Quantum Computing Inc. (NASDAQ: QUBT ) offers investors a highly speculative opportunity to gain exposure to the world of quantum computing. Despite being significantly sub-scale with an excessive valuation, fundamentals almost don't matter when it comes to speculativeAnalyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinio ...

Core Insights - The evolution of artificial intelligence (AI) technology is being driven by advancements in hardware, particularly quantum computing [1] - Quantum computing utilizes qubits, which can process information more efficiently than traditional binary bits, making it suitable for AI applications [2][3] Industry Overview - The quantum computing industry is still in its infancy, making future predictions challenging [4] - Quantum Computing, a lesser-known company with a market cap of $2.4 billion, is positioned as a potential leader in this space despite its current low revenue and high losses [5] Company Analysis - Quantum Computing differentiates itself by using photonic qubits created from light photons, which allows for operation at room temperature, unlike many competitors that require supercooling [7][8] - The cost of Quantum Computing's flagship Dirac-3 system is approximately $300,000, significantly lower than competitors like Rigetti, whose systems start at nearly $1 million [9] - Quantum Computing's rental rates for access to its technology are also more affordable, with an hour costing between $1,000 and $2,000 compared to IBM's rates of $4,320 to $5,760 [10] Technological Potential - The company is working on miniaturizing its technology to potentially integrate it into personal computers, which could revolutionize AI capabilities [11] - Despite the current limited understanding and application of quantum computing, there is potential interest from organizations like NASA and various universities, indicating future value [16] Market Outlook - The quantum photonics market is projected to grow at an annualized rate of 33.5% through 2032, suggesting a promising future for companies like Quantum Computing [19]

Core Insights - The second quarter of 2025 showed a consistent trend among four U.S.-listed pure-play quantum companies, with all reporting net losses while enhancing their balance sheets through significant fundraising efforts [1][3]. Company Summaries IonQ - IonQ reported a net loss of $177.5 million but achieved a record institutional equity raise of $1.6 billion, which will support its quantum computing and networking roadmap, including acquisitions aimed at scaling to 800 logical qubits by 2027 [6][8]. - The company secured a $22 million deal to establish America's first commercial quantum hub and formed new partnerships in Japan, South Korea, Sweden, and Australia [6]. D-Wave Quantum - D-Wave experienced a net loss of $167 million, primarily due to non-cash warrant charges, but successfully raised over $500 million, increasing its cash balance to $819 million [9][10]. - The funds will be utilized for acquisitions and advancing its 100,000-qubit roadmap, alongside enhancing cryogenic packaging and error suppression [9]. Rigetti Computing - Rigetti launched its Cepheus-1-36Q quantum computer, achieving significant error rate reductions, while reporting a net loss of $39.7 million and revenues of $1.8 million [13][14]. - The company raised $350 million in equity financing, closing the quarter with $571.6 million in cash and no debt, providing a critical runway for R&D and strategic partnerships [13][14]. Quantum Computing Inc. - Quantum Computing Inc. reported modest revenues of $61,000 against a net loss of $36.5 million, largely due to non-cash warrant adjustments [15]. - The company raised $200 million, increasing its cash reserves to $349 million, which will support its growth initiatives and operations [15][16]. Industry Outlook - Despite ongoing losses, these companies are leveraging investor capital and government partnerships to transition from financial losses to potential future breakthroughs in quantum technology [3][20]. - The fresh funding is expected to facilitate acquisitions and support global expansion, positioning these companies as potential leaders in the evolving quantum sector [20].

Core Insights - Quantum stocks experienced a boost due to dovish remarks from Fed Chair Jerome Powell, which may lead to lower interest rates benefiting quantum companies with significant debt [1] - IONQ stock rose as the company announced it controls over 1,000 patents, emphasizing its technical leadership and innovation in quantum computing [6][7] - D-Wave Quantum highlighted a significant increase in bookings in the APAC region, up 83% over the past 12 months, and plans to host a user conference in Tokyo [8][9] Company Summaries Quantum Computing, Inc. (QUBT) - Reported Q2 losses of 26 cents per share and revenue of $61,000, missing the Street estimate of $100,000 [2][3] Rigetti Computing, Inc. (RGTI) - Announced a collaboration with Montana State University to advance quantum computing research, but shares fell over 10% in the past week [5] IonQ, Inc. (IONQ) - Stock rose following Powell's speech; the company aims to build a quantum system with 2 million qubits by 2030 [6][7] D-Wave Quantum, Inc. (QBTS) - Stock rallied after Powell's comments, but remains down 12% over the past month; the company is focusing on the growing importance of the APAC region for quantum innovation [8][9]

Core Insights - Quantum Computing Inc. (QUBT) experienced a nearly 5% decline in share price following its second-quarter 2025 results, reflecting investor caution despite operational advancements [1][9] - The company reported a net loss per share in line with estimates, but revenues fell short of expectations and decreased year over year, indicating the early-stage nature of its commercialization efforts [1][15] - Notable progress was made in quantum sensing, AI, and cybersecurity, with new customer acquisitions and a strategic partnership with NASA [1][6] Financial Performance - QUBT's revenues for the second quarter of 2025 missed expectations by nearly 40%, with a significant year-over-year decline [15] - The company reported a net loss that widened compared to the previous year, primarily due to a $28 million non-cash warrant liability and increased employee costs [15] - Operating expenses nearly doubled, highlighting the heavy investment required for scaling operations [15] Strategic Developments - QUBT secured new customer contracts, including orders from Delft University and a leading U.S. bank for quantum cybersecurity solutions [6][9] - The company was awarded a $406,478 subcontract with NASA for atmospheric sensing applications [7] - QUBT's cash position improved significantly, ending Q2 with $349 million, bolstered by a $200 million financing round [10][12] Market Position and Recognition - QUBT's inclusion in the Russell 3000 and Russell 2000 indexes enhances its visibility among institutional investors and is expected to improve liquidity [12] - The stock has gained 21.1% over the past three months, outperforming broader industry and market indices [5] Future Outlook - Despite recent operational progress, QUBT faces challenges in translating milestones into sustainable revenue growth [2][15] - Estimates for losses have widened, indicating ongoing investor caution as the company navigates its commercialization journey [16]

Core Insights - Quantum Computing Inc. (QUBT) is translating its research into practical applications across various industries despite facing near-term financial challenges [1] Group 1: Aerospace and Structural Monitoring - QUBT received a purchase order from Delft University of Technology for its Quantum Photonic Vibrometer, enabling contactless vibration detection down to 110 nanometers [2] - The QPV will be benchmarked against traditional laser Doppler vibrometers, promoting the adoption of QUBT's technology in advanced engineering [2] Group 2: Secure Communications - QUBT shipped its first commercial entangled photon source to a leading research institution in South Korea, which supports quantum key distribution [3] - The platform was recognized with an Edison Award in 2024 and is central to QUBT's cybersecurity roadmap, with future versions planned for greater scalability [3] Group 3: Automotive AI - QUBT sold its EMUCORE reservoir computing system to a major global automaker, validating its AI solutions for industrial applications [4] Group 4: Banking and Cybersecurity - QUBT secured its first domestic commercial order for a quantum cybersecurity solution from a top-five U.S. bank, marking a significant milestone in the financial sector [5] Group 5: Competitive Landscape - IonQ is expanding through partnerships and a $22 million project to build a commercial quantum hub [6] - Rigetti is solidifying its role in superconducting qubits and launched a 36-qubit multi-chip system with high fidelity [7] Group 6: Price Performance - QUBT's stock has increased by 92.5% over the past six months, outperforming the industry and sector growth rates [8] - The average target price indicates a near-term upside, with QUBT currently trading 20.3% below its average Zacks price target [12]

Core Insights - Quantum Computing Inc. (QUBT) reported a net loss of 26 cents per share in Q2 2025, compared to a loss of 6 cents in the same period last year, aligning with Zacks Consensus Estimate [1] - Revenues for Q2 were $0.06 million, missing the Zacks Consensus Estimate by 39% and down from $0.18 million year-over-year [1][8] Operational Highlights - QCi secured an order for its Quantum Photonic Vibrometer from Delft University of Technology and shipped its first commercial entangled photon source to a research institution in South Korea [3] - The company sold its EmuCore reservoir computing device to a major global automotive manufacturer for R&D in edge-based machine learning applications [4] - QCi was awarded a subcontract worth up to $406,478 to support NASA's Langley Research Center and completed the construction of its quantum photonic chip foundry in Tempe, AZ [4] Financial Performance - QUBT reported a gross margin of 43% in Q2, up from 32% in the previous year [6] - Operating expenses increased to $10.2 million from $5.3 million year-over-year, with R&D expenses surging 185.3% [6] - As of the end of Q2, the company had cash and cash equivalents of $348.8 million, compared to $166.4 million in Q1 [7] Strategic Developments - QUBT was included in the Russell 3000 and Russell 2000 Indexes effective June 30, enhancing visibility among institutional investors [5] - The company made several key leadership appointments to support its next phase of execution [5] Market Performance - Since the announcement on August 14, QUBT shares have decreased by 0.4%, closing at $15.32 [2]

Financial Data and Key Metrics Changes - Revenue for the second quarter totaled approximately $61,000, a decrease from $183,000 in the prior year [16] - Gross margin increased to 43% from 32% in the previous year [16] - Net loss attributable to common stockholders was $36,000,000 for the second quarter, compared to a net loss of $5,000,000 in the prior year [19] - Total assets increased to $426,000,000 from $154,000,000 at the end of 2024 [19] - Cash and equivalents rose by $270,000,000 in the first half of 2025 to $349,000,000 [19] - Total liabilities decreased by approximately $16,000,000 compared to year-end 2024 [20] Business Line Data and Key Metrics Changes - The company secured an order for a quantum photonic vibrometer from a leading research institute in the Netherlands, indicating commercial adoption of quantum technologies [10] - A major global automotive manufacturer purchased an EMUCORE reservoir computing system, showcasing the application of quantum technologies in edge-based machine learning [11] - The company announced a subcontract valued at over $400,000 to support NASA, highlighting the practical applications of its quantum systems [12] Market Data and Key Metrics Changes - The company is experiencing growing validation of its technologies through customer orders across quantum systems and photonic chip foundry [5] - There is strong momentum around domestic semiconductor and photonic manufacturing, creating new commercial opportunities for the foundry [7] Company Strategy and Development Direction - The growth strategy is centered on two complementary revenue streams: quantum machines and thin film photonic chip foundry [6] - The company aims to integrate quantum machines with nanophotonic chips to enhance performance and reduce costs [24][25] - The foundry is expected to support further development of quantum machines while also offering services to other companies [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position within the evolving quantum ecosystem, emphasizing the importance of delivering real-world solutions [21] - The company is focused on scaling its business to meet increasing demand for quantum technologies [8] Other Important Information - The company completed a $200,000,000 financing round, strengthening its capital position [17] - Operating expenses for the second quarter totaled $10,200,000, driven primarily by increased employee-based expenses [18] - The company was added to the Russell 3000 and Russell 2000 indices, increasing visibility among institutional investors [14] Q&A Session Summary Question: What are the most important milestones for the next one to three years? - Management highlighted the integration of quantum machines with nanophotonic chips as a key focus for the next two to three years [24] Question: Any intentions to accelerate spending or pursue M&A? - Management indicated that while they are hiring additional staff to accelerate technology development, there are no current plans for acquisitions [27][28]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 totaled approximately $0.061 million, a decrease from $0.183 million in the same quarter of the previous year [15] - Gross margin increased to 43% from 32% year-over-year, although it remains variable at current revenue levels [15] - Net loss attributable to common stockholders was $36 million for Q2 2025, compared to a net loss of $5 million in Q2 2024 [17] - Total assets increased to $426 million as of June 30, 2025, up from $154 million at the end of 2024 [18] - Cash and equivalents rose by $270 million in the first half of 2025 to $349 million, bolstered by net proceeds of $188 million raised in Q2 [18] - Total liabilities decreased to $30 million, down approximately $16 million compared to year-end 2024 [19] - Stockholders' equity rose to $396 million as of June 30, 2025, reflecting a strengthened capital position [19] Business Line Data and Key Metrics Changes - The company is focused on two revenue streams: quantum machines for complex optimization and a photonic chip foundry for next-generation communication [5] - Significant orders were secured for quantum photonic systems and entangled photon sources, indicating growing commercial adoption [8][9] - A major automotive manufacturer purchased an EMUCORE reservoir computing system, showcasing real-world applications of the technology [10] Market Data and Key Metrics Changes - The company is positioned in a rapidly accelerating market for quantum technologies, with increasing awareness of their role in various sectors [6] - The domestic semiconductor and photonic manufacturing momentum is creating new commercial opportunities for the foundry [6] Company Strategy and Development Direction - The growth strategy is centered on delivering practical, high-performance quantum and photonic technologies rather than theoretical performance [5] - The company aims to integrate quantum machines with nanophotonic chips to enhance performance and reduce costs [23] - The foundry is expected to support both the development of quantum machines and offer services to other companies [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's progress and the potential of its technologies to deliver real-world solutions [20] - The focus for the next two to three years will be on integrating quantum machines with nanophotonic chips to enhance performance [23] Other Important Information - The company completed a $200 million financing round, strengthening its capital position [16] - Key leadership appointments were made to support the next phase of execution, including a new CFO and COO [13] - The company was added to the Russell 3000 and Russell 2000 indices, increasing visibility among institutional investors [14] Q&A Session Summary Question: What are the most important milestones for the next one to three years? - Management highlighted the integration of quantum machines with nanophotonic chips as a key focus, aiming to enhance performance and reduce costs [23] Question: Will there be an acceleration in spending or M&A activities? - The CFO indicated that while they are hiring additional staff to accelerate technology development, there are no current plans for acquisitions, although strategic opportunities are being explored [27][28]

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, statements of mezzanine and stockholders' equity, and statements of cash flows, along with their accompanying notes, providing a snapshot of the company's financial position and performance for the periods ended June 30, 2025 and December 31, 2024 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a significant increase in total assets, primarily driven by a substantial rise in cash and cash equivalents, while total liabilities decreased due to a reduction in derivative liability, and stockholders' equity also saw a considerable increase | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $348,758 | $78,945 | $269,813 | 341.8% | | Total current assets | $350,225 | $79,151 | $271,074 | 342.5% | | Total assets | $426,084 | $153,559 | $272,525 | 177.5% | | Total current liabilities | $3,972 | $4,559 | $(587) | -12.9% | | Derivative liability | $24,594 | $40,532 | $(15,938) | -39.3% | | Total liabilities | $30,102 | $46,272 | $(16,170) | -34.9% | | Total shareholders' equity | $395,982 | $107,287 | $288,695 | 269.1% | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company experienced a significant increase in net loss for both the three and six months ended June 30, 2025, primarily driven by a substantial change in the fair value of derivative liability and increased operating expenses, despite a decrease in total revenue | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $61 | $183 | $100 | $210 | | Gross profit | $26 | $58 | $39 | $69 | | Total operating expenses | $10,197 | $5,325 | $18,496 | $11,654 | | Loss from operations | $(10,171) | $(5,267) | $(18,457) | $(11,585) | | Change in fair value of derivative liability | $(28,096) | $- | $(4,466) | $- | | Net loss attributable to common stockholders | $(36,482) | $(5,194) | $(19,500) | $(11,630) | | Basic Loss per share | $(0.26) | $(0.06) | $(0.14) | $(0.13) | [Condensed Consolidated Statements of Mezzanine and Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Mezzanine%20and%20Stockholders%27%20Equity) The company's stockholders' equity significantly increased during the six months ended June 30, 2025, primarily due to substantial proceeds from the issuance of shares for cash and the exercise of warrants, despite an accumulated deficit from net losses | Metric (in thousands) | Balances, January 1, 2025 | Issuance of shares for cash | Issuance of shares related to exercise of warrants | Stock-based compensation | Net Loss | Balances, June 30, 2025 | | :-------------------- | :------------------------ | :-------------------------- | :------------------------------------------------- | :----------------------- | :------- | :---------------------- | | Common Stock Amount | $13 | $2 | $1 | $- | $- | $16 | | Additional Paid-In Capital | $307,756 | $281,640 | $21,865 | $4,669 | $- | $615,948 | | Accumulated Deficit | $(200,482) | $- | $- | $- | $(19,500) | $(219,982) | | Total Stockholders' Equity | $107,287 | $281,642 | $21,866 | $4,669 | $(19,500) | $395,982 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a significant net increase in cash and cash equivalents for the six months ended June 30, 2025, primarily driven by substantial cash provided by financing activities, which offset cash used in operating and investing activities | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(10,534) | $(7,862) | | Net cash used in investing activities | $(2,757) | $(2,656) | | Net cash provided by financing activities | $283,104 | $10,985 | | Net increase in cash and cash equivalents | $269,813 | $467 | | Cash and cash equivalents, end of period | $348,758 | $2,526 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's corporate history, business nature, significant accounting policies, segment reporting, income taxes, intangible assets, property and equipment, operating leases, commitments and contingencies, capital stock, stock-based compensation, related party transactions, license agreements, and subsequent events, offering crucial context to the condensed consolidated financial statements [Note 1. Nature of the Organization and Business](index=9&type=section&id=Note%201.%20Nature%20of%20the%20Organization%20and%20Business) Quantum Computing Inc. (QCi) is an American company focused on developing quantum computing, reservoir computing, and remote sensing, imaging, and cybersecurity applications using integrated photonics and non-linear quantum optics, with its products designed for room-temperature, low-power operation, and Entropy Quantum Computing (EQC) as its leading application, while recent equity issuances have significantly improved its liquidity despite historical losses - QCi develops quantum computing, reservoir computing, and remote sensing/imaging/cybersecurity applications using integrated photonics and non-linear quantum optics[26](index=26&type=chunk) - The company's products, including its leading Entropy Quantum Computing (EQC) application, are designed to operate at room temperature and low power, emphasizing scalability, accessibility, and affordability[26](index=26&type=chunk)[27](index=27&type=chunk) Liquidity Status (as of June 30, 2025) | Metric | Amount (in thousands) | | :-------------------- | :-------------------- | | Cash and cash equivalents | $348,800 | | Accumulated deficit | $(220,000) | | Working capital | $346,300 | | Shares of common stock issued (six months ended June 30, 2025) | 22,200 | | Net proceeds from common stock issuance | $281,600 | [Note 2. Significant Accounting Policies](index=9&type=section&id=Note%202.%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies, including the basis of presentation, principles of consolidation, use of estimates, and specific policies for cash and cash equivalents, operating leases, goodwill valuation, property and equipment, impairment of long-lived assets, fair value of financial instruments, research and development costs, income taxes, and net loss per share, also detailing the adoption of new accounting pronouncements - The company prepares its consolidated financial statements in conformity with U.S. GAAP and SEC rules, with all intercompany balances and transactions eliminated[29](index=29&type=chunk)[30](index=30&type=chunk) - Management makes significant estimates for goodwill and intangible assets valuation, deferred tax assets, equity-based transactions, and liquidity assessment[33](index=33&type=chunk) Fair Value of Financial Instruments (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents (Level 1) | $348,400 | $78,900 | | Derivative liabilities (Level 3) | $24,600 | $40,500 | - Research and development costs are expensed as incurred, covering direct costs, outside contractors, intellectual property acquisition, and compliance fees[44](index=44&type=chunk) - The company adopted ASU 2023-09 (Income Taxes) as of January 1, 2025, which did not have a material effect, and is evaluating ASU 2024-03 (Income Statement Expenses) and ASU 2025-05 (Credit Losses)[50](index=50&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) [Note 3. Segment Reporting](index=14&type=section&id=Note%203.%20Segment%20Reporting) The company operates as a single operating and reportable segment, with the CEO managing business activities at a consolidated level, and the segment information details revenue, significant expenses, and net loss for the three and six months ended June 30, 2025 and 2024 - The Chief Operating Decision Maker (CEO) manages the company's business activities as a single operating and reportable segment[55](index=55&type=chunk) Segment Information (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $61 | $183 | $100 | $210 | | Salaries and employee related costs | $3,994 | $2,623 | $7,239 | $4,836 | | Stock-based compensation | $1,778 | $651 | $3,182 | $1,936 | | Professional services and legal fees | $985 | $675 | $2,517 | $1,544 | | Operating loss | $(10,171) | $(5,267) | $(18,457) | $(11,585) | | Segment net (loss) income | $(36,482) | $(5,194) | $(19,500) | $(11,630) | [Note 4. Income Taxes](index=15&type=section&id=Note%204.%20Income%20Taxes) The company uses the asset and liability method for income taxes, recognizing deferred tax assets and liabilities, with a valuation allowance applied against all net deferred tax assets, resulting in a **0%** effective tax rate for the six months ended June 30, 2025 and 2024, and also has uncertain tax positions related to R&D tax credits - The total effective tax rate was approximately **0%** for both the six months ended June 30, 2025 and 2024, primarily due to a valuation allowance against net deferred tax assets[57](index=57&type=chunk) - As of June 30, 2025, the company has approximately **$264 thousand** in uncertain tax positions, all related to R&D tax credits, with no significant changes expected in the next 12 months[59](index=59&type=chunk) [Note 5. Intangible Assets, net](index=15&type=section&id=Note%205.%20Intangible%20Assets%2C%20net) This note details the company's intangible assets, primarily acquired through the QPhoton Merger, including non-compete agreements, website domain/trademark, and technology/licensed patents, and provides the amortization expense and future amortization schedule Intangible Assets, Net (in thousands) | Asset Category | June 30, 2025 (Net Carrying Amount) | December 31, 2024 (Net Carrying Amount) | | :----------------------------- | :---------------------------------- | :------------------------------------ | | Non-compete agreement with founder | $- | $451 | | Website domain name and trademark | $386 | $488 | | Technology and licensed patents | $7,124 | $8,033 | | **Total** | **$7,510** | **$8,972** | Amortization Expense (in thousands) | Period | Amortization Expense | | :----------------------------- | :------------------- | | Three months ended June 30, 2025 | $686 | | Three months ended June 30, 2024 | $776 | | Six months ended June 30, 2025 | $1,462 | | Six months ended June 30, 2024 | $1,552 | Expected Future Amortization Expense (in thousands) | Year | Amortization | | :-------------------- | :----------- | | 2025 (remaining six months) | $1,010 | | 2026 | $2,021 | | 2027 | $1,903 | | 2028 | $1,819 | | 2029 | $757 | | **Total** | **$7,510** | [Note 6. Property and Equipment, net](index=16&type=section&id=Note%206.%20Property%20and%20Equipment%2C%20net) This note provides a breakdown of the company's property and equipment, primarily located in Hoboken, NJ, and Tempe, AZ, including computer and lab equipment, network equipment, furniture, software, and leasehold improvements, and details the accumulated depreciation and depreciation expense for the periods Property and Equipment, Net (in thousands) | Asset Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total cost of property and equipment | $11,935 | $9,178 | | Accumulated depreciation | $(1,366) | $(966) | | **Property and equipment, net** | **$10,569** | **$8,212** | Depreciation Expense (in thousands) | Period | Depreciation Expense | | :----------------------------- | :------------------- | | Three months ended June 30, 2025 | $202 | | Three months ended June 30, 2024 | $71 | | Six months ended June 30, 2025 | $400 | | Six months ended June 30, 2024 | $139 | [Note 7. Operating Leases](index=16&type=section&id=Note%207.%20Operating%20Leases) The company has operating leases for office space in Hoboken, NJ, Tempe, AZ, and Arlington, VA, expiring through November 2028, with operating lease ROU assets and liabilities recognized based on the present value of future minimum lease payments, using an incremental borrowing rate of **10%** - The company leases office space in three locations (Hoboken, NJ, Tempe, AZ, and Arlington, VA) with lease terms extending through November 30, 2028[62](index=62&type=chunk) Operating Lease Commitments (as of June 30, 2025, in thousands) | Year | Lease Payments Due | | :-------------------------- | :----------------- | | 2025 (remaining six months) | $396 | | 2026 | $807 | | 2027 | $828 | | 2028 | $458 | | Total minimum payments | $2,489 | | Present value of operating lease liabilities | $2,171 | | Long-term operating lease liabilities | $1,536 | - The weighted average remaining lease term is **3.1 years**, and the weighted average discount rate used is **10%**[63](index=63&type=chunk) [Note 8. Commitments and Contingencies](index=17&type=section&id=Note%208.%20Commitments%20and%20Contingencies) The company enters into standard indemnification arrangements and is involved in various legal proceedings, including a breach lawsuit and an appraisal action related to the QPhoton Merger with BV Advisory, which were settled in July 2025, and also faces a securities class action and shareholder derivative actions - The company has standard indemnification arrangements with business partners, customers, directors, and officers, with estimated minimal fair value[64](index=64&type=chunk)[65](index=65&type=chunk) - BV Advisory filed a breach lawsuit and an appraisal action against QCi related to the QPhoton Merger, both of which were settled on July 17, 2025[68](index=68&type=chunk)[69](index=69&type=chunk)[72](index=72&type=chunk) - As of June 30, 2025, the company had a **$536 thousand** estimated payable to BV Advisory and a **$24.6 million** carrying value for Unissued QPhoton Warrants as a liability[68](index=68&type=chunk)[72](index=72&type=chunk) [Note 9. Capital Stock](index=18&type=section&id=Note%209.%20Capital%20Stock) This note details the company's authorized stock, including Series A and B preferred stock (none outstanding), and common stock, covering various equity financing activities such as the Series A Convertible Preferred Offering (redeemed), an At-the-Market (ATM) Facility (no sales in H1 2025), and significant private placement offerings in January and June 2025, and also provides a summary of outstanding warrants and their impact on derivative liability - The company has authorized Series A and Series B preferred stock, with no shares issued and outstanding as of June 30, 2025[73](index=73&type=chunk) - The Series A Preferred Stock was fully redeemed by December 31, 2024, for an aggregate cash purchase price of **$8.195 million**[77](index=77&type=chunk) Equity Issuances (Six Months Ended June 30, 2025, in thousands) | Offering Type | Gross Proceeds | | :-------------------------- | :------------- | | January Private Placement | $100,000 | | June Private Placement | $200,000 | | Total net proceeds raised | $283,100 | Warrant Activity (Six Months Ended June 30, 2025, in thousands, except price) | Warrant Type | Exercise Price | Issued | Exercised | Forfeited / Cancelled | Outstanding (June 30, 2025) | | :-------------------------- | :------------- | :----- | :-------- | :-------------------- | :-------------------------- | | QPhoton Warrants | $0.0001 | 6,325 | (1,146) | (3,876) | 1,303 | | Placement Agent Warrants | $2.875 | 800 | (304) | - | 496 | | Placement Agent Warrants | $5.75 | 500 | (100) | - | 400 | | January Private Placement Warrants | $14.0875 | 327 | - | - | 327 | | Total Warrants Outstanding | | | | | 2,541 | - The company recognized a mark-to-market loss of **$28.1 million** and **$4.5 million** for the three and six months ended June 30, 2025, respectively, due to changes in the fair value of QPhoton Warrant liability, which had a carrying value of **$24.6 million** as of June 30, 2025[93](index=93&type=chunk) [Note 10. Stock-based Compensation](index=22&type=section&id=Note%2010.%20Stock-based%20Compensation) This note details the company's stock-based compensation plans, including the 2019 and 2022 Equity and Incentive Plans, summarizing stock option and restricted stock activity, as well as the recognized stock-based compensation expense for employees and for services rendered by consultants - The 2022 Equity and Incentive Plan reserved **19.0 million shares** of common stock for issuance, with **16.6 million shares** issued and outstanding as of June 30, 2025[96](index=96&type=chunk) Stock Option Activity (Six Months Ended June 30, 2025, in thousands, except price) | Metric | Number Outstanding | Weighted Average Exercise Price per Share | | :-------------------------- | :----------------- | :---------------------------------------- | | Balance as of December 31, 2024 | 12,983 | $2.34 | | Granted | 1,005 | $7.63 | | Exercised | (6,917) | $2.31 | | Forfeited | (260) | $9.26 | | Balance as of June 30, 2025 | 6,811 | $2.89 | | Vested and exercisable as of June 30, 2025 | 3,556 | $3.49 | Stock-based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $467 | $505 | $964 | $1,199 | | Selling and marketing | $31 | $43 | $91 | $111 | | General and administrative | $1,279 | $143 | $2,109 | $607 | | **Total stock-based compensation** | **$1,777** | **$691** | **$3,164** | **$1,917** | [Note 11. Related Party Transactions](index=24&type=section&id=Note%2011.%20Related%20Party%20Transactions) There were no related party transactions during the three and six months ended June 30, 2025 and 2024 - No related party transactions occurred during the three and six months ended June 30, 2025 and 2024[104](index=104&type=chunk) [Note 12. License Agreement – Stevens Institute of Technology](index=24&type=section&id=Note%2012.%20License%20Agreement%20%E2%80%93%20Stevens%20Institute%20of%20Technology) The company holds a License Agreement with the Stevens Institute, assigned during the QPhoton Merger, granting commercial use and sublicensing rights for licensed patents, applications, and 'Know-How', requiring annual reports and quarterly royalty payments (**3.5%** of net sales) upon commercialization, with the company also responsible for patent prosecution and maintenance costs - The Stevens License Agreement grants the company commercial use and sublicensing rights for licensed technology, effective for **30 years** or until the last patent expires[105](index=105&type=chunk) - Consideration for the agreement includes an initial **$35 thousand** payment, **$28 thousand** annually, equity equivalent to **9%** of outstanding equity, and **3.5%** royalties on net sales of licensed products[107](index=107&type=chunk) - As of June 30, 2025, the company has begun commercializing some licensed technology but has not recognized related revenue or incurred royalty expenses[108](index=108&type=chunk) [Note 13. Subsequent Events](index=25&type=section&id=Note%2013.%20Subsequent%20Events) Subsequent to the reporting period, on July 17, 2025, the company settled all disputes with Barksdale and BV Advisory, agreeing to pay **$750,000** and issue **1.9 million shares** of common stock, with a resale registration statement filed on July 28, 2025 - On July 17, 2025, the company settled all disputes with Barksdale and BV Advisory[109](index=109&type=chunk) - The settlement terms included a payment of **$750,000** and the issuance of **1.9 million shares** of common stock to Barksdale or his designees[109](index=109&type=chunk) - A resale registration statement for the issued shares was filed on July 28, 2025, and declared effective on August 4, 2025[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including a business overview, discussion of economic conditions and risks, detailed analysis of financial performance, and an assessment of liquidity and capital resources, highlighting the company's development stage, quantum technology focus, and significant financial changes [Business Overview](index=27&type=section&id=Business%20Overview) QCi is a development-stage company focused on quantum and ancillary non-quantum products for high-performance computing, sensing, imaging, and cybersecurity, utilizing proprietary photonics technology, with its Entropy Quantum Computer (EQC) as a key application, and has completed a Thin Film Lithium Niobate (TFLN) optical integrated circuits manufacturing facility in Tempe, Arizona - QCi is a development-stage company with limited operations and revenue, developing quantum and non-quantum products for high-performance computing applications based on proprietary photonics technology[116](index=116&type=chunk) - The company's core technology involves conditioning, manipulating, and measuring single photons, with the Entropy Quantum Computer (EQC) being a leading application designed to solve complex optimization problems at room temperature and low power[117](index=117&type=chunk) - QCi's longer-term plan is to migrate product designs to Thin Film Lithium Niobate (TFLN) optical integrated circuits, with a state-of-the-art TFLN chip manufacturing facility completed in Tempe, Arizona in March 2025[118](index=118&type=chunk) [Economic Conditions, Challenges, and Risks](index=27&type=section&id=Economic%20Conditions%2C%20Challenges%2C%20and%20Risks) The company operates in a dynamic and highly competitive market for high-performance computing and cloud services, facing challenges from new computing devices and competing cloud services, with investments in quantum optical chips increasing operating costs and reliance on third-party suppliers posing supply chain risks, while attracting and retaining qualified employees is also crucial for success - The markets for high-performance conventional and quantum computing and cloud-based services are dynamic and highly competitive, with competitors developing new devices and enhancing cloud services[120](index=120&type=chunk) - Investments in quantum optical chips and devices are expected to increase operating costs and may decrease operating margins, with reliance on third-party suppliers for critical components posing potential disruption risks[121](index=121&type=chunk) - Success is highly dependent on the ability to attract and retain qualified employees in a competitive talent market[122](index=122&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) The company experienced a significant decrease in total revenue for both the three and six months ended June 30, 2025, primarily due to changes in customer contracts, despite an improved gross profit margin, while operating expenses, particularly research and development, sales and marketing, and general and administrative, increased substantially, and a significant non-operating loss was recorded due to changes in the fair value of derivative liability Key Financial Results (in thousands, except percentages) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Total revenue | $61 | $183 | (67)% | $100 | $210 | (52)% | | Gross profit | $26 | $58 | (55)% | $39 | $69 | (43)% | | Gross profit margin | 43% | 32% | 34% | 39% | 33% | 19% | | Research and development | $5,975 | $2,094 | 185% | $8,960 | $4,315 | 108% | | Sales and marketing | $680 | $429 | 59% | $1,352 | $880 | 54% | | General and administrative | $3,542 | $2,802 | 26% | $8,184 | $6,459 | 27% | | Loss from operations | $(10,171) | $(5,267) | 93% | $(18,457) | $(11,585) | 59% | | Change in fair value of derivative liability | $(28,096) | $- | NM | $(4,466) | $- | NM | | Net loss | $(36,482) | $(5,194) | 602% | $(19,500) | $(11,630) | 68% | - Revenue decreased primarily due to changes in the number, size, and effort level of active customer proof-of-concept and R&D services and custom hardware contracts[123](index=123&type=chunk) - Research and development expenses increased significantly due to higher headcount, payroll costs, recurring lab equipment and consumables, and depreciation[127](index=127&type=chunk) - A substantial loss of **$28.1 million** (three months) and **$4.5 million** (six months) was recognized from the change in fair value of the QPhoton Warrant liability, driven by mark-to-market adjustments[133](index=133&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company has historically incurred net losses and negative cash flows from operations but significantly improved its liquidity with **$348.8 million** in cash and cash equivalents as of June 30, 2025, primarily from **$281.6 million** in equity private placements, resulting in a substantial increase in working capital and providing sufficient funds for the next 12 months, though future funding will be required for continued investment in operations and product development - The company has incurred net losses and negative cash flows from operations since inception[134](index=134&type=chunk) Liquidity and Working Capital (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $348,800 | $78,945 | $269,855 | | Total current assets | $350,225 | $79,151 | $271,074 | | Total current liabilities | $3,972 | $4,559 | $(587) | | Working capital | $346,253 | $74,592 | $271,661 | - Net cash provided by financing activities was **$283.1 million** for the six months ended June 30, 2025, primarily from stock issuances, significantly increasing cash and cash equivalents[139](index=139&type=chunk)[141](index=141&type=chunk) - The company believes existing cash and cash equivalents, along with future cash generation and equity/debt issuances, will be sufficient to meet liquidity needs for at least the next 12 months[135](index=135&type=chunk) [Critical Accounting Estimates](index=31&type=section&id=Critical%20Accounting%20Estimates) The company's accounting policies require significant management judgment and estimates, but there have been no material changes to its critical accounting estimates since the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to critical accounting estimates have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reporting period - Not applicable[145](index=145&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, to provide reasonable assurance for timely and accurate information disclosure, however, there were no material changes in internal control over financial reporting during the most recent fiscal quarter - As of June 30, 2025, the company's disclosure controls and procedures were not effective to provide reasonable assurance for timely and accurate information disclosure[147](index=147&type=chunk) - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[148](index=148&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section details the company's involvement in various legal proceedings, including resolved disputes with BV Advisory Partners, LLC concerning an appraisal action and breach of contract, and ongoing litigation such as a securities class action lawsuit, multiple shareholder derivative actions, and stock options arbitration with former consultants, with the company disputing the allegations and intending to vigorously defend against the claims - BV Advisory Partners, LLC filed an appraisal action and a breach of contract lawsuit against the company, both of which were settled on July 17, 2025, with the company agreeing to pay **$750,000** and issue **1.9 million shares** of common stock[151](index=151&type=chunk)[152](index=152&type=chunk)[155](index=155&type=chunk) - A securities class action lawsuit was filed on February 25, 2025, alleging violations of the Exchange Act due to false/misleading statements, with the company disputing allegations and intending to defend vigorously[156](index=156&type=chunk) - Multiple shareholder derivative actions were filed in March, May, and June 2025, alleging breaches of fiduciary duties and other claims, which have been stayed pending resolution of the securities class action[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) - The company is involved in arbitrations with two former consultants regarding the forfeiture of stock options, disputing their claims[160](index=160&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, and the Form 10-Q for the quarter ended March 31, 2025, stating that there have been no material changes to these risks - No material changes to the company's risk factors have occurred since the 2024 Form 10-K, except for those disclosed in the first quarter 2025 Form 10-Q[161](index=161&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered, unreported sales of equity securities or company repurchases of equity securities during the three months ended June 30, 2025 - No unregistered or unreported sales of equity securities or company repurchases occurred during the three months ended June 30, 2025[162](index=162&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults in the payment of principal, interest, sinking or purchase fund installment, or any other material default with respect to any indebtedness - There has been no default in the payment of principal, interest, or any other material default with respect to any indebtedness of the company[163](index=163&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[164](index=164&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item - None[165](index=165&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including employment agreements, purchase agreements, placement agency agreements, lock-up agreements, separation agreements, and certifications from the CEO and CFO, along with XBRL documents - Exhibits include various agreements (Employment, Purchase, Placement Agency, Lock-Up, Separation) and certifications (CEO, CFO) related to the reporting period[166](index=166&type=chunk) - The filing also includes Inline XBRL Instance, Taxonomy Extension Schema, Calculation, Definition, and Label Linkbase Documents, and a Cover Page Interactive Data File[166](index=166&type=chunk)