of December 31, 2025, the total
number of shares of our common stock reserved for issuance under the 2022 Plan is 19.0 million and a total of 17.3 million shares, including
7.1 million shares underlying options, were issued and outstanding under the 2022 Plan.
*Options*
The following table summarizes the Companys option activity
for the year ended December 31, 2025, 2024 and 2023 (in thousands, except exercise price and contractual life data):
| | | Number Outstanding | | | Weighted Average Exercise Price per Share | | | Weighted Average Remaining Contractual Life (Years) | | |
| Balance as of January 1, 2023 | | | 9,165 | | | $ | 3.51 | | | | 4.2 | | |
| Granted | | | 5,340 | | | | 1.38 | | | | 5.0 | | |
| Forfeited | | | (662 | ) | | | 4.41 | | | | - | | |
| Balance as of December 31, 2023 | | | 13,843 | | | | 2.64 | | | | 3.7 | | |
| Granted | | | 830 | | | | 0.92 | | | | 5.0 | | |
| Forfeited | | | (1,690 | ) | | | 4.14 | | | | - | | |
| Balance as of December 31, 2024 | | | 12,983 | | | $ | 2.34 | | | | 2.9 | | |
| Granted | | | 1,630 | | | | 11.09 | | | | 4.7 | | |
| Exercised | | | (7,204 | ) | | | 2.30 | | | | - | | |
| Forfeited | | | (346 | ) | | | 8.11 | | | | - | | |
| Balance as of December 31, 2025 | | | 7,063 | | | $ | 4.11 | | | | 2.6 | | |
| Vested and exercisable as of December 31, 2025 | | | 4,563 | | | $ | 3.68 | | | | 2.3 | | |
| Vested and exercisable as of December 31, 2024 | | | 9,646 | | | $ | 2.66 | | | | 2.7 | | |
The following table presents the assumptions used
in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the years ended December
31, 2025 and 2024:
|
| |
Year Ended | | |
|
| |
December31, | | |
|
| |
2025 | | |
2024 | | |
|
Exercise price | |
$ | 1.0021.78 | | |
$ | 0.46 1.12 | | |
|
Risk-free interest rate | |
| 3.6 4.2 | % | |
| 4.2 5.2 | % | |
|
Expected volatility | |
| 130 138 | % | |
| 90 105 | % | |
|
Expected dividend yield | |
| 0 | % | |
| 0 | % | |
|
Expected life of options (in years) | |
| 5.0 | | |
| 5.0 | | |
F-32
The following table summarizes the exercise price
range as of December 31, 2025 (in thousands):
|
Exercise Price |
|
Outstanding Options |
|
|
Exercisable Options |
| |
|
$0.00 1.00 |
|
|
610 |
|
|
|
390 |
| |
|
$1.00 2.00 |
|
|
3,191 |
|
|
|
1,611 |
| |
|
$2.00 3.00 |
|
|
1,260 |
|
|
|
1,260 |
| |
|
$3.00 6.00 |
|
|
158 |
|
|
|
38 |
| |
|
$6.00 8.00 |
|
|
962 |
|
|
|
937 |
| |
|
$8.00 12.00 |
|
|
302 |
|
|
|
227 |
| |
|
$12.00 22.00 |
|
|
580 |
|
|
|
100 |
| |
|
|
|
|
7,063 |
|
|
|
4,563 |
| |
The weighted average grant-date fair value of
stock options granted during the years ended December 31, 2025 and 2024 was $11.09 per share and $0.92 per share, respectively.As
of December 31, 2025, total unrecognized compensation cost related to common stock options was $8.6 million, which is expected to be recognized
over a period of 3 years.
*Restricted Stock*
As of December 31, 2025, there were 700 thousand
shares of the Companys common stock issued and unvested, which had been awarded as stock-based compensation under the 2022 Plan.
The following table summarizes the Companys activity for restricted stock tied to vesting schedules for the year ended December
31, 2025, 2024 and 2023 (in thousands):
|
|
|
Number Outstanding |
|
|
Weighted Average Fair Value |
| |
|
Unvested as of January 1, 2023 |
|
|
50 |
|
|
$ |
5.70 |
| |
|
Granted |
|
|
2,429 |
|
|
|
1.36 |
| |
|
Vested |
|
|
(1,046 |
) |
|
|
1.48 |
| |
|
Forfeited |
|
|
(24 |
) |
|
|
1.28 |
| |
|
Unvested as of December 31, 2023 |
|
|
1,409 |
|
|
|
1.42 |
| |
|
Granted |
|
|
904 |
|
|
|
1.58 |
| |
|
Vested |
|
|
(1,049 |
) |
|
|
1.82 |
| |
|
Unvested as of December 31, 2024 |
|
|
1,264 |
|
|
|
1.20 |
| |
|
Granted |
|
|
150 |
|
|
|
10.95 |
| |
|
Vested |
|
|
(698 |
) |
|
|
2.14 | |
|
Forfeited |
|
|
(16 |
) |
|
|
0.67 |
| |
|
Unvested as of December 31, 2025 |
|
|
700 |
|
|
$ |
5.62 |
| |
F-33
**Stock-based compensation**
****
The Company recognized stock-based compensation
expense related to common stock options and restricted shares of common stock in the following expense categories of its consolidated
statements of operations (in thousands):
|
| |
Year Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Research and development | |
$ | 2,701 | | |
$ | 4,024 | | |
$ | 2,080 | | |
|
Selling and marketing | |
| 214 | | |
| 301 | | |
| (279 | ) | |
|
General and administrative | |
| 5,744 | | |
| 1,457 | | |
| 2,470 | | |
|
Total stock-based compensation | |
$ | 8,659 | | |
$ | 5,782 | | |
$ | 4,271 | | |
For the years ended December 31, 2025, 2024 and
2023, the statement of stockholders equity was higher by $1.5 million, lower by $1.5 million and lower by $33 thousand, respectively,
as compared to the statement of cash flows for timing differences between award dates and the realization of stock-based compensation
expense.
The Company did not issue any shares of common
stock as compensation during the year ended December 31, 2025. In terms of new issuances, the Company issued 150 thousand shares of the
Companys common stock to employees in the year ended December 31, 2025 (the 2025 SBC Awards), 995 thousand shares
in the year ended December, 2024 (the 2024 SBC Awards) and 2.3 million shares in the year ended December 31, 2023 (the 2023
SBC Awards).
The 2025 SBC Awards included 150 thousand such
shares to an employee per their respective employment agreement. 50 thousand shares were immediately vested and subject to a three-year
claw back. The remaining 100 thousand shares are restricted with the following vesting schedule: 25,000 shares vested annually based on
the performance of certain milestones through 2029.
The 2024 SBC Awards included 218 thousand such
shares to former executives per their respective employment and separation agreements (the Separation Agreement Shares)
and 777 thousand such shares as performance and incentive awards, which included 727 thousand shares of the Companys common stock
issued to 30 employees as payment in lieu of cash for 2023 performance bonuses (the 2024 Performance Incentive Shares) and
50 thousand shares of common stock as retention bonuses to five employees identified as key technical staff (the 2024 Retention
Incentive Shares). The 2024 Performance Incentive Shares are restricted with the following vesting schedule: one-half vested on
December 31, 2024 and one-half vested on December 31, 2025. The 2024 Retention Incentive Shares are restricted and vested on December
31, 2024.
The Company recognized $197 thousand and $815
thousand of stock-based compensation expense during the year ended December 31, 2024 in conjunction with the Separation Agreement Shares
and 2024 Retention Incentive Shares, respectively, and does not expect future expense related to these offerings as they are fully vested.
In conjunction with the 2024 Performance Incentive Shares, the Company recognized $233 thousand of stock-based compensation expense during
the year ended December 31, 2025 compared with $244 thousand during the year ended December 31, 2024.
The 2023 SBC Awards included 854 thousand shares
of the Companys common stock issued to 35 employees as payment in lieu of cash for 2022 performance bonuses (the 2023 Performance
Incentive Shares) and 1.5 million shares of the Companys common stock as long-term incentive bonuses to five employees identified
as key technical staff (the 2023 Retention Incentive Shares). The 2023 Performance Incentive Shares are restricted and vested
in equal halves on the December 31, 2023 and 2024. As of December 31, 2024, the Company canceled 23,600 of the issued shares that were
forfeited by employees no longer with the Company and does not expect future expense related to these offerings as they are fully vested.
The 2023 Retention Incentive Shares are restricted and vest annually in equal amounts over a five-year period as follows: twenty percent
(20%) vested or will vest on each December 31 of 2023, 2024, 2025, 2026 and 2027, subject to the grantee continuing to perform services
for the Company in the capacity in which the grant was received on each applicable vesting date. In conjunction with the 2023 Performance
Incentive Shares, the Company recognized $462 of stock-based compensation expense during the year ended December 31, 2025 and does not
expect future expense related to these offerings as they are fully vested. In conjunction with the 2023 Retention Incentive Shares, the
Company recognized $426 thousand, $533 thousand and $320 thousand of stock-based compensation expense during the years ended December
31, 202 December 31, 2024 and 2023, respectively, and expects future expense related to these offerings to total $852 thousand over the
remaining vesting periods.
F-34
*Stock-based compensation for services*
****
The Company recognized $18 thousand, $23 thousand
and $284 thousand during the years ended December 31, 2025, 2024 and 2023, respectively, in stock-based compensation for services in lieu
of cash payments to certain consultants, including expenses for both shares issued and stock option awards granted. For the years ended
December 31, 2025, 2024 and 2023, the statement of stockholders equity was the same, lower by $113 thousand and $2.2 million, respectively,
as compared to the statement of cash flows for timing differences between award dates and the realization of stock-based compensation
for services expense.
In terms of issuances, the Company issued no shares
of the Companys common stock to consultants for services in the year ending December 31, 2025, as compared to 141 thousand shares
of the Companys common stock issued to consultants for market and media advisory services in the year ending December 31, 2024.
**Note 14 Related Party Transactions**
Management identified no related-party transactions
for the years ended December 31, 2025, 2024, and 2023.
**Note 15 Operating Leases:**
As of December 31, 2025, the Company has use of
space in three different locations, Hoboken, NJ, Tempe, AZ, and Mclean, VA, under lease or membership agreements, which expire at various
dates through July 31, 2030. The Companys leases do not provide an implicit rate, and the rates implicit in our leases are not
readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease assets
and liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement
to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Companys leases all contain
options to extend or renew the lease or membership term.
The table below reconciles the undiscounted future
minimum lease payments under these operating leases to the total operating lease liabilities recognized on the consolidated balance sheet
as of December 31, 2025 (in thousands):
|
Year | |
Lease Payments Due | | |
|
2026 | |
$ | 1,001 | | |
|
2027 | |
| 1,028 | | |
|
2028 | |
| 665 | | |
|
2029 | |
| 213 | | |
|
2030 | |
| 126 | | |
|
Total minimum payments | |
| 3,033 | | |
|
Less: imputed interest | |
| (456 | ) | |
|
Present value of operating lease liabilities | |
| 2,577 | | |
|
Less: current portion included in accrued expenses | |
| (769 | ) | |
|
Long-term operating lease liabilities | |
$ | 1,808 | | |
F-35
Other information related to operating lease liabilities
consists of the following:
| | | Year Ended December 31, | | |
| | | 2025 | | | 2024 | | | 2023 | | |
| Cash paid for operating lease liabilities | | $ | 594 | | | $ | 385 | | | $ | 411 | | |
| Weighted average remaining lease term in years | | | 3.14 | | | | 3.30 | | | | 3.70 | | |
| Weighted average discount rate | | | 10.77 | % | | | 10.00 | % | | | 10.00 | % | |
****
**Note 16 License Agreement Stevens
Institute of Technology**
Effective December 17, 2020, QPhoton signed a License Agreement with
the Stevens Institute. The License Agreement enables the Company to commercially use technology such as licensed patents, licensed patent
applications and licensed Know-How. QPhoton is also able to issue sublicenses for the technology under the agreement. The
agreement is effective until the later of: (i) the 30-year anniversary of the effective date, or (ii) the expiration of the licensed patent
or licensed patent application that is last to expire. As part of the merger of the Company and QPhoton, the Stevens License Agreement
was assigned to the Company.
During the term of the agreement and prior to
any commercialization or sublicensing of the technology by the Company, the Company shall be required to submit annual reports to the
Stevens Institute reporting on all research, development, and efforts toward commercialization and/or sublicensing made during the year.
Once any commercialization and/or sublicensing has been initiated, the Company shall deliver quarterly reports to the Stevens Institute
reporting on the revenue received by the Company, all sublicenses derived from the sale of licensed products, and the net sales price
associated with each transaction. The Company will be responsible for reimbursing Stevens for any costs associated with the prosecution
and maintenance of the licensed patents and licensed patent applications moving forward.
*Consideration for the agreement*
As consideration for the license and other rights
granted under the agreement, QPhoton agreed to pay the following: (i) $35 thousand within 30 days of execution of the agreement, (ii)
$28 thousand within 30 days of each annual anniversary of the effective date, (iii) equity in the Company equivalent to 9.0% of the membership
units of the Company within 30 days of the execution of the agreement, and (iv) royalties of 3.5% of the Net Sales Price of each licensed
product sold or licensed by the Company during the quarter then-ended, for which it also received payment, concurrent with the delivery
of the relevant quarterly report.
As of December 31, 2025, the Company has begun
to commercialize some of the licensed technology, though the Company has not recorded any related revenue and hence has not incurred any
royalty expenses payable to the Stevens Institute.
****
**Note 17 Subsequent Events:**
On December 15, 2025, the Company entered into
a Stock Purchase Agreement (the Stock Purchase Agreement) with Luminar Technologies, Inc., a Delaware corporation (the Seller)
and Luminar Semiconductor, Inc., a Delaware corporation (the Target), pursuant to which, subject to the terms and conditions
set forth in the Stock Purchase Agreement, the Company agreed to acquire all of the issued and outstanding shares of common stock of the
Target from the Seller (the Transaction) for a total purchase price of $110.0 million in cash (the Purchase Price).
The Company delivered 10% of the Purchase Price (the Escrowed Amount) to an escrow agent in December 2025, which could be
returned to the Company in the event of specified trigger events, including termination of the Stock Purchase Agreement, subject to certain
exceptions relating to a breach of the Stock Purchase Agreement by the Target. Upon closing the Transaction, the Escrowed Amount remains
with the escrow agent to cover certain limited indemnification obligations of the Seller pursuant to the Stock Purchase Agreement for
the twelve months following the Closing, which occurred on February 2, 2026.
F-36
The Seller, together with certain of its subsidiaries,
is a debtor in a voluntary Chapter 11 case before the United States Bankruptcy Court for the Southern District of Texas (the Bankruptcy
Court), which commenced on December 15, 2025. The Target was not a debtor in such Chapter 11 case and was operating in the ordinary
course of business. Upon Bankruptcy Court approval, the Company was designated as the stalking horse bidder in connection
with a sale of the Target under Section 363 of the Bankruptcy Code. The Transaction was conducted through a Bankruptcy Court-supervised
process pursuant to Bankruptcy Court-approved bidding procedures and was subject to the receipt of higher or better offers from competing
bidders at an auction, approval of the sale by the Bankruptcy Court, and the satisfaction of certain conditions.
The Stock Purchase Agreement contains customary
representations, warranties and covenants of the parties for a transaction involving the acquisition of stock owned by a debtor in bankruptcy,
and the completion of the Transaction is subject to a number of customary conditions, which, among others, include the entry of an order
of the Bankruptcy Court authorizing and approving the Transaction, the performance by each party of its obligations under the Stock Purchase
Agreement and the material accuracy of each partys representations. The Stock Purchase Agreement contains certain termination rights
for both the Company and the Seller, including the right to terminate the Stock Purchase Agreement if the Transaction is not consummated
by March 31, 2026 or the Seller enters into a transaction with a competing bidder.
The foregoing summary of the Stock Purchase Agreement
is not complete and is qualified in its entirety by reference to the full text of the Stock Purchase Agreement, a copy of which was filed
as Exhibit 2.1 to Form 8k and is incorporated herein by reference.
The Transaction was completed on February 2, 2026.
The consideration paid by the Company at closing consisted of approximately $97.5 million in cash, along with the $11.0 million of funds
that were placed with an escrow agent in connection with the signing of the Stock Purchase Agreement. The escrowed amount will remain
with the escrow agent to cover certain limited indemnification obligations of the Seller pursuant to the Stock Purchase Agreement until
February 2, 2027.
The foregoing description of the Transaction and
the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement,
which the Company filed with the SEC as Exhibit 2.1 in its Current Report on Form 8-K on December 15, 2025, and is incorporated herein
by reference. The representations, warranties and covenants set forth in the Stock Purchase Agreement have been made only for purposes
of the Stock Purchase Agreement and solely for the benefit of the parties thereto, and may be subject to limitations agreed upon by the
contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between
the parties to the Stock Purchase Agreement instead of establishing these matters as facts. In addition, information regarding the subject
matter of the representations and warranties made in the Stock Purchase Agreement may change after the date of the Stock Purchase Agreement.
Accordingly, the Stock Purchase Agreement is included with this Current Report on Form 8-K only to provide investors with information
regarding its terms and not to provide investors with any other factual information regarding the Company, its subsidiaries, the Target,
or the Companys, the Targets or their subsidiaries respective businesses as of the date of the Stock Purchase Agreement
or as of any other date.
There are no other events of a subsequent nature
that in managements opinion are reportable.
F-37