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What changed in Quantum Computing Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Quantum Computing Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+294 added−278 removedSource: 10-K (2025-03-20) vs 10-K (2024-04-01)

Top changes in Quantum Computing Inc.'s 2024 10-K

294 paragraphs added · 278 removed · 176 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeEstimates of the size of this 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 (Information contained on, or that can be accessed through, this website is not incorporated by reference in this Annual Report, and you should not consider information on this website to be part of this Annual Report).
Biggest changeEstimates 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).
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 of third-party involvement in key distribution.
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.
The practical benefits on payload and signal to noise enhancement can be used to produce LiDAR systems that are greatly enhanced in their ability to measure at improved resolution and distances from aircraft, drones and even satellites. Quantum Photonic Vibrometer Launched July 2023, QCi’s Photonic Vibrometer is a proprietary, powerful instrument for remote vibration detection, sensing, and inspection.
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 July 2023, QCi’s Quantum Photonic Vibrometer is a proprietary, powerful instrument for remote vibration detection, sensing, and inspection.
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, (iii) 9% of the membership units of QPhoton, LLC, and (iv) a royalty of 3.5% of the net sales price of each license product sold or license by QPhoton, LLC and any affiliate and sublicensee.
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, (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.
This technology advancement allows QCi systems 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.
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.
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 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”).
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 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”).
Our proprietary technology is central to our strategy because we believe that it enables us to leverage the advantages of size, weight, power and cost (over competing cryogenic products to drive market adoption and volume of sales.
Our proprietary technology is central to our strategy because we believe that it enables us to leverage the advantages of size, weight, power, and cost over competing cryogenic products.
The Company believes that quantum solutions have the potential to bring order of magnitude advances in the fields of medicine, engineering, autonomous vehicles, and cybersecurity and that the demand for quantum computing in these market sectors will likely outpace and outperform the general-purpose computing market in the near- to mid-term and into the foreseeable future.
Market Opportunity The Company believes that quantum solutions have the potential to bring significant and increasing advances in the fields of medicine, engineering, autonomous vehicles, energy management, and cybersecurity and that the demand for quantum computing in these market sectors will likely outpace and outperform the general-purpose universal computing market in the near- to mid-term and into the foreseeable future.
We have built and are currently testing a prototype quantum imaging system. 5 Cybersecurity Quantum Networks and Quantum Authentication QCi has developed a system to address one of the major challenges in cybersecurity, authentication of users on a network, which is currently facilitated by the distribution of “private keys” by a trusted third party.
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.
The merger with QPhoton has broadened the Company’s technology portfolio and enables us to develop a group of closely related products to EQC, based on our common core photonic 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.
The QPhoton Merger substantially broadened the Company’s technology portfolio and enabled us to develop a group of closely related products to 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.
Remote Sensing LiDAR Applications QCi’s Quantum LiDAR uses patented methodologies that leverage the selective use of quantum spatial-temporal modes to maximize the signal-to-noise ratio of weak information signals in a high noise background.
LiDAR and Quantum Photonic Vibrometer QCi’s 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.
The study covers use applications and segments that suggest the global TFLN EOM market, valued at $190.4 million in 2022, is forecast to grow an estimated $1,931.3 million by 2029 - a compound annual growth rate of 39 percent. The report further describes that the demand increase is principally driven by the material advantages that were summarized above.
The study covers use applications and segments that forecast the global TFLN electro-optical modulator market, valued at $190.4 million in 2022, to grow an estimated $1,931.3 million 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 material advantages described above.
The RC hardware system’s advantages over the more traditional software approaches to reservoir computing include significantly faster processing speeds, 80% - 95% less energy consumption, portability (size of power bank), affordability, and requiring significantly shorter training time.
We believe that the RC’s hardware-based approach to reservoir computing has advantages over more traditional software approaches, including significantly faster processing speeds, 80% - 95% less energy consumption, portability (size of power bank), affordability, and requiring significantly shorter training time.
Cybersecurity 3 Products and Products in Development The Company believes it is well-positioned in the marketplace due to the Company’s core technology in integrated photonics that allows QCi to offer a suite of quantum machines and solutions to the market today with a robust technology roadmap for the future.
We believe that this suggests significant potential demand for QCi’s products and services. Products and Products in Development The Company believes it is well-positioned in the marketplace due to its Core Photonics Technology in integrated photonics that allows QCi to offer a suite of quantum machines to the market today with a robust technology roadmap for the future.
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 be an unbreakable basis for private network communication.
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 be an unbreakable basis for private network communication. 4 Competition The quantum computing industry is highly competitive and rapidly evolving and will likely remain so for the foreseeable future.
In addition to our photonic computing platform, we have leveraged QCi’s core technology to demonstrate powerful quantum sensing use cases in LIDAR (Light Detection and Ranging), reservoir computing (a form of neural network that can be used in machine learning applications) and quantum cyber authentication (a method for highly secure communication within a network).
In addition to our EQC technology, we have leveraged QCi’s 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 quantum cyber authentication (a method for highly secure communication within a network).
Several of these important technologies are already in early stages of commercialization. Our longer-term product development plan is to migrate product designs based on discrete components to a set of optical integrated circuits built on wafers using a crystalline material called lithium niobate (“Thin Film Lithium Niobate” or “TFLN”).
Our longer-term product development plan is to migrate product designs based on discrete components, including EQC’s current design, to a set of optical integrated circuits built on wafers using a crystalline material called lithium niobate (“Thin Film Lithium Niobate” or “TFLN”).
In addition to cloud-based access to our quantum computers, we offer on premises installation of our EQC product, rack-mountable and compatible with standard server room infrastructure requiring no need for special cooling, shielding, or power considerations.
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.
While the current quantum computing market comprises a fraction of the broader high-performance computing market, we anticipate that quantum computers will unlock new applications that are unlikely to be addressable by existing high-performance computers comprised of leveraging classical processing units. Quantum computing is a nascent and rapidly developing technology that has shown promise in delivering potentially disruptive computing capabilities.
Cybersecurity, including authentication While the current quantum computing market comprises a fraction of the broader high-performance computing market, we anticipate that quantum computers will unlock new applications that are unlikely to be addressable by existing high-performance computers comprised of leveraging classical processing units.
There are no unpaid liabilities under the Company’s benefit plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired employees. 9
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 Company’s benefit plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired employees. 6
Our core technology offers practical, cost-effective solutions that materially advance the adoption of quantum machines across several market segments including: 1. Quantum Computing 2. Quantum Intelligence (Artificial Intelligence and Machine Learning) 3. Remote Sensing 4. Imaging 5.
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: 1. Quantum computing, including quantum optimization computing 2. Reservoir computing, including edge hardware devices 2 3. Remote sensing and imaging, including LiDAR and quantum photonic vibrometry 4.
While the date of practical relevance of quantum computers is hard to determine, we believe that quantum availability has already begun and that quantum computers with gradually increasing performance will be introduced by multiple vendors over the course of the next decade. The Company Quantum Computing Inc.
While it is difficult to determine the date that quantum computers will begin to have practical relevance, we believe that quantum computers with gradually increasing performance will be introduced by multiple vendors over the next five years.
Employees As of December 31, 2023, the Company had 39 full time employees and nine part time contract staff, 34 of whom are focused on product development. The employees are not part of a collective bargaining agreement and labor relationships are good.
Information appearing on our website is not part of this Annual Report. Employees As of December 31, 2024, the Company had 41 full-time employees and nine part-time contract staff, 34 of whom are focused on product development.
“Compute at the edge” means to process, measure and analyze data locally (at the device) vs. over a network where data must be sent over the internet or through some cloud service. QCi’s Reservoir Computer (“RC”) is a standalone box that can be plugged into a local computer or server without having to connect over the internet.
QCi’s Reservoir Computer (“RC”) is a standalone device that can be plugged into a local computer or server without having to connect over the internet.
The first in the series of the system 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.
We believe that this device offers significant advancements in sensitivity, speed, and resolution, capable of discerning for the first time, highly obscured and non-line-of-sight objects. 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.
To assist in securing the domestic chip supply, the CHIPS Act provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development. The Company is pursuing programs under the CHIPS Act as a potential avenue to finance a photonic chip manufacturing facility.
The CHIPS Act is a $280 billion spending package aimed at encouraging the growth of the US-based semiconductor industry. To assist in securing the domestic chip supply, the CHIPS Act provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development.
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. Information appearing on our website is not part of this Annual Report.
The Company is pursuing opportunities under the CHIPS Act but there is no guarantee that it will actually receive any funding thereunder. 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.
On June 15, 2022, the Licensor agreed to assign the license agreement to QCi upon consummation of the QPhoton Merger. Government Regulation and Incentives Encryption The U.S. government has historically tightly regulated the export of cryptographic technologies under the Arms Export Control Act and the associated International Traffic in Arms regulations (ITAR) as a form of munition.
On June 15, 2022, the Licensor agreed to assign the license agreement to QCi upon consummation of the QPhoton Merger. Government Regulation and Incentives Export Regulation The U.S. government issued regulations in 2024 placing some restrictions on exporting quantum computing products under the Export Administration Act. Those exports will now require a license.
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 speed of performance and scalability. This will enable the RC to participate in the large language model training and other applications.
We anticipate that future generations of the RC will introduce greater speed of performance and scalability, which will enable the RC to participate in large language model 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 artificial intelligence / machine learning hardware market.
We believe that there is further potential upside from quantum computing and technology more broadly opening new markets not included in traditional high-performance computing market size estimates. 6 Competition The quantum computing industry is highly competitive and rapidly evolving and will likely remain so for the foreseeable future.
As an early participant in this rapidly growing market, we believe we are well-positioned to capture a meaningful amount of this growth. We also believe that there is further potential upside from quantum computing and technology more broadly opening new markets not included in traditional high-performance computing market size estimates.
The EQC is available both as a cloud-based subscription service, similar to other quantum machines, as well as an affordable on premises solution. Qatalyst QCi’s evolution into quantum hardware computing was enabled by the prior creation of its Qatalyst software.
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 subscription service, similar to other quantum machines, as well as an affordable on-premises solution.
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.
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.
According to research conducted by The Quantum Insider (https://thequantuminsider.com/data), 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, according to The Landscape of the Quantum Start-up Ecosystem , October 18, 2022, https://epjquantumtechnology.springeropen.com/articles/10.1140/epjqt/s40507-022-00146-x (Information contained on, or that can be accessed through, this website is not incorporated by reference in this Annual Report, and you should not consider information on this website to be part of this Annual Report).
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.
The CHIPS Act funding specifically includes $39 billion in manufacturing incentives and $13 billion to support new research and development. The recent market report published by Market Research Reports: Document ID: LPI08232779; Published August 8, 2023 “ Thin Film Lithium Niobate Market Forecast 2023 – 2029 ,” indicates a significant underlying market growth for TFLN devices.
Additionally, we believe that our foundry services offering 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.
The RC delivers superior performance in time dependent tasks, such as chaotic time series prediction, unstructured financial model prediction, natural language processing and weather forecasting.
Our benchmarking 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 we designed the RC to address.
Some computer science experts believe that quantum computing will be a potential solution to the hard limits now being approached by conventional computers that utilize silicon-based processors.
There is a growing belief among computer science experts that quantum computing, which uses quantum mechanics to solve problems faster than traditional computers, may offer a potential solution to the hard limits now being approached by classical computers.
Specifically, TFLN EOM’s have the advantages of large bandwidth, low power consumption, and small size. 2 Our Strategy QCi’s strategy is to provide a range of accessible and affordable quantum machines to commercial and government markets.
Specifically, TFLN electro-optical modulators have the advantages of large bandwidth, low power consumption, and small size.
QCi possesses strong domain experience and intellectual property in TFLN design and chip fabrication and has completed initial production of several specialty devices such as electro-optical modulators (“EOM’s”). The Company has begun buildout of a state-of-the-art TFLN chip manufacturing facility in a leased space within Arizona State University’s Research Park in Tempe, Arizona.
The Company is completing the buildout of a state-of-the-art TFLN chip manufacturing facility in a leased space within Arizona State University’s Research Park in Tempe, Arizona (the “AZ Chips Facility”).
Qatalyst is now the interface to QCi’s own EQC systems. 4 Quantum Intelligence (Artificial Intelligence and Machine Learning) Reservoir Computer Launched in June 2023, our first reservoir computing product is an edge device that is FPGA-based and optimized for recurrent neural network applications.
Users can then use these same interfaces on conventional computers to achieve optimization performance advantages using our cloud-based solution. Reservoir Computer Launched in June 2023, QCi’s first reservoir computing product is an edge device that used an integrated circuit that can be reprogrammed after manufacturing and optimized for recurrent neural network applications.
We anticipate that our core technologies will enable us to develop and produce multiple generations of quantum machines with increasing computational power, capacity, and speed, as well as the eventual hardware miniaturization to produce optical integrated circuits to replace the discrete components currently used.
As a result, the EQC consumes 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 will enable us to develop and produce multiple generations of quantum machines with increasing computational power, scalability, and speed.
These NP-complete problems require complex calculations that cannot currently be performed within any reasonable amount of time using conventional computer systems for problem sizes relevant to many industrial and government applications. Published academic research indicates that quantum computers may be ideally suited to solve optimization problems of this type.
Classical computers that use silicon microprocessors are understood to have performance limitations in solving certain classes of computational problems, in particular, optimization problems. Solving large 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.
EQC is a patent pending methodology that utilizes the environment to drive controlled energy loss in a photonic architecture. Using quantum measurements of single photons as a source of feedback, the energy loss of the system is driven to a “ground state solution” where additional computational iterations no longer change the output.
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 utilizes the energy in the environment to drive controlled feedback through energy loss in a photonic circuit architecture.
The Company’s understanding is that this could be the nation’s first dedicated optical integrated circuit manufacturing facility using TFLN wafers to achieve quantum effects. Our plan for the facility is to produce a range of custom lithium niobate chips for use in our own product lines as well as chips for sale in the commercial market.
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.
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The Computing Landscape and The End of Moore’s Law For the past 45 years or so, silicon-based processor manufacturers have been able to double their processing power every 18 to 24 months, a phenomenon known in the computer industry as “Moore’s Law.” Recently, the computer processor industry has found it increasingly difficult to offer faster, more powerful processors due to fundamental physical effects limiting further size reduction of transistors.
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ITEM 1. BUSINESS . The High-Performance Computing Landscape There is a large and growing demand for ever-increasing computational performance in information processing and data storage. The recent emergence of artificial intelligence, large language models, and machine learning algorithms has added to the need for efficient processing of vast volumes of data.
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Additionally, conventional computers are known to struggle with optimization problems known as NP-complete problems, which are a class of mathematical problems that can, in principle, be solved by conventional computers, with that caveat that the time to solution will grow exponentially with the size of the problem.
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In addition to new computational methodologies using quantum mechanics, 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.
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(“QCi” or the “Company”) is an American company utilizing non-linear quantum optics (optical devices whose output due to quantum effects is exponentially, not linearly, related to inputs) to deliver quantum products for high-performance computing applications. QCi’s products are designed to operate at room temperature and use low power.
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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.
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Our core technology enables the execution of a go-to-market strategy that emphasizes accessibility and affordability as the key selling points. QCi was founded in 2018 and our initial business was developing platform agnostic enterprise software for quantum computing systems. In June 2022, QCi acquired its wholly-owned subsidiary QPhoton, Inc.
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The Company Quantum Computing Inc. 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. Our vision is to lead the revolution in photonics and quantum computing with scalable, accessible, and affordable solutions for real-world problems.
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(subsequently renamed QPhoton, LLC) (“QPhoton”), a photonics hardware company (the “QPhoton Merger”). That merger enables QCi to now offer high-performance quantum systems integrated with the Company’s software platform, Qatalyst, that existed before the QPhoton Merger. 1 QCi’s core technology is Entropy Quantum Computing (“EQC”).
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QCi’s 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 acquisition of QPhoton, Inc.
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The ground state solution is the optimized result (the answer to the problem posed). This methodology allows for very low power consumption and room temperature operation. Also, due to the nature of the measurement and feedback process, EQC drives non-linear quantum interactions for “dense, fully connected” problem solving.
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(the “QPhoton Merger”) in June 2022, enabled us to offer the aforementioned products, integrated with the Company’s software platform, Qatalyst, that existed before the QPhoton Merger. 1 QCi’s proprietary core technology rests in our ability to condition, manipulate, and measure single photons (particles of light). Specifically, our integrated photonics approach exploits the non-linear capabilities of photons (our “Core Photonics Technology”).
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We expect these systems to deliver performance advantages over classical computational machines with the long-term goal of solving complex problems more effectively and efficiently with greater scalability, lower power consumption, and lower cost.
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The EQC’s use of the environment as an integral part of the system is in sharp contrast to competing quantum approaches, including the aforementioned superconducting, trapped-ion, and annealing architectures, which seek to establish stable quantum states by the complete elimination of environmental effects.
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The Company believes that TFLN is an excellent material for design and implementation of optical integrated circuits suitable for our quantum computing and sensing products because it is crystal based and hence can have optical waveguides directly etched into the material.
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The Company believes that TFLN is an excellent material for optical integrated circuit design, given its advantageous optical properties (both linear and non-linear) and its compatibility with silicon-based semiconductor fabrication methods.
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The Company has plans to support this initiative by applying for funding for distinct uses under both the Title 17 Clean Energy Financing Program managed by the US Department of Energy’s Loan Programs Office and also the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the “CHIPS Act”), which allocates $52 billion for the revitalization and onshoring of semiconductor manufacturing in the U.S.
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Several of these technologies are in the early stages of commercialization and several are available to customers through our research & development offerings. Our Strategy QCi’s strategy is to provide a range of accessible and affordable quantum machines to commercial and government markets, supported by professional services through our “Quantum Solutions” offering.
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The Company believes the EQC’s small rack-mountable size and low-energy consumption provides a substantial competitive edge as compared to superconducting, cryogenic quantum systems offered by competitors that are also designed to solve optimization problems.
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Further, Mordor Intelligence published a market report, “ Photonic Integrated Circuit Market Size & Share Analysis - Growth Trends & Forecasts (2024 - 2029)” forecasts that the photonic integrated circuit (PIC) market, currently valued at $15.1 billion, will grow at a compound annual growth rate of 20.5% to $38.4 billion in 2029.
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We believe that the practical benefits to the customer of QCi’s core offerings are: ● Powerful performance in speed and quality of solution for large complex optimization problems ● Plug and play compatibility with existing IT infrastructure ● Low power consumption – normal operation under 80 watts ● Scalability with potential for migration to nanophotonic system-on-a-chip designs Market Opportunity Despite enormous growth in the capabilities of conventional computers and silicon microprocessors, some of the world’s most important computational problems are still considered impractical to solve in a reasonable period of time.
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While the Company is developing proprietary chip designs to for TFLN Optical Chips for exclusive use in our products for the aforementioned applications, the Company’s 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. 3 Entropy Quantum Computer QCi launched a new EQC device during the first quarter of 2024 (Dirac-3) and plans to release a series of additional EQC products in the coming years that build and expand upon the same analog architecture.
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Quantum computing represents a potential alternative approach to solving those problems because quantum computers apply the properties of quantum physics to operate in a fundamentally different way. Conventional computer chips use binary bits (ones and zeros) to represent information.
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EQC is a full-stack system, incorporating QCi’s custom user interface software Qatalyst, which allows users to avoid the complexity of software development kits (“SDKs”) at the circuit level and has evolved from QCi’s primary SaaS offering to the software that powers our offerings. Operating on EQC, Qatalyst enables developers to create and execute quantum-ready applications using application programming interfaces.
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Quantum computers utilize qubits (quantum bits), which leverage some of the properties of quantum physics, namely superposition and entanglement, to process computations that would be intractably difficult using conventional computers.
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An “edge device” allows the user to process, measure, and analyze data locally (at the user’s device) as opposed to over a network where data must be sent over the internet or through some cloud service.
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While quantum-based computers will not replace conventional computers in most applications, they are ideally suited to run optimization algorithms, as well as to calculate certain sensing, imaging, and cybersecurity problems that are beyond the reach of general silicon-based computing today.
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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 5 Trademarks The Company has three registered trademarks, “QPhoton,” “QGraph” and “Qatalyst.” The Company has no pending trademark applications.
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The Company is developing proprietary chip designs and is completing a dedicated chip fabrication facility to develop and produce TFLN Optical Chips for quantum information processing and other single photon detection and sensing applications.
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Patents The Company has two granted United States patents. Country Serial No. Filing Date Patent No.
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Quantum Computing Entropy Quantum Computer The core of QCi’s hardware offering is the EQC, which leverages the principle of open quantum systems, meaning that the EQC does not need to be isolated from the outside world in order to function.
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We are reviewing the new regulations but do not believe they will have a substantial adverse impact on the Company. The U.S. government has also placed some export restrictions on certain types of cryogenic quantum computing equipment as well as some optical materials.
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The EQC differs from the more common gate-model architectures by using the entropy in the environment as a useful source of energy rather than as a source of noise. As a result, the EQC can operate in normal server room environments with a high degree of stability.
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At this time, however, we do not expect there to be significant export limitations on the Company’s products. Incentives The Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the “CHIPS Act”) was designed to address the global computer chip shortage and attract chip manufacturing, and innovation to the United States.
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The EQC works by encoding a problem into a photonic signal and then carefully modulating the loss of energy in the system, iterating until the system reaches the ground state (or optimal configuration) solution. The non-linear coupling of an optical feedback loop in the system enables full connectivity among all of the variables of a complex problem.
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QCi launched a new EQC device during the first quarter of 2024 (Dirac-3) and plans to release a series of additional EQC products in the coming months and years. 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.
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The Qatalyst development platform was QCi’s answer to the broader industry’s current approach to quantum software development, which relies on highly trained scientists working with software development kits (“SDKs”) at the circuit level, instead of a high-level language, which requires deep level quantum expertise to create quantum workflows. Qatalyst is not a tool kit, rather, a complete platform.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe 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.
Biggest changeIn 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.
Importers are 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.
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.
The 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.
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 shares 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 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.
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: ● actions by competitors; ● actual or anticipated growth rates relative to our competitors; ● the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (the “SEC”); ● economic, legal and regulatory factors unrelated to our performance; ● any future guidance that we may provide to the public, any changes in such guidance or any difference between our guidance and actual results; ● changes in financial estimates or recommendations by any securities analysts who follow our common stock; ● speculation by the press or investment community regarding our business; ● litigation; ● changes in key personnel; and ● future sales of our common stock by our officers, directors and significant stockholders.
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: ● actions by competitors; ● actual or anticipated growth rates relative to our competitors; ● the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (the “SEC”); ● economic, legal and regulatory factors unrelated to our performance; 22 ● any future guidance that we may provide to the public, any changes in such guidance or any difference between our guidance and actual results; ● changes in financial estimates or recommendations by any securities analysts who follow our common stock; ● speculation by the press or investment community regarding our business; ● litigation; ● changes in key personnel; and ● future sales of our common stock by our officers, directors and significant stockholders.
Our current competitors include: ● large, well-established tech 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, Xanadu and D-Wave Quantum, and companies located outside the United States; and ● new or emerging entrants seeking to develop competing technologies.
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, Xanadu and D-Wave Quantum, and companies located outside the United States; and ● new or emerging entrants seeking to develop competing technologies.
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.
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. 18 We intend to continue exploring strategic business acquisitions and other business combinations and transactions, which are subject to inherent risks.
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. 11 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.
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.
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. 22 Computer malware, viruses, hacking, phishing attacks and spamming could harm our business and results of operations.
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.
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 which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers.
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, 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. There can be no assurance that financing will be available to we on favorable terms, or at all.
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. There can be no assurance that financing will be available to us on favorable terms, or at all.
These rules would require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction.
These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction.
As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. 19 Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.
As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.
If the equity and credit markets were to further 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.
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.
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.
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. 20 However, we may not be able to prevent unauthorized use of our intellectual property.
Deterioration in the political relationship between the U.S. and China 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.
Further, deterioration in the political relationship between the U.S. and China 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.
Our products 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 Department’s Office of Foreign Assets Control.
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 Department’s Office of Foreign Assets Control.
Any of these effects could depress the market price of our common stock. 26 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.
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.
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 a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale.
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 issuer’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale.
Producing quantum computers, sensors and networks is a difficult undertaking. There are significant engineering challenges that we must overcome. We face significant challenges in completing development of our quantum computers and other products, and in producing in sufficient volumes.
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.
Sales 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.
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.
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 military conflict between Russia and Ukraine and the related sanctions imposed against Russia, and the state of war between Israel and Hamas and the related risk of a larger regional conflict.
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.
We have also experienced, and may in the future further experience, disruptions, outages, defects and other performance and quality problems with the public cloud and internet infrastructure on which our systems rely.
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.
If any of these events occur, our business, prospects, financial condition and operating results could be harmed. 16 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.
If any of these events occur, our business, prospects, financial condition and operating results could be harmed. 14 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.
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 our shares of common stock, could cause the market price of our shares of common stock to decline significantly. 25 We currently do not intend to pay dividends on our common stock.
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. 24 We currently do not intend to pay dividends on our common stock.
The potential issuance of such additional shares of common stock or of preferred stock or convertible debt may create downward pressure on the market price of our 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.
Our quantum computers are inherently complex and incorporate technology and components that may have not 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.
Our quantum computers are inherently complex and incorporate technology and components that may note 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.
Furthermore, uncertain economic conditions may make it more difficult for us to raise funds through borrowings or private or public 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.
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.
Any failure to maintain our relationship with any of our largest 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.
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.
Since the merger with QPhoton, 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 (“APIs”) to access our systems.
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 U.S. government continues to add additional entities, in China and elsewhere, to restricted party lists impacting the ability of U.S. companies to provide products and, in certain cases, services, to these entities and, in some cases, to receive items or services from these entities.
The U.S. government continues to add additional entities, in China and elsewhere, to restricted party lists impacting 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.
Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate of the company and who has satisfied a one-year holding period.
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.
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 systems. 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.
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.
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, international trade relations, pandemics (such as the recent COVID-19 pandemic) and other health emergencies, 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.
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.
The industry is rapidly evolving, and customers have many choices for programming languages, some of which may not be compatible with our own APIs. Our quantum computing development platform is designed to be compatible with most major software languages.
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 large-scale development of our quantum computers other products commences, 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.
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 financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries.
Our financial statements do not include any adjustments that might result from the outcome of this uncertainty or from the sale of the PIPE Shares. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries.
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, pandemic, labor disputes or weather conditions.
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.
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. 14 Additionally, we must be able to achieve our objectives in a timely manner lest quantum computing lose ground to competitors, including competing technologies.
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 don’t lose ground to competitors, including competing technologies.
Further, the Chinese government has responded to these U.S. actions by indicating its intention to develop an unreliable entity list, which may limit the ability of companies on the list to engage in business with Chinese counterparties. 18 In June 2022, the import restrictions contained in the Uyghur Forced Labor Prevention Act (“UFLPA”) became effective.
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.
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 or other transactions. Similar rules may 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 or other transactions.
We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private placements for capital raising purposes or for other business purposes.
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.
The U.S. government also continues to increase end-use restrictions on the provision of items and service to China and other countries including end-uses related to advanced computing.
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.
Government actions and regulations, such as tariffs and trade protection measures, 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.
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.
Furthermore, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We have not emerged from the development stage and may be unable to raise further equity. These factors raise substantial doubt about our ability to continue as a going concern.
Furthermore, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We have not emerged from the development stage and may be unable to raise further equity.
Even if inflation and interest rates decline from current levels, that may not result in a reduction of costs. 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.
Further, subsequent decreases in inflation and interest rates may not result in a reduction of costs. 19 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.
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. For example, recent bank failures have resulted in volatility in the capital markets.
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.
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.
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.
Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely.
Any volatility or disruptions in market and economic conditions may have adverse consequences on us or the third parties on whom we rely.
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 March 28, 2024, our directors and executive officers collectively beneficially own approximately 31.8% of the shares of our common stock including the beneficial ownership of Mr.
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 March 18, 2025, our directors and executive officers collectively beneficially own approximately 20.1% of the shares of our common stock including the beneficial ownership of Dr.
Any material change in our contractual and other business relationships with AWS 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.
These public cloud services are predominantly on Amazon Web Services at the present time. 12 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.
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, accounts receivable as a result. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products.
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 impacting our ability to continue our research and development activities or manufacture our products.
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. 13 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.
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.
During the last few years, the United States has imposed tariffs on certain products imported into the United States and some countries have imposed tariffs on U.S. imports in response.
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.
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. Our network security business disruption insurance may not be sufficient to cover significant expenses and losses related to direct attacks on our website or internal systems.
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.
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.
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.
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 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.
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.
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.
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. 9 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.
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 incurred negative cash flows from operating activities and recurring net losses in fiscal years 2023 and 2022.
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.
In addition, we have issued notes that are convertible into shares of our common stock in connection with financing transactions and certain employment, director and consultant agreements, which shares of common stock, upon conversion, would also be considered “restricted securities.” As restricted securities, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws.
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.
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 AWS at the present time.
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.
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
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.
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.
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 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.
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.
The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.
Trading in our common stock has from time to time been and may continue to be subject to the SEC’s “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.
Disruptions in transportation lines or the ongoing military conflict between Russia and Ukraine, the state of war between Israel and Hamas, or an invasion of Taiwan by China, may also cause global supply chain issues that affect us or our suppliers. We generally have multiple sources of supply, however, in some cases, materials are provided by a single supplier.
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.
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.
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. 16 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.
In addition, the Chinese government exercises significant control over China’s 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.
Any such actions could impact our business operations and have a material adverse effect on our business prospectus, financial condition and results of operations. 17 In addition, the Chinese government exercises significant control over China’s 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.
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.
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. 21 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.
In order to grow our business, we will need to continually evolve and scale our business and operations to meet customer and market demand. However, commercial demand for quantum computing products and services may never develop.
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.
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.
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.
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. 20 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.
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.
Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. 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.
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.
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. 15 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.
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.
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.
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.
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.
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. 8 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.
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. 17 Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations.
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.
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. 21 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.
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.
Growing our customer base depends upon the effective operation of our applications with operating systems, networks and standards that we do not control.
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.
As a result, the markets in which we now operate are rapidly evolving and highly competitive. As the marketplace continues to mature and new technologies and competitors enter, we expect competition to intensify.
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWhile 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. 27
Biggest changeWhile 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. 26

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company also has multiple leases or membership agreements in multi-tenant facilities that provides 24/7 furnished co-working space, conference room space, and other services on an as-needed basis, including approximately 350 square feet under a month-to-month lease in Leesburg, VA, approximately 300 square feet under a short-term agreement in Arlington, VA, and approximately 450 square feet under an annual operating lease in Minneapolis, MN.
Biggest changeThe Company also has a short-term agreement for approximately 300 square feet in a multi-tenant facility in Arlington, VA that provides 24/7 furnished co-working space, conference room space, and other services on an as-needed basis.
ITEM 2. PROPERTIES. We maintain our current principal office at 5 Marine View Plaza, Suite 214, Hoboken, NJ 07030. The Company leases 7,503 square feet of office and laboratory space in a multistory, multi-tenant building in Hoboken, NJ under a five-year lease.
ITEM 2. PROPERTIES. We maintain our principal office at 5 Marine View Plaza, Suite 214, Hoboken, NJ 07030. The Company leases 7,503 square feet of laboratory and office space in a multistory, multi-tenant building in Hoboken, NJ under a five-year lease ending September 30, 2027.
Additionally, the Company has a fully executed lease for 9,261 square feet of office, laboratory and clean room space in a multi-tenant building in Tempe, AZ for 51-months, which will commence upon substantial completion of tenant improvements.
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOn August 16, 2022, BV Advisory filed a complaint in the Court of Chancery of the State of Delaware naming the Company and certain of its directors and officers (among others) as defendants (the “Lawsuit”).
Biggest changeOn July 14, 2022, BV Advisory returned the cashier’s check and disputed the calculation of the amount paid to settle the BV 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 (the “Breach Lawsuit”). BV Advisory Partners, LLC v.
On October 13, 2022, BV Advisory filed a petition in the Court of Chancery of the State of Delaware seeking appraisal rights on the shares of common stock of QPhoton it allegedly owns (which shares represented 10% of the shares of common stock of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton) pursuant to Section 262 of the General Corporation Law of the State of Delaware.
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 (the “Appraisal Petition”) on the shares of common stock of QPhoton it allegedly owns (which shares represented 10% of the shares of common stock of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton) pursuant to Section 262 of the Delaware General Corporation Law.
On June 16, 2022, the effective date of our acquisition of QPhoton, QPhoton tendered a cashier’s check to BV Advisory in the amount of $535,684.24, representing the full principal balance of the BV Notes and accrued interest through June 16, 2022. BV subsequently filed suit against the Company disputing the calculation of the payment amount and asserting other claims.
On June 16, 2022, the effective date of our acquisition of QPhoton, QPhoton tendered a cashier’s check to BV Advisory in the amount of $535,684.24, representing the full principal balance of the BV Notes and accrued interest through June 16, 2022.
BV Advisory Partners, LLC (“BV Advisory”) was purportedly a shareholder of QPhoton, the predecessor in interest to QPhoton, LLC, a wholly owned subsidiary of the Company (both referred to as “QPhoton” in this Legal Proceedings discussion).
BV Advisory v. QCi Appraisal Action BV Advisory Partners, LLC (“BV Advisory”) was purportedly a shareholder of QPhoton, Inc., the predecessor in interest to QPhoton (both referred to as “QPhoton” in this Legal Proceedings discussion).
Under the Note Purchase Agreement, 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 “BV Notes”). The BV Notes all bore interest at a rate of 6% per annum and matured two years from the grant date.
Pursuant to the BV Note Purchase Agreement, 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 “BV Notes”).
The parties are currently engaged in discovery and the Company does not have sufficient information to assess the potential impact of the appraisal demand at this time. In addition, on March 1, 2021, QPhoton entered into a Note Purchase Agreement with BV Advisory.
The parties agreed to suspend discovery pending resolution of outstanding motions in two related cases. The Company does not have sufficient information to assess the potential impact of the Appraisal Petition at this time. BV Advisory v.
Removed
BV Advisory is seeking, among other relief, monetary damages for an alleged breach of the Note Purchase Agreement between BV Advisory and QPhoton, as well as monetary damages for alleged breach of an alleged binding letter of intent among Barksdale Global Holdings, LLC (“BGH”), Inference Ventures, LLC (“Inference Ventures”) and QPhoton.
Added
QCi Breach of Contract Lawsuit On March 1, 2021, QPhoton entered into a Note Purchase Agreement with BV Advisory (the “BV Note Purchase Agreement”).
Removed
BV Advisory and its affiliates claim that pursuant to the letter of intent they had the right to acquire additional shares in QPhoton by investing $2.5 million in QPhoton. BV Advisory claims QPhoton refused to allow BV Advisory to purchase the equity. However, BV Advisory never made the additional investment in QPhoton.
Added
The BV Notes all bore interest at a rate of 6% per annum and matured two years from the issuance date.
Removed
The Company believes that BV Advisory’s claims have no merit and intends to defend itself vigorously. Moreover, the Company believes that numerous alleged facts and characterizations set forth in BV Advisory’s complaint are false, misleading and intentionally designed to damage the Company’s reputation, and the Company categorically rejects those alleged facts and characterizations. The Company further believes that Mr.
Added
Quantum Computing Inc. , et al., C.A. No. 2022-0719-VCG (Del. Ch.). BV Advisory sought, among other relief, monetary damages from QPhoton for an alleged breach of the BV Note Purchase Agreement.
Removed
Barksdale misrepresented his role with QPhoton and his authority to negotiate on behalf of QPhoton in order to arrogate to BV Advisory and related parties a larger share of the QPhoton merger consideration.
Added
After the Delaware Chancery Court dismissed BV Advisory’s other claims against the Company and QPhoton, on October 17, 2024, the Delaware Chancery Court entered a Stipulation and Order dismissing BV Advisory’s claim for breach of the BV Note Purchase Agreement, subject to BV Advisory’s right to elect to transfer the BV Note claim to the Superior Court of the state of Delaware (the “Delaware Superior Court”).
Removed
The Company has filed a motion to dismiss the Lawsuit, and that motion to dismiss is currently under consideration by the court. 28 On December 30, 2022 the Company, QPhoton and Robert Liscouski (the “Quantum Plaintiffs”) filed suit in the Superior Court of New Jersey (the “NJ Court”) against Keith Barksdale, Michael Kotlarz, BV Advisory, BGH, Power Analytics Global Corporation (“PAG”), and Inference Ventures (and together with Barksdale, Kotlarz, BV Advisory, BGH, and PAG the “BV Defendants”), alleging fraud, aiding and abetting fraud, defamation, and conspiracy to defraud, seeking monetary and injunctive relief.
Added
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.
Removed
The Company claims that the BV Defendants have made numerous public statements defaming the Company and its management in furtherance of a plan to manipulate the trading prices of the Company’s common stock, and that the BV Defendants misrepresented their ownership in QPhoton and conspired to acquire additional shares of QPhoton at the Company’s expense.
Added
The Company answered the complaint on December 16, 2024. The Company believes that BV Advisory’s BV Note claims have no merit and intends to defend itself vigorously, but does not have sufficient information to assess the potential impact of the Breach Lawsuit at this time. 27 QCi v.
Removed
The BV Defendants filed a motion to dismiss the complaint on March 24, 2023, and on June 5, 2023, the NJ Court largely denied the BV Defendants’ motion. On January 31, 2024, the BV Defendants filed a motion for reconsideration of their motion to dismiss.
Added
BV Advisory Injunction Lawsuit On January 31, 2025, the Company filed a complaint in Delaware Chancery Court against BV Advisory and its principal Keith Barksdale (the “BV Defendants”) 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 Company’s confidential and privileged documents.
Removed
On March 7, 2024, the NJ Court issued an order, granting the BV Defendant’s motion dismissing the Company’s case on procedural grounds because, according to the NJ Court, the Company can assert its claims.
Added
The Company seeks, among other relief, injunctive relief and damages. On February 11, 2025, the Court granted the Company’s motion for a temporary restraining order and instructed the parties to negotiate an expedited case schedule.
Removed
The Company has 45 days in which to file an appeal and is evaluating whether it should file the claims in Delaware or appeal the NJ Court’s ruling. The Company does not have sufficient information at this time to assess the potential impact of the action against the BV Defendants.
Added
On February 13, 2025, the Court entered a stipulated case schedule that set a trial for April 8 and 9, 2025 on the Company’s claims for conversion, aiding and abetting conversion, and misappropriation of trade secrets. The parties are currently engaged in discovery.
Removed
On July 27, 2023, BV Advisory and its managing member, Keith Barksdale, as alleged stockholders of and claimants against the Company, filed a petition in the Court of Chancery of the State of Delaware to appoint a receiver for the Company based on allegations that the Company is insolvent due to purported poor corporate governance and cash management.
Added
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 United States District Court for the District of New Jersey, by a plaintiff seeking to represent a class of all persons who purchased the Company’s securities between March 30, 2020 and January 15, 2025, alleging violations of Section 10(b) and 20(a) of the Exchange Act.
Removed
The petition also objects to the Company’s approach to raising capital. In a related motion, the petitioners also sought expedited treatment of the petition on July 28, 2023, alleging that they face a threat of irreparable harm. The Company strongly disagrees with the allegations in the petition and plans to vigorously defend ourselves against these claims.
Added
The complaint alleges that the Company made false and/or misleading statements and/or failed to disclose material information about the Company’s customers, contracts and business operations. To date the New Jersey District Court has not certified a class or designated a lead plaintiff. The Company disputes the allegations in the complaint and intends to vigorously defend against the asserted claims.
Removed
On August 23, 2023, the Company filed a motion to dismiss the petition and on September 13, 2023, it submitted a brief in opposition to the motion to expedite. The Company intends to vigorously defend itself against the allegations in the petition.
Added
Arbitration over Stock Options In February 2025, the Company entered into arbitrations with two former consultants regarding forfeiture of stock options.
Removed
The Company’s motion to dismiss and BV Advisory’s motion for expedited treatment were argued before the Court on October 11, 2023. The Court denied BV Advisory’s motion to expedite and took the Company’s motion to dismiss under advisement. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 29 PART II
Added
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 Company’s equity compensation plans.
Added
The former consultants did not exercise their vested options and the options were duly forfeited. In December 2024, the former consultants claimed that they still retained the right to exercise the options, which the Company rejected. The Company believes that these claims are without merit and intends to defend itself vigorously.
Added
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.
Added
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. 28 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 28, 2024, 91,357,640 shares of common stock were issued and outstanding, 1,407,221 shares of Series A Convertible Preferred stock were issued and outstanding and no shares of Series B Preferred Stock are issued and outstanding. Holders of Common Equity As of March 28, 2024, there were approximately 263 stockholders of record of our common stock.
Biggest changeAs of March 18, 2025, we had 137,244,545 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. Holders of Common Equity As of March 18, 2025, there were approximately 214 stockholders of record of our common stock.
Unregistered Sales of Equity Securities and Use of Proceeds During the year ended December 31, 2023, 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. ITEM 6. [Reserved]
Unregistered Sales of Equity Securities and Use of Proceeds During the year ended December 31, 2024, 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. ITEM 6. [Reserved]
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 blank check preferred, 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.
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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

23 edited+50 added−34 removed7 unchanged
Biggest changeCash Flows Net cash used in operating activities for the years ended December 31, 2023 and 2022 was $19,940,521 and $17,240,117, respectively, in each case primarily as a result of our net loss in each year offset by noncash adjustments for stock-based compensation, depreciation of property, plant and equipment and amortization of intangibles.
Biggest changeCash Flows The following table summarizes our cash flow for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Net cash used in operating activities $ (16,213 ) $ (18,315 ) Net cash used in investing activities (6,036 ) (2,612 ) Net cash provided by financing activities 99,135 17,678 Net increase (decrease) in cash and cash equivalents $ 76,886 $ (3,249 ) Net cash used in operating activities for the years ended December 31, 2024 and 2023 was $16.2 million and $18.3 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 financial liabilities, and depreciation and amortization.
However, we may be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all.
We may, however, be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all.
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. Not applicable.
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. 35 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.
The following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2023 and 2022 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report.
The following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2024 and 2023 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report.
In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest rates, banking collapses, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all.
In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest rates, bank failures, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all.
Until such time as we can generate significant revenue from sales or subscriptions of our hardware offerings, we expect to finance our cash needs through public and/or private equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and loan programs.
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.
Overview QCi is a development stage company with limited operations and revenue. The Company is developing quantum machines for high-performance computing applications based on proprietary photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas of high-performance computing, sensing and imaging, and quantum cybersecurity.
The Company is developing quantum and ancillary non-quantum products for high-performance computing applications based on proprietary photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas of high-performance computing, sensing and imaging, and quantum cybersecurity.
Accordingly, the Company has focused on providing professional services to introduce customers to quantum-based solutions to their operating needs, and on customer education and building customer awareness as a means to generating sales. The Company has completed its discovery and research phase and is now transitioning towards commercialization.
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.
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. Legal and Other Contingencies The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.
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.
Demand for the 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.
On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Demand for the Company’s 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.
Revenue was derived from sales of hardware products and professional services in 2023, and solely from professional services in 2022, in each case provided to multiple commercial and government customers under multi-month contracts; the year-over-year change was riven by increases in short-term contractual service revenue.
Revenue was derived from sales of hardware products and professional services in 2024 and 2023, in each case provided to multiple commercial and government customers under multi-month contracts.
See “Forward-Looking Statements.” You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, When we say “we,” “us,” “our,” “Company,” or “QCi,” we mean Quantum Computing Inc.
See “Forward-Looking Statements.” You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, Overview QCi is a development stage company with limited operations and revenue.
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 quantum computing development and go-to-market efforts.
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.
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.
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.
The Company has no lines of credit, and $2,496,480 in 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 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. As of December 31, 2024, the Company had cash and cash equivalents of $78.9 million.
Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and non-linear quantum optical chips and fund business operations.
Our primary uses of cash are to fund and invest in our operations as we continue to grow our business.
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 Company’s development team includes optical engineers, mathematicians, physicists, and software developers. 30 Results of Operations Years Ended December 31, 2023 vs.
The Company has generated some revenue based on sales of products and related services to date and is expanding its sales and marketing efforts.
We have developed and released multiple products and are now in the process of marketing them. We expect revenues to increase meaningfully in 2024 as we continue to emphasize our hardware capability.
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.
In as much as a major portion of our activities will be the receipt of revenues from the sales of our products and services, our business operations may be adversely affected by our competitors and prolonged recession periods. 33 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 condensed consolidated financial statements.
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.
Our lack of a scaled and distributed base of revenue generation by product and sales channel can result in large swings in gross margin between reporting periods. 31 Operating Expenses Operating expenses for the year ended December 31, 2023 were $27,383,684 compared to $36,654,056 for the year ended December 31, 2022, a decrease of $9,270,372 or 25%.
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.
Cash provided by financing activities during the year ended December 31, 2023 was attributable to $25,496,364 received from the sale of shares of our common stock through our At-The-Market (ATM) facility, managed by Ascendiant Capital Markets, LLC (net the 3% fee paid to Ascendiant Capital Markets, LLC), partially offset by repayments of $6,187,034 on the Streeterville Unsecured Note.
Cash flows provided by financing activities during year ended December 31, 2024 were attributable to proceeds from our stock issuances in November and December 2024, and the proceeds from our sale of shares of common stock pursuant to the ATM facility and our issuance of the Streeterville Convertible Note, partially offset by repayments on the Streeterville Unsecured Note, as defined below, and the Streeterville Convertible Note as well as redemptions of shares of Series A Preferred Stock.
Net cash used in investing activities for the years ended December 31, 2023 and 2022 was $2,617,990 and $2,225,758, respectively. Cash used in investing activities during the year ended December 31, 2023 was attributable to acquisition of laboratory and production equipment for $2,117,990 and our $500,000 loan to millionways, Inc (“millionways”). in June 2023.
Net cash used in investing activities for the years ended December 31, 2024 and 2023 was $6.0 million and $2.6 million, respectively, and was attributable to our purchase of TFLN Optical Chips manufacturing equipment for our AZ Chips Facility, as well as computer hardware and laboratory equipment.
In 2023, QCi continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems.
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 2024, the Company continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems.
Removed
December 31, 2022 Revenues For the Twelve Months Ended December 31, 2023 For the Twelve Months Ended December 31, 2022 (In thousands) Amount Mix Amount Mix Change Products 4,500 1 % 0 0 % 0 % Services 353,547 99 % 135,648 100 % % Total $ 358,047 100 % $ 135,648 100.0 % % Revenues for the year ended December 31, 2023 were $358,047 compared to $135,648 for the year ended December 31, 2022, an increase of $222,399, or 164%.
Added
The Company’s development team includes optical engineers, mathematicians, physicists, and software developers. 29 Results of Operations Our results of operations for the years ended December 31, 2024 and 2023 is as follows (in thousands, except percentages): Year Ended December 31, 2024 2023 % Change Revenue: Total revenue $ 373 $ 358 4 % Gross profit 112 162 (31 )% Gross profit margin 30 % 45 % Operating expenses: Research and development 11,318 8,891 27 % Sales and marketing 1,818 1,806 1 % General and administrative 12,913 15,708 (18 )% Total operating expenses 26,049 26,405 (1 )% Loss from operations (25,937 ) (26,243 ) (1 )% Non-operating income and (expense): Interest and other income 423 295 43 % Interest expense, net (2,496 ) (1,602 ) 56 % Change in fair value of warrant liabilities (40,532 ) 528 NM Total non-operating income (expense) (42,605 ) (779 ) NM Net loss $ (68,542 ) $ (27,022 ) 154 % Revenues The Company’s revenues during the years ended December 31, 2024 and 2023 consisted of (in thousands): Year Ended December 31, 2024 2023 % Change Services $ 346 $ 353 (2 )% Products 27 5 440 % Total $ 373 $ 358 4 % Revenues for the year ended December 31, 2024 were $373 thousand compared to $358 thousand for the year ended December 31, 2023, an increase of $15 thousand, or 4%.
Removed
Cost of Revenues Cost of revenues, which consists of labor consumed to fulfill our obligations under contractual service agreements as well as the component parts of finished goods sold, was $195,640 for the year ended December 31, 2023 compared to $60,934 for the prior year, an increase of $134,706, or 221%.
Added
Cost of Revenues Cost of revenues, 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 $261 thousand for the year ended December 31, 2024, compared to $196 thousand for the prior year, an increase of $65 thousand, or 33%.
Removed
Cost of revenues for each of the years ending December 31, 2023 and 2022 consists primarily of salary expense. The increase for 2023 was predominantly driven by the execution of new government service contracts. Cost of revenue for these services was contractually structured and limited to the direct salaries and actual hours worked to fulfill the work orders.
Added
Cost of revenues for each of the years ended December 31, 2024 and 2023 consists primarily of salary expense.
Removed
Rates for these services remained materially unchanged year over year, with contract volume being the driver of growth. Gross Margin Gross margin for the year ended December 31, 2023 was $162,407 compared to $74,714 for the prior year, an increase of $87,693, or 117%. On a percentage basis, gross margin was 45%, a decrease of 10% year-over-year.
Added
The increase for 2024 was predominantly driven by the increases in direct labor expenses and other direct costs required to perform on the contracts during 2024 compared to the prior year. 30 Gross Margin Gross margin for the year ended December 31, 2024 was $112 thousand compared to $162 thousand for the prior year, a decrease of $50 thousand, or 31%.
Removed
The change was nearly entirely the result of the shift to contractual service revenue where the cost of goods sold was defined under the terms of our general professional services obligation.
Added
On a percentage basis, gross margin was 30%, a decrease of 15% year-over-year. The change was the result of a new custom hardware contract that had lower margins due to its cost of revenues being comprised of other direct component costs in addition to direct labor expenses.
Removed
The decrease in operating expenses was almost entirely driven by a $9,038,701 decrease in stock-based compensation expenses, which was driven mainly by higher value stock option awards in 2022 compared to 2023.
Added
Operating Expenses Operating expenses of approximately $26.0 million in 2024 decreased as compared to approximately $26.4 million in 2023 primarily as a result of a decrease in general and administrative expenses, partially offset by an increase in research and development expenses, as set forth in the below tables (in thousands, except percentages).
Removed
Decreases of $1,399,208 in selling, general and administrative expenses, primarily as a result of $574,428 through stream-lining of marketing activities and sales roles, and $704,975 in professional services, primarily as a result of non-recurring legal expenses during 2022 related to the QPhoton Merger, also contributed to the decrease in operating expenses during 2023 compared to the prior year.
Added
Year Ended December 31, % 2024 2023 Change General and administrative $ 12,913 $ 15,708 (18 )% 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.
Removed
These decreases were partially offset by an increase in research and development spending year-over-year of $1,885,909 driven by increased salary expenses as the Company expanded its capability to deliver commercialized hardware products.
Added
General and administrative expenses in 2024 decreased $2.8 million or 27% compared with 2023 primarily due to lower employee- and advisor-related expenses, including stock-based compensation, payroll, bonus and travel expenses, as well as lower legal fees and consulting services driven by changes made within and by the Company’s management team, offset by increased audit fees driven by the Company retaining a new independent registered public accounting firm in May 2024and such firm’s re-audit of the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022.
Removed
Net Loss Our net loss for the year ended December 31, 2023 was $29,730,672 compared to a net loss of $38,593,700 for the prior year, a decrease of $8,863,029 or 23%.
Added
Year Ended December 31, % 2024 2023 Change Research and development $ 11,318 $ 8,891 27 % Research and development expenses consist primarily of compensation for employees that primarily engage in research and development efforts and fees for the development of hardware products and supporting software.
Removed
The decrease in net loss is primarily due to the decrease in operating expenses, noted above, partially offset by $513,709 net increase in financing costs driven by amortization of the $750,000 original issue discount included in the principal balance of the unsecured promissory note (the “Streeterville Unsecured Note”) that we issued to Streeterville Capital, LLC in the initial principal amount of $8,250,000 in September 2022, which bears interest at 10% per annum.
Added
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.
Removed
Liquidity and Capital Resources We have incurred net losses and experienced negative cash flows from operations since inception. To date, since February 2018, the Company has raised $57,424,924 through private placements of equity and $12,633,000 through private placements of Convertible Promissory Notes and other debt for a total of $70,057,924 through December 31, 2023.
Added
Research and development expenses in 2024 increased $2.4 million or 27% compared with 2023 primarily due to higher employee-related expenses, primarily as a result of higher stock-based compensation and bonus expenses to incentivize and retain key technologists, as well as higher depreciation for long-lived laboratory equipment, offset partially by lower professional and hosting services.
Removed
We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing. As of December 31, 2023, the Company had cash and cash equivalents of $2,059,285.
Added
Year Ended December 31, % 2024 2023 Change Sales and marketing $ 1,818 $ 1,806 1 % Selling and marketing expenses consist primarily of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs. 31 Net selling and marketing expenses in 2024 were largely unchanged as compared with 2023, with increases primarily due to higher stock-based compensation, offset by lower outsourced professional services costs, related marketing program costs, and lower trade show and travel-related costs in 2024.
Removed
The following table summarizes total current assets, liabilities and working capital at December 31, 2023, compared to December 31, 2022: December 31, 2023 December 31, 2022 Increase/ (Decrease) Current Assets $ 3,181,748 $ 5,728,536 $ (2,546,788 ) Current Liabilities $ 4,619,637 $ 5,319,245 $ (699,608 ) Working Capital (Deficit) $ (1,437,889 ) $ 409,291 $ (1,847,180 ) 32 At December 31, 2023, we had a working capital deficit of $2,546,788 as compared to working capital of $409,29 at December 31, 2022, a decrease of $1,847,180.
Added
Non-operating Income (Expense) The following table summarizes our non-operating income (expense) for the years ended December 31, 2024 and 2023 (in thousands, except percentages).
Removed
The decrease in working capital is primarily attributable to the use of cash to pay for operating expenses and capital investments in property and equipment, satisfaction of accrued expense liabilities and the Streeterville Unsecured Note becoming a current portion of long-term debt payable.
Added
Year Ended December 31 % 2024 2023 Change Interest and other income $ 423 $ 295 43 % Interest expense, net (2,496 ) (1,602 ) 56 % Change in value of derivative and warrant liabilities (40,532 ) 528 NM Other income (expense) $ (42,605 ) $ (779 ) NM Non-operating expense increased to $42.6 million for 2024 compared to $779 thousand for 2023, primarily as the result of a $40.5 million decrease in the change in fair value of the derivative liability for the QPhoton Warrants, as defined below, during 2024 compared to a $528 thousand increase in 2023.
Removed
Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2023, noting the existence of substantial doubt about our ability to continue as a going concern.
Added
The loss on change in value of warrant 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.
Removed
This uncertainty arose from management’s review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient existing working capital to sustain operations for a period of twelve months from the date of the issuance of these financial statements.
Added
Future mark-to-market adjustments may result in continued losses if the price of the Company’s 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 Company’s common stock decreases.
Removed
On June 6, 2023, the Company entered into a Note Purchase Agreement with millionways pursuant to which the Company agreed to purchase from millionways up to three unsecured promissory in an aggregate principal amount of up to $2,000,000, subject to the terms and conditions thereof.
Added
See Note 10, Capital Stock , in the accompanying notes to our consolidated financial statements appearing elsewhere in this report for additional information on the QPhoton Warrants.
Removed
On June 6, 2023, the Company purchased the notes from millionways and loaned it an aggregate principal amount of $500,000. This followed the Company’s entry into a Summary of Proposed Terms with millionways on May 16, 2023, to provide bridge loans to millionways and enter into due diligence to acquire up to 100% of the AI firm.
Added
In addition, interest expense, net, which consists of interest on financial liabilities and amortization of debt issuance costs, increased $128 thousand or 43% in 2024 compared to 2023, which increase was primarily attributable to interest paid on the secured convertible promissory note in the original principal amount of $8.25 million that we issued to Streeterville Capital, LLC in August 2024 (the “Streeterville Convertible Note”), which we paid in full as of December 31, 2024.
Removed
Net cash provided by financing activities for the year ended December 31, 2023 was $19,309,330 compared to $8,035,684 during the year ended December 31, 2022.
Added
See Note 7, Financial Liabilities , in the accompanying notes to our consolidated financial statements appearing elsewhere in this report for additional information. Liquidity and Capital Resources We have incurred net losses and experienced negative cash flows from operations since inception.
Removed
During the year ended December 31, 2022, cash provided by financing activities was primarily attributable to the funds we received from the issuance of the Streeterville Unsecured Note. The Company has funded our operations primarily through the sale of our equity (or equity linked) and debt securities. As of March 28, 2024, we had cash on hand of approximately $6,554,651.
Added
Through December 31, 2024, the Company has raised $167.8 million through its issuance of common stock and $20.1 million through its issuance of convertible promissory notes and other debt for a total of $187.9 million. The Company has no lines of credit or short-term debt obligations outstanding.
Removed
We have approximately $74,977 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses which are due monthly. On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues.
Added
We will require a significant amount of cash for continued investment in our Foundry Services offering, including but not limited to our AZ Chips Facility and any future-identified space for expansion, as well as ongoing research and development for our non-linear quantum optical products and photonics chips.
Removed
Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements. Fair Value of Options and Derivatives The Company uses the Black-Scholes model to calculate the fair value of stock options and derivatives.
Added
We believe, however, that the Company’s 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 Company’s liquidity needs for at least the next 12 months. 32 The following table summarizes total current assets, liabilities and working capital at December 31, 2024, compared to December 31, 2023 (in thousands): December 31, 2024 December 31, 2023 Increase/ (Decrease) Current assets $ 79,151 $ 2,656 $ 76,495 Current liabilities $ 4,559 $ 4,812 $ (253 ) Working capital (deficit) $ 74,592 $ (2,156 ) $ 76,748 At December 31, 2024, we had working capital of $74.6 million as compared to working capital deficit of $2.2 million at December 31, 2023, an increase of $76.8 million.
Removed
The Black-Scholes model, developed in 1973, is a differential equation which requires five input variables, the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility of the Company common stock.
Added
The increase in working capital is primarily attributable to an increase in cash from the net proceeds of our sales of 16 million shares of common stock for an aggregate of $40 million in November 2024 and 10 million shares of common stock for an aggregate of $50 million in December 2024, and our issuance of 23.7 million shares of common stock for an aggregate of $23.8 million through the Company’s ATM, as defined below, managed by Ascendiant Capital Markets, LLC during 2024, offset by the use of cash to pay for operating expenses and capital investments in property and equipment.
Removed
The Black-Scholes model is widely used for pricing options but it does rely on certain assumptions about the market which may not be correct over time.
Added
For more information on the November and December issuances, please see Note 10, Capital Stock , in the accompanying notes to our consolidated financial statements appearing elsewhere in this report.
Removed
Specifically, ● No dividends are paid out during the life of the option. ● Markets are random (i.e., market movements cannot be predicted). ● There are no transaction costs in buying the option. ● The risk-free rate and volatility of the underlying asset are known and constant. ● The returns of the underlying asset are normally distributed. ● The option is European and can only be exercised at the expiration date.
Added
The increase in 2024 is primarily due to the purchase of additional equipment in connection with establishing the AZ Chip Facility. 33 Net cash provided by financing activities for the years ended December 31, 2024 and 2023 was $99.1 million and $17.7 million, respectively.
Removed
To the extent that any of these assumptions is not correct, that could result in the overpricing or underpricing of the stock options involved. The assumption that the risk-free rate (the Company uses the one-year U.S.
Added
As much 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.
Removed
Treasury Bill rate as a proxy for the risk-free rate) can vary over time, and if the T-Bill rate varies substantially over the life of the stock option that could affect the pricing.
Added
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.
Removed
Similarly, the volatility of the Company’s common stock, also known as the Beta, has moved within a limited range over the past year, but the volatility of any security can change over time, which would affect the option pricing calculation.
Added
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 management’s best estimates.
Removed
Another critical estimate relating to option pricing is the default rate, which means the estimate of granted options that will either expire unexercised, or be forfeited, over the life of the stock options.

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