Quantum puting (QUBT) - 2024 Q4 - Annual Report

PART I ITEM 1. BUSINESS. Quantum Computing Inc. develops room-temperature quantum computing and photonic solutions, targeting significant growth in HPC and optical chip markets The High-Performance Computing Landscape Growing demand for computational power from AI and ML drives the need for quantum and photonic solutions to overcome classical computing limitations - There is a large and growing demand for increased computational performance, driven by artificial intelligence, large language models, and machine learning[17] - Classical computers have performance limitations for large optimization problems, leading to a belief that quantum computing and photonics may offer solutions[17][18] - Quantum computers with increasing performance are anticipated to be introduced by multiple vendors over the next five years[18] Company Overview QCi develops room-temperature quantum and photonic technologies for computing, sensing, and cybersecurity, leveraging its acquisition of QPhoton - Quantum Computing Inc. (QCi) uses integrated photonics and non-linear quantum optics to develop machines for quantum computing, reservoir computing, remote sensing, imaging, and cybersecurity[19][337] - QCi's products operate at room temperature and low power, distinguishing them from superconducting, ion-trap, or annealing quantum systems[19][20][337] - The acquisition of QPhoton, Inc. in June 2022 integrated QPhoton's products with QCi's software platform, Qatalyst[19][336] - QCi's core technology involves conditioning, manipulating, and measuring single photons, exploiting non-linear capabilities[20] - The Entropy Quantum Computer (EQC) is a quantum application of this technology, designed for complex optimization problems, using environmental energy for controlled feedback[20] - A longer-term plan is to migrate product designs from discrete components to optical integrated circuits built on Thin Film Lithium Niobate (TFLN) wafers, with a manufacturing facility in Tempe, Arizona[21] - QCi's core photonics technology has also been leveraged for quantum sensing (LIDAR), reservoir computing, and quantum cyber authentication, some of which are in early commercialization[22] Strategy The company's strategy is to provide accessible, affordable quantum machines and custom lithium niobate chips to commercial and government markets - QCi's strategy is to provide accessible and affordable quantum machines to commercial and government markets, supported by 'Quantum Solutions' professional services[23][337] - Proprietary technology offers advantages in size, weight, power, and cost over competing cryogenic products[23] - Differentiation includes cloud-based access and on-premises installation of EQC, which is rack-mountable and compatible with standard server room infrastructure[23] - The EQC development plan involves replacing discrete optical components with photonic integrated circuits, enabling fabrication and sale of custom lithium niobate chips for QCi's products and existing optical device markets[24] Market Opportunity QCi targets rapidly growing markets in quantum computing, TFLN modulators, and photonic integrated circuits, driven by advances in multiple industries - Quantum solutions are expected to bring significant advances in medicine, engineering, autonomous vehicles, energy management, and cybersecurity[25] - Demand for quantum computing is projected to outpace general-purpose universal computing[25] Market Opportunity Projections | Market Segment | 2020/2022 Value | Projected 2027/2029/2030 Value | CAGR | Source | |:---|:---|:---|:---|:---| | Global HPC Industry | $39.1 billion (2019) | $53.6 billion (2027) | N/A | Grand View Research | | Global Enterprise Quantum Computing | $1.3 billion (2020) | $18.3 billion (2030) | 29.7% (2021-2030) | Allied Market Research | | Global TFLN Electro-Optical Modulator | $190.4 million (2022) | $1,931.3 million (2029) | 39% | Market Research Reports | | Photonic Integrated Circuit (PIC) | $15.1 billion (current) | $38.4 billion (2029) | 20.5% | Mordor Intelligence | - QCi believes its foundry services offering will address the growing TFLN and photonic integrated circuit markets[28] Products and Products in Development The company's product suite includes entropy quantum computers, reservoir computers, LiDAR, vibrometers, and cybersecurity systems based on core photonics technology - QCi's Core Photonics Technology enables a suite of quantum machines with a robust technology roadmap[29] - TFLN Optical Chips are being developed for scalability and performance in quantum information processing, sensing, and imaging, with foundry services for custom TFLN chips[30] - The Entropy Quantum Computer (EQC) Dirac-3 was launched in Q1 2024, with plans for future generations to improve size, capacity, speed, scalability, and performance fidelity[32] - EQC is available as a cloud-based subscription and an affordable on-premises solution, integrated with QCi's Qatalyst software for quantum-ready applications[32][33] - QCi's Reservoir Computer (RC), launched in June 2023, is an edge device offering faster processing, lower energy consumption, portability, and shorter training times compared to software approaches[34] - QCi's LiDAR uses patented methodologies for enhanced signal-to-noise ratio, enabling vision through dense fog and high-resolution imaging at great distances[35] - The Quantum Photonic Vibrometer, launched July 2023, is a proprietary instrument for remote vibration detection, offering advancements in sensitivity, speed, and resolution for obscured objects[36] - QCi has developed a prototype quantum authentication system for cybersecurity, eliminating the need for trusted third parties in key distribution and offering an unbreakable basis for private network communication[37] Competition The quantum computing industry is highly competitive, with QCi facing rivals ranging from large global technology companies to specialized startups - The quantum computing industry is highly competitive and rapidly evolving, with over 700 companies and 400 university groups involved in quantum technology[38][39] - Competitors range from diversified global companies (IBM, Google, Microsoft, Amazon) to recent market entrants (D-Wave, Rigetti, IonQ) and state-funded research organizations[40] - Many competitors have greater financial, technical, product development, and marketing resources, and better brand recognition[41] Intellectual Property QCi protects its technology through a combination of patents, trademarks, trade secrets, and an exclusive license agreement with a technology institute - QCi's intellectual property includes patents, trademarks ('QPhoton,' 'QGraph,' 'Qatalyst'), and trade secrets (product formulas, R&D, unpatentable know-how)[42][44] - The company has two granted U.S. patents related to 'Machine Learning Mapping for Quantum Processing Units' (issued 2022 and 2024)[45][46] - QCi holds an exclusive license to seven patents from Stevens Institute of Technology, requiring annual payments and a 3.5% royalty on net sales of licensed products[47] Government Regulation and Incentives The company is subject to U.S. export controls on quantum computing products and is pursuing funding opportunities under the CHIPS Act - U.S. government regulations issued in 2024 place restrictions on exporting quantum computing products, requiring licenses, but QCi does not expect a substantial adverse impact[48] - The CHIPS Act of 2022 provides $52.7 billion for American semiconductor R&D, manufacturing, and workforce development, and QCi is pursuing funding opportunities under this act[49] Employees As of year-end 2024, the company employed 41 full-time staff and nine contractors, with a majority focused on product development - As of December 31, 2024, QCi had 41 full-time employees and nine part-time contract staff, with 34 focused on product development[51] - The company offers health and welfare benefits, a 401(k) plan, and stock option plan participation to full-time employees[51] ITEM 1A. RISK FACTORS. QCi faces substantial financial, operational, and market risks as an early-stage company, including operating losses, supply chain dependencies, and intense competition Risks Related to Our Financial Condition and Status as an Early-Stage Company The company's limited operating history, history of net losses, and significant capital requirements present substantial financial and execution risks - QCi has a limited operating history since its formation in 2018 and merger with QPhoton in June 2022, making future results difficult to forecast[54] - The company has incurred net losses each year since 2018 and expects significant expenses and continuing losses for the foreseeable future, with an accumulated deficit of $200.5 million as of December 31, 2024[56][58][339] - QCi's ability to scale its business to meet demand is uncertain, requiring continuous evolution of operations, customer acquisition, platform investment, and supply chain capacity[59][60] - Scaling is dependent on components sourced from multiple countries, including China, posing risks due to geopolitical tensions and potential supply interruptions[61] - The company will require significant additional capital for R&D and business operations, with no assurance that financing will be available on favorable terms[73][74] - QCi's ability to use net operating loss carryforwards (NOLs) and other tax attributes may be limited due to ownership changes, including the QPhoton Merger[77][79][381] Risks Related to Our Business and Industry Business success is contingent on overcoming manufacturing challenges, achieving quantum advantage, managing intense competition, and mitigating supply chain disruptions - QCi faces significant barriers in developing and manufacturing quantum products at volume, including the need to invent new technology and reduce production costs to remain competitive[82][84] - The success of QCi's products depends on achieving 'quantum advantage' over classical computers, which may take years or decades to realize[85] - The quantum computing industry is highly competitive, with large technology companies and state-funded organizations as competitors, many with greater resources[87][88] - QCi relies on third-party classical computing through public clouds (predominantly Amazon Web Services), and disruptions or changes in these relationships could adversely affect service delivery[92][93] - Dependence on suppliers, particularly for TFLN Optical Chips concentrated in China and East Asia, exposes QCi to supply chain disruptions, geopolitical uncertainty, and trade restrictions[95][97][100] - The company's future growth depends on attracting and retaining highly qualified and skilled employees in a competitive market[102] - The quantum computing industry is in its early and volatile stages; slow development, negative publicity, or lack of commercial adoption could harm QCi's business[104][105] - Cybersecurity risks, including malware, hacking, and data breaches, could harm QCi's business, reputation, and lead to litigation and liability[112][114][115] - Government actions and regulations, such as tariffs and trade protection measures, especially between the U.S. and China, may impact QCi's ability to obtain supplies or sell products[121][125] Risks Related to Intellectual Property Failure to protect intellectual property, potential infringement claims, and reliance on third-party systems pose significant risks to the company's competitive position - Failure to obtain, maintain, and protect intellectual property rights (patents, trademarks, trade secrets) could impair QCi's ability to commercialize products and lose competitive advantage[137][141] - QCi may face patent infringement claims, which could be costly to defend, result in injunctions or damages, and limit the use of key technologies[144][147] - The company's applications must operate effectively with third-party operating systems, networks, and standards, which it does not control, posing interoperability risks[148] - Unauthorized disclosure of QCi's source code could lead to loss of trade secret protection and easier competition[149] Risks Related to Our Common Stock The company's common stock is subject to price volatility, potential dilution, and liquidity constraints due to its "penny stock" status and concentrated ownership - QCi's stock price has been and may continue to be volatile due to various factors, including competitor actions, market speculation, and economic conditions[151][152] - Future sales of common stock by significant stockholders or new issuances could depress the stock price and dilute existing stockholders' ownership[153][162] - Delays in filing financial reports, internal control weaknesses, and past restatements have made QCi ineligible for Form S-3, increasing transaction costs and time for future equity offerings[154][156][157][158] - Trading in QCi's common stock may be subject to 'penny stock' rules, limiting liquidity and making it harder for investors to buy and sell[159] - QCi does not intend to pay dividends, meaning investors' only opportunity for return is stock price appreciation[161] - Executive officers and directors possess significant voting power (20.1% as of March 18, 2025), limiting other stockholders' influence on corporate matters[164][165] ITEM 1B. UNRESOLVED STAFF COMMENTS. This item is not applicable to Quantum Computing Inc, indicating no unresolved comments from the SEC staff - Item 1B, Unresolved Staff Comments, is not applicable to Quantum Computing Inc[169] ITEM 1C. CYBERSECURITY. The company has a board-overseen cybersecurity program to protect intellectual property but acknowledges that risks from sophisticated threats remain - Cybersecurity is critical for QCi's strategic objectives and intellectual property, facing threats from ransomware, denial-of-service attacks, and sophisticated adversaries including nation-state actors[170] - The Board, via its Risk Committee, oversees cybersecurity risk identification and mitigation, receiving periodic briefings from management[171] - QCi has an incident response plan for cybersecurity incidents, covering detection, assessment, mitigation, recovery, and reporting[171] - The company invests in cyber defense systems, training programs, and engages third-party services for security control evaluations, including penetration testing[170][172][173] - Despite efforts, QCi may not prevent or mitigate all cybersecurity incidents, and insurance may not fully cover related costs[174] ITEM 2. PROPERTIES. The company leases its principal office in New Jersey, a manufacturing facility in Arizona, and co-working space in Virginia - QCi's principal office and laboratory space (7,503 sq ft) is leased in Hoboken, NJ, until September 30, 2027[176] - The company leases 9,261 sq ft for manufacturing, laboratory, clean room, and office space in Tempe, AZ, for its AZ Chips Facility, with a lease ending November 30, 2028[176] - A short-term agreement provides approximately 300 sq ft of co-working space in Arlington, VA[176] ITEM 3. LEGAL PROCEEDINGS. The company is engaged in multiple legal disputes, including lawsuits with an advisory firm, a securities class action, and arbitrations with former consultants - BV Advisory filed an appraisal petition in Delaware Chancery Court seeking appraisal rights for its shares in QPhoton, Inc. following the QPhoton Merger[178][402] - BV Advisory also filed a breach of contract lawsuit against QCi and its officers, alleging breach of a note purchase agreement for $500,592 in convertible promissory notes, which QCi disputes[179][180][401] - QCi filed an injunction lawsuit against BV Advisory and its principal for defamation, breach of contract, conversion, aiding and abetting conversion, and misappropriation of trade secrets[182][405] - A securities class action lawsuit was filed against QCi and its officers in February 2025, alleging violations of the Exchange Act due to false/misleading statements about customers, contracts, and operations[183][406] - QCi is engaged in arbitrations with two former consultants regarding the forfeiture of stock options after their agreements were terminated in March 2024[184][407] - QCi believes these claims are without merit and intends to vigorously defend itself, not deeming it necessary to accrue litigation reserves at this time[180][184][401][405][406][407] ITEM 4. MINE SAFETY DISCLOSURES. This item is not applicable to Quantum Computing Inc, indicating no disclosures related to mine safety - Item 4, Mine Safety Disclosures, is not applicable to Quantum Computing Inc[186] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The company's common stock trades on Nasdaq under "QUBT," with no plans to pay cash dividends as earnings are reinvested into the business - QCi's common stock is listed on the Nasdaq Capital Market under the symbol "QUBT" since July 15, 2021[189][336] - As of March 18, 2025, there were 137,244,545 shares of common stock issued and outstanding, with approximately 214 stockholders of record[7][190][191] - The company has not paid cash dividends and does not intend to in the foreseeable future, planning to reinvest earnings into business operations[192][161] - During 2024, QCi issued unregistered securities, which were previously disclosed in Form 10-Q or 8-K reports[193] ITEM 6. [RESERVED] This item is reserved and contains no information - Item 6 is reserved and contains no information[194] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. QCi's 2024 net loss widened to $68.5 million due to warrant liabilities, despite a 4% revenue increase, while liquidity improved significantly from equity financing Overview As a development stage company, QCi focuses on room-temperature quantum products, with slow revenue generation due to the technology's novelty - QCi is a development stage company with limited operations and revenue, focused on quantum and ancillary non-quantum products for high-performance computing[195][337] - Products are designed to operate at room temperature and low power, targeting high-performance computing, sensing and imaging, and quantum cybersecurity[195][337] - Revenue generation has been slow due to quantum computing being a cutting-edge technology for most potential customers, leading to small, exploratory contracts[197] - The company is expanding sales and marketing efforts and expects product revenues to increase going forward[195][197] Results of Operations Revenue grew 4% in 2024, but a significant mark-to-market loss on warrant liabilities drove a 154% increase in net loss to $68.5 million Consolidated Results of Operations (in thousands) | Metric | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | % Change | |:---|:---|:---|:---| | Total revenue | $373 | $358 | 4% | | Gross profit | $112 | $162 | (31)% | | Gross profit margin | 30% | 45% | (15) pp | | 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)% | | 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% | Revenue Breakdown (in thousands) | Category | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | % Change | |:---|:---|:---|:---| | Services | $346 | $353 | (2)% | | Products | $27 | $5 | 440% | | Total | $373 | $358 | 4% | - Revenue increased by $15 thousand (4%) in 2024, driven by changes in customer proof-of-concept, R&D services, and hardware contracts[197] - Cost of revenues increased by $65 thousand (33%) to $261 thousand in 2024, primarily due to higher direct labor and other direct component costs for custom hardware contracts[198] - Gross margin decreased by $50 thousand (31%) to $112 thousand in 2024, with the percentage margin falling from 45% to 30%, due to a new custom hardware contract with lower margins[199] - General and administrative expenses decreased by $2.8 million (18%) in 2024, mainly due to lower employee/advisor-related expenses and legal fees, partially offset by increased audit fees[201][202] - Research and development expenses increased by $2.4 million (27%) in 2024, driven by higher employee-related expenses (stock-based compensation, bonuses) and depreciation for laboratory equipment[203][204] - Sales and marketing expenses remained largely unchanged in 2024, with higher stock-based compensation offset by lower outsourced professional services and marketing program costs[205][207] - Non-operating expense increased significantly to $42.6 million in 2024 from $779 thousand in 2023, primarily due to a $40.5 million mark-to-market loss on QPhoton Warrants[209][210] - Interest expense, net, increased by $128 thousand (43%) in 2024, mainly due to interest on the Streeterville Convertible Note, which was fully repaid by December 31, 2024[211] Liquidity and Capital Resources The company has historically relied on external financing, significantly improving its cash position and working capital in 2024 through equity issuances - QCi has incurred net losses and negative cash flows from operations since inception, raising $167.8 million through common stock and $20.1 million through convertible notes/debt[212] - As of December 31, 2024, cash and cash equivalents were $78.9 million, and the company expects to incur additional losses and higher operating expenses[212][339] - Primary cash uses include funding operations, investing in Foundry Services (AZ Chips Facility), and ongoing R&D for quantum optical products[213] - QCi expects to finance needs through existing cash, equity/debt financings, or government grant/loan programs, but faces risks in securing funds due to market conditions[213] Working Capital (in thousands) | Metric | Dec 31, 2024 | Dec 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 | - The increase in working capital is primarily due to $40 million from common stock sales in November 2024, $50 million in December 2024, and $23.8 million from ATM issuances[215] Cash Flows (in thousands) | Category | Year Ended Dec 31, 2024 | Year Ended Dec 31, 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 decreased in 2024, primarily due to noncash adjustments for warrant liabilities and stock-based compensation offsetting net loss[216] - Net cash used in investing activities increased in 2024 due to higher purchases of TFLN Optical Chips manufacturing equipment and computer/laboratory equipment for the AZ Chips Facility[217] - Net cash provided by financing activities significantly increased in 2024 due to proceeds from stock issuances and the ATM facility, partially offset by debt repayments[218] Critical Accounting Estimates Key accounting estimates involve significant management judgment in valuing stock compensation, warrant liabilities, intangible assets, and deferred tax assets - Critical accounting estimates include the fair value of stock-based compensation, warrant liabilities and derivatives, fair market value and useful life of intangible assets, and valuation allowances for deferred taxes[220][221][222][223][224][225] - Valuation of QPhoton Warrants as a derivative liability requires significant management judgment, especially regarding the probability of underlying options/warrants being exercised[222][322] - The company has a full valuation allowance on federal and state net operating loss carryforwards ($89.4 million as of Dec 31, 2024) due to uncertainty of realization[227][382] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This item is not applicable to Quantum Computing Inc, indicating no quantitative and qualitative disclosures about market risk - Item 7A, Quantitative and Qualitative Disclosures About Market Risk, is not applicable to Quantum Computing Inc[232] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This section refers to the consolidated financial statements and supplementary data presented elsewhere in the annual report - The consolidated financial statements and supplementary data are located in pages F-1 through F-29 of the Annual Report on Form 10-K[233] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Quantum Computing Inc reports no changes in or disagreements with its accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[234] ITEM 9A. CONTROLS AND PROCEDURES. Management concluded that disclosure controls and internal controls over financial reporting were not effective as of year-end 2024 due to material weaknesses - As of December 31, 2024, QCi's disclosure controls and procedures were not effective to provide reasonable assurance for timely and accurate financial reporting[236] - Management determined that internal control over financial reporting was not effective as of December 31, 2024, due to material weaknesses[239][240] - Material weaknesses identified include inadequate segregation of duties, revenue recognition controls, insufficient written accounting policies, and inadequate IT general controls (security, user access, change management)[241] - QCi is implementing measures to remediate these weaknesses, including further documentation of control procedures and addressing IT general control gaps[241] - There is no assurance that remediation efforts will be effective or prevent additional material weaknesses or restatements in the future[158] ITEM 9B. OTHER INFORMATION. No directors or officers adopted, terminated, or modified Rule 10b5-1 trading arrangements during the fourth quarter of 2024 - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2024[244] ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. This item is not applicable to Quantum Computing Inc, indicating no disclosures regarding foreign jurisdictions that prevent inspections - Item 9C, Disclosure Regarding Foreign Jurisdictions That Prevent Inspections, is not applicable to Quantum Computing Inc[245] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The company's governance structure includes a five-member board with four independent directors, established committees, and a code of ethics - QCi's executive officers include Dr. William McGann (CEO & President), Christopher Boehmler (CFO), and Dr. Yuping Huang (Chairman & Chief Quantum Officer)[249][250][252] - The Board of Directors consists of five members, with four determined to be independent (Robert Fagenson, Michael Turmelle, Carl Weimer, Javad Shabani)[262][263][264] - QCi maintains a code of ethics applicable to all directors, officers, and employees, and an insider trading policy[260][261] - The Board has an audit committee, a compensation committee, and a nominating and corporate governance committee, with Michael Turmelle serving as an "audit committee financial expert"[264] - Dr. McGann was CEO of Implant Sciences Corporation when it filed for bankruptcy in 2016[266] ITEM 11. EXECUTIVE COMPENSATION Executive compensation includes salary, bonuses, and equity awards, with specific employment agreements and severance provisions for named officers 2024 Executive Officer Compensation (in $) | Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total | |:---|:---|:---|:---|:---|:---|:---|:---| | William McGann, CEO and President | 2024 | 402,216 | 42,188 | 0 | 151,911 | 0 | 596,314 | | | 2023 | 403,074 | 0 | 207,488 | 0 | 0 | 610,562 | | Chris Boehmler, Chief Financial Officer | 2024 | 300,451 | 70,313 | 174,000 | 313,062 | 0 | 857,826 | | | 2023 | 260,246 | 5,000 | 75,648 | 163,101 | 0 | 503,995 | | Robert Liscouski, Chairman | 2024 | 33,490 | 0 | 193,200 | 0 | 366,667 | 593,357 | | | 2023 | 403,130 | 0 | 0 | 75,263 | 0 | 478,393 | | Yuping Huang, Chief Quantum Officer | 2024 | 380,369 | 33,751 | 0 | 0 | 0 | 414,120 | | | 2023 | 400,300 | 0 | 106,496 | 0 | 0 | 506,796 | - Dr. McGann's employment agreement provides an annual base salary of $420,000 and eligibility for an annual cash bonus up to 37.5% of base salary, with severance provisions for termination without cause or for good reason[270][271] - Mr. Boehmler's employment agreement includes an annual base salary of $300,000 and eligibility for an annual incentive bonus up to 50% of base salary, with similar severance terms[273][274] - Robert Liscouski's employment as CEO terminated on January 31, 2024, leading to a separation agreement including $400,000 severance, 168,000 shares of common stock, and accelerated vesting of unvested options and restricted stock[277] - QCi does not grant equity awards in anticipation of material nonpublic information or time information releases to affect executive compensation[286] 2024 Director Compensation (in $) | Name | Fees Earned or Paid in Cash | Stock Awards | Stock Options | Total | |:---|:---|:---|:---|:---| | Robert Liscouski | 129,032 | 0 | 0 | 129,032 | | Michael Turmelle | 52,000 | 0 | 32,492 | 84,492 | | Carl Weimer | 36,913 | 0 | 32,492 | 69,405 | | Robert Fagenson | 52,000 | 0 | 32,492 | 84,492 | | Javad Shabani | 27,320 | 12,376 | 27,433 | 67,129 | - In 2025, non-employee director compensation increased to a base annual stipend of $60,000, with additional stipends for the Vice Chairman and committee chairs[285] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Directors and executive officers collectively own 20.1% of common stock, with Dr. Yuping Huang being the largest individual shareholder at 17.2% Beneficial Ownership of Common Stock (as of March 18, 2025) | Name | Common Stock Owned Beneficially | Percent of Class | |:---|:---|:---| | Dr. William McGann | 1,722,930 | 1.2% | | Chris Boehmler | 727,876 | 0.5% | | Dr. Yuping Huang | 24,251,256 | 17.2% | | Robert Fagenson | 775,000 | 0.6% | | Michael Turmelle | 575,000 | 0.4% | | Dr. Carl Weimer | 225,000 | 0.2% | | Dr. Javad Shabani | 120,219 | 0.1% | | All directors and officers as a group (8 persons) | 28,397,281 | 20.1% | - Dr. Yuping Huang is the largest beneficial owner among named executives and directors, holding 17.2% of common stock[164][291] - The 2022 Equity and Incentive Plan, approved by shareholders, reserves 19.0 million shares of common stock for issuance, with 10.45 million options outstanding under it as of December 31, 2024[293][295] - The 2019 Equity and Incentive Plan has 1.76 million options outstanding, with no shares available for future issuance[295] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. No related party transactions exceeding $120,000 occurred since January 1, 2024, outside of standard executive compensation arrangements - No related party transactions exceeding $120,000 occurred since January 1, 2024, other than executive compensation[296] - Information on independent directors is provided in Item 10, 'Directors, Executive Officers and Corporate Governance'[296] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES BPM LLP served as the independent auditor for 2024 and 2023, with all fees and services pre-approved by the Audit Committee - BPM LLP served as QCi's independent registered public accounting firm for 2024 and 2023, replacing BF Borgers CPA PC[297][298] Principal Accountant Fees (in thousands) | Service Type | Accountant | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | |:---|:---|:---|:---| | Audit Fees | BPM LLP | $332 | $337 | | | BF Borgers CPA PC | $110 | $132 | | Registration Statements | BF Borgers CPA PC | $27 | N/A | | | BPM LLP | $105 | N/A | | Tax Fees | BPM LLP | $33 | N/A | | | BF Borgers CPA PC | N/A | $9 | - All services and fees were reviewed and approved by the Audit Committee[302] PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. This section lists all filed exhibits, including corporate governance documents, financial agreements, compensation plans, and required certifications - The section provides a comprehensive list of exhibits, including corporate governance documents, financial agreements, and compensation plans[305][306][307] - Key exhibits include the Agreement and Plan of Merger for QPhoton, Amended and Restated Certificate of Incorporation, and various forms of warrants and promissory notes[305][306] - Employment agreements for key executives (William McGann, Christopher Boehmler, Robert Liscouski, Yuping Huang) and equity incentive plans are also listed[305][306][307] - Recent financing agreements, such as the Registered Direct Offering and Private Placement Agreements from November and December 2024, and January 2025, are included[306][307] - The company's Code of Ethics, Insider Trading Policy, List of Subsidiaries, and various certifications (e.g., Section 302, Section 906) are part of the exhibits[307] SIGNATURES QUANTUM COMPUTING INC. Index to the Consolidated Financial Statements Report of Independent Registered Public Accounting Firm BPM LLP issued an unqualified opinion on the 2024 and 2023 financial statements, identifying the valuation of warrant liabilities as a critical audit matter - BPM LLP, serving as QCi's auditor since 2024, issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2024 and 2023[316][325] - The valuation of warrant liabilities, particularly the derivative liability from the QPhoton merger, was identified as a critical audit matter[320][321] - This critical audit matter involved significant management and auditor judgment due to the complexity of estimating fair value and the sensitivity to assumptions like the probability of underlying options and warrants being exercised[322] - The derivative liability for QPhoton Warrants was valued at $40.5 million as of December 31, 2024, resulting in a $40.5 million mark-to-market loss for the year[321] Consolidated Balance Sheets Total assets grew to $153.6 million in 2024, driven by increased cash, while total liabilities rose to $46.3 million due to a new derivative liability Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | |:---|:---|:---| | Cash and cash equivalents | $78,945 | $2,059 | | Total current assets | $79,151 | $2,656 | | Property and equipment, net | $8,212 | $2,870 | | Intangible assets, net | $8,972 | $12,076 | | Goodwill | $55,573 | $55,573 | | Total assets | $153,559 | $74,355 | | Total current liabilities | $4,559 | $4,812 | | Derivative liability | $40,532 | $0 | | Total liabilities | $46,272 | $5,652 | | Additional paid-in capital | $307,756 | $200,635 | | Accumulated deficit | $(200,482) | $(131,940) | | Total stockholders' equity | $107,287 | $68,703 | - Cash and cash equivalents increased significantly from $2.1 million in 2023 to $78.9 million in 2024[327] - A new derivative liability of $40.5 million was recorded in 2024, related to the fair value of warrant liabilities[327] - Total assets nearly doubled from $74.4 million in 2023 to $153.6 million in 2024[327] - Accumulated deficit increased from $131.9 million in 2023 to $200.5 million in 2024[327] Consolidated Statement of Operations The company's net loss increased to $68.5 million in 2024 from $27.0 million in 2023, primarily due to a $40.5 million loss on warrant liabilities Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | |:---|:---|:---| | Total revenue | $373 | $358 | | Gross profit | $112 | $162 | | Research and development | $11,318 | $8,891 | | Sales and marketing | $1,818 | $1,806 | | General and administrative | $12,913 | $15,708 | | Loss from operations | $(25,937) | $(26,243) | | Interest and other income | $423 | $295 | | Interest expense, net | $(2,496) | $(1,602) | | Change in fair value of warrant liabilities | $(40,532) | $528 | | Net loss | $(68,542) | $(27,022) | | Net loss attributable to common stockholders | $(68,542) | $(27,883) | | Loss per share – basic and diluted | $(0.73) | $(0.42) | - Net loss increased by 154% from $27.0 million in 2023 to $68.5 million in 2024[329] - The significant increase in net loss was primarily driven by a $40.5 million loss from the change in fair value of warrant liabilities in 2024, compared to a $528 thousand gain in 2023[329] - Total revenue increased by 4% to $373 thousand in 2024, while gross profit decreased by 31% to $112 thousand[329] - Research and development expenses increased by 27% to $11.3 million, while general and administrative expenses decreased by 18% to $12.9 million[329] - Loss per share (basic and diluted) increased from $(0.42) in 2023 to $(0.73) in 2024[329] Consolidated Statement of Stockholders' Equity Stockholders' equity grew to $107.3 million in 2024, driven by $106.8 million in proceeds from common stock issuances, despite a widening accumulated deficit Consolidated Stockholders' Equity Highlights (in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | |:---|:---|:---| | Common Stock Shares Outstanding | 129,012 | 77,451 | | Common Stock Amount | $13 | $8 | | Additional Paid-in Capital | $307,756 | $200,635 | | Accumulated Deficit | $(200,482) | $(131,940) | | Total Stockholders' Equity | $107,287 | $68,703 | - Total stockholders' equity increased by $38.6 million, from $68.7 million in 2023 to $107.3 million in 2024[332] - Issuance of shares for cash contributed $106.8 million to additional paid-in capital in 2024[332] - The accumulated deficit increased by $68.5 million, reflecting the net loss for the year[332] - Series A preferred stock was fully converted or repurchased by December 31, 2024, eliminating the mezzanine equity balance[332][420] Consolidated Statement of Cash Flows Cash and cash equivalents increased by $76.9 million in 2024, driven by $99.1 million in financing activities from common stock issuances Consolidated Cash Flow Highlights (in thousands) | Category | Year Ended Dec 31, 2024 | Year Ended Dec 31, 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) | | Cash and cash equivalents, end of period | $78,945 | $2,059 | - Net cash provided by financing activities surged to $99.1 million in 2024 from $17.7 million in 2023, primarily due to proceeds from common stock issuances[335][218] - Net cash used in operating activities decreased by $2.1 million to $16.2 million in 2024, mainly due to non-cash adjustments offsetting the net loss[335][216] - Net cash used in investing activities increased by $3.4 million to $6.0 million in 2024, driven by higher purchases of property and equipment for the AZ Chips Facility[335][217] - Cash and cash equivalents at year-end 2024 were $78.9 million, a substantial increase from $2.1 million in 2023[335] Notes to the Consolidated Financial Statements These notes detail the company's accounting policies, financial statement components, and key events, including liquidity improvements and legal contingencies Note 1 – Nature of the Organization and Business QCi develops room-temperature quantum computing products and believes its current cash position is adequate to fund operations for the next year - Quantum Computing Inc. (QCi) was formed in 2001, redomiciled to Delaware in 2018, and uplisted to Nasdaq in 2021[336] - The company merged with QPhoton, Inc. in June 2022, integrating quantum photonic systems with QCi's Qatalyst software platform[336] - QCi develops quantum and non-quantum products for high-performance computing, sensing, imaging, and cybersecurity, utilizing integrated photonics and non-linear quantum optics[337] - The company's products operate at room temperature and low power, with Entropy Quantum Computing as a leading application[337][338] - QCi has historically incurred losses and negative cash flows but had $78.9 million in cash and cash equivalents as of December 31, 2024, and $93.3 million net proceeds from a January 2025 stock issuance, providing adequate liquidity for the next 12 months[339] Note 2 – Significant Accounting Policies The company's significant accounting policies cover consolidation, use of estimates, revenue recognition, goodwill, and income taxes under U.S. GAAP - QCi prepares consolidated financial statements in accordance with U.S. GAAP, consolidating all wholly-owned subsidiaries[340] - The company is subject to risks and uncertainties related to new product development, litigation, competition, economic conditions, and employee retention[341] - Significant estimates include valuation of goodwill, intangible assets, deferred tax assets, equity-based transactions, and liquidity assessment[343] - Revenue is recognized using a five-step approach, primarily from professional services, with product sales increasing[346][347][349] Revenue Disaggregation (in thousands) | Geographic Region | 2024 Over Time | 2024 Point-in Time | 2024 Total | 2023 Over Time | 2023 Point-in Time | 2023 Total | |:---|:---|:---|:---|:---|:---|:---| | Americas | $346 | $27 | $373 | $337 | $5 | $342 | | Europe | $0 | $0 | $0 | $16 | $0 | $16 | | Total | $346 | $27 | $373 | $353 | $5 | $358 | - QCi applies the CECL methodology for estimating credit losses on financial instruments, recording a provision for credit losses of $3.5 thousand on accounts receivable as of December 31, 2024[351][353] - Goodwill is reviewed annually for impairment, with no impairment identified as of December 31, 2024 and 2023[358] - The company uses the asset and liability method for income taxes, establishing valuation allowances for deferred tax assets when realization is uncertain[369] Potentially Dilutive Shares Excluded from EPS (in thousands) | Security Type | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | |:---|:---|:---| | Warrants | 2,583 | 6,053 | | Options | 12,907 | 12,280 | | Unvested restricted common stock | 2,997 | 1,192 | | Total potentially dilutive shares | 18,487 | 19,525 | - QCi adopted ASU 2023-07 (Segment Reporting) on January 1, 2024, and does not expect ASU 2023-09 (Income Tax Disclosures) to have a material impact upon its effective date[374][376] Note 3 - Segment Reporting The company operates as a single operating segment, with performance assessed and resources allocated at a consolidated level by the CEO - QCi operates as a single operating segment, with the CEO managing business activities and assessing performance at a consolidated level[344][377] Segment Information (in thousands) | Expense Category | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | |:---|:---|:---| | Revenue | $373 | $358 | | Salaries and employee related costs | $9,534 | $9,745 | | Stock-based compensation | $5,805 | $4,555 | | Rent and facilities | $751 | $575 | | Professional services and legal fees | $2,959 | $3,963 | | Technology & IT costs | $1,062 | $1,198 | | Other sales and marketing costs | $734 | $1,471 | | Direct and indirect materials | $99 | $39 | | Depreciation and amortization expense | $3,798 | $3,307 | | Other operational expenses | $1,568 | $1,748 | | Operating loss | $(25,937) | $(26,243) | | Interest expense | $(254) | $(602) | | Interest and other income (expense) | $(1,819) | $(705) | | (Gain) loss on change in fair value of warrant liabilities | $(40,532) | $528 | | Segment and net loss | $(68,542) | $(27,022) | Note 4 – Intangible Assets, net Net intangible assets decreased to $9.0 million in 2024 due to amortization, with future amortization expense expected to decline annually Intangible Assets, Net (in thousands) | Classification | Gross Carrying Amount (2024) | Accumulated Amortization (2024) | Net Carrying Amount (2024) | Gross Carrying Amount (2023) | Accumulated Amortization (2023) | Net Carrying Amount (2023) | |:---|:---|:---|:---|:---|:---|:---| | Non-compete agreement with founder | $3,251 | $(2,800) | $451 | $3,251 | $(1,715) | $1,536 | | Website domain name and trademark | $1,009 | $(521) | $488 | $1,009 | $(320) | $689 | | Technology and licensed patents | $12,731 | $(4,698) | $8,033 | $12,731 | $(2,880) | $9,851 | | Total | $16,991 | $(8,019) | $8,972 | $16,991 | $(4,915) | $12,076 | - Intangible assets, net, decreased from $12.1 million in 2023 to $9.0 million in 2024[378] - Amortization expense for intangible assets was approximately $3.1 million for both 2024 and 2023[379] Expected Future Amortization Expense (in thousands) | Year | Amortization | |:---|:---| | 2025 | $2,472 | | 2026 | $2,021 | | 2027 | $1,903 | | 2028 | $1,819 | | 2029 | $757 | | Thereafter | $0 | | Total | $8,972 | Note 5 – Income Taxes The company maintains a full valuation allowance against its net deferred tax assets due to the uncertainty of realizing its NOL carryforwards Effective Income Tax Rate Reconciliation | Item | 2024 | 2023 | |:---|:---|:---| | Federal statutory income tax rate | 21.0% | 21.0% | | State income taxes, net of federal benefit | (3.1)% | 0.0% | | Warrant mark-to-market adjustments | (12.4)% | 2.0% | | Change in business credits | 0.5% | 0.0% | | Other permanent differences | (0.1)% | (0.3)% | | True-ups | 0.0% | 0.0% | | Change in deferred tax asset valuation allowance | (6.0)% | (22.3)% | | Effective income tax rate | 0.0% | 0.4% | - QCi had federal and state net operating loss (NOL) carryforwards of approximately $89 million and $7 million, respectively, as of December 31, 2024[381] - All federal NOLs generated after 2018 carry forward indefinitely but are subject to an 80% taxable income limitation[381] - The company has a full valuation allowance on its net deferred tax assets, including NOLs and R&D credits, due to uncertainty of realization[382][384] - The valuation allowance increased by approximately $16 million in 2024[382] - QCi has federal R&D credit carryforwards of approximately $878 thousand[383] Note 6 – Property and Equipment, net Net property and equipment increased by $6.0 million in 2024, primarily from equipment purchases and improvements for the AZ Chips Facility Property and Equipment, Net (in thousands) | Classification | Dec 31, 2024 | Dec 31, 2023 | |:---|:---|:---| | Computer and laboratory equipment | $8,438 | $2,999 | | Network equipment | $29 | $29 | | Furniture and fixtures | $37 | $32 | | Software | $77 | $49 | | Leasehold improvements | $597 | $33 | | Total cost of property and equipment | $9,178 | $3,142 | | Accumulated depreciation | $966 | $272 | | Property and equipment, net | $8,212 | $2,870 | - Property and equipment, net, increased by approximately $6.0 million in 2024, primarily due to purchases of laboratory equipment and leasehold improvements for the AZ Chips Facility[386] - Total depreciation expense was $694 thousand in 2024, up from $203 thousand in 2023[387] - $5.4 million of property and equipment at the AZ Chips Facility have not yet been placed in service and are not depreciating[387] Note 7 – Financial Liabilities The company had no outstanding financial liabilities as of year-end 2024, having fully repaid its convertible and unsecured promissory notes Financial Liabilities, Net (in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | |:---|:---|:---| | Remaining loan balances | $0 | $2,063 | | Remaining unamortized debt issuance costs | $0 | $(138) | | Financial liabilities, net | $0 | $1,925 | - As of December 31, 2024, QCi had no outstanding financial liabilities, compared to $1.9 million in 2023[390] - The Secured Convertible Promissory Note (Streeterville Convertible Note) of $8.25 million, issued in August 2024, was fully repaid by December 31, 2024[391] - The Unsecured Promissory Note (Streeterville Unsecured Note) of $8.25 million, issued in September 2022, was fully redeemed by Streeterville Capital, LLC by December 31, 2024[392] - Two QCi Notes totaling $2.5 million loaned to QPhoton in 2022 remain outstanding but are eliminated in consolidation for financial statement presentation[393][394] Note 8 – Contingencies The company is involved in several legal proceedings, including lawsuits with an advisory firm and a securities class action, but has not accrued reserves - QCi enters into standard indemnification arrangements for intellectual property infringement claims, with maximum potential future payments not determinable but estimated as minimal[396] - The company is involved in several legal proceedings, including an appraisal action and a breach of contract lawsuit by BV Advisory related to the QPhoton Merger[398][400][402] - QCi has recorded an estimated payable of $536 thousand for the BV Advisory Breach Lawsuit as of December 31, 2024 and 2023[400] - QCi filed an injunction lawsuit against BV Advisory for defamation, breach of contract, conversion, and trade secret misappropriation[405] - A securities class action lawsuit was filed against QCi and its officers in February 2025, alleging false/misleading statements[406] - Arbitrations are ongoing with former consultants regarding forfeited stock options[407] - QCi disputes all claims and intends to vigorously defend itself, not believing it necessary to accrue litigation reserves for these matters at this time[401][405][406][407] Note 9 – Loan Receivable A $500 thousand loan receivable from millionways, Inc. has been fully reserved as uncollectible, though the company is still pursuing collection - On June 6, 2023, QCi loaned millionways, Inc. an aggregate principal amount of $500 thousand through unsecured promissory notes (MW Notes)[409] - The MW Notes bear 10% annual interest and were due by May 16, 2024, or earlier upon certain events[410] - QCi reserved $558 thousand of the outstanding receivable as uncollectible as of December 31, 2024, but is actively seeking collection of $658 thousand (principal and interest) as of March 18, 2025[411] Note 10 – Capital Stock The company significantly increased its outstanding common shares in 2024 through ATM and RDO offerings, raising $106.8 million in net proceeds - QCi's Board has authorized 250 million shares of common stock and 10 million shares of preferred stock (1.55 million Series A, 3.08 million Series B)[190][412] - As of December 31, 2024, 129.0 million common shares were outstanding, with no preferred shares outstanding[327] - The Series A Convertible Preferred Stock, issued in a 2021 private placement, was fully redeemed or converted to common stock by December 31, 2024[413][419][420] - During 2024, QCi sold 23.7 million common shares through its At-The-Market (ATM) facility, generating $23.8 million in net proceeds[421] - A November 2024 Registered Direct Offering (RDO) sold 16 million common shares for $40 million gross proceeds, used partly for debt repayment[423] - A December 2024 RDO and Private Placement sold 10 million common shares for $50 million gross proceeds[425] - The combined net proceeds from ATM and RDOs were $106.8 million in 2024[427] Warrants Outstanding (in thousands, except exercise prices) | Issuance Date | Expiration Date | Exercise Price | Issued | Exercised | Canceled | Outstanding | |:---|:---|:---|:---|:---|:---|:---| | August 18, 2020 | August 18, 2025 | $2.00 | 171 | (150) | 0 | 21 | | June 16, 2022 | May 9, 2027 | $0.0001 | 6,325 | 0 | (4,121) | 2,204 | | November 18, 2024 | November 18, 2029 | $2.875 | 800 | 0 | 0 | 800 | | December 12, 2024 | December 12, 2029 | $5.75 | 500 | 0 | 0 | 500 | - QPhoton Warrants, issued in June 2022, are exercisable upon exercise of underlying options and warrants; 65% have been forfeited as of December 31, 2024[430][431] - The QPhoton Warrants had a carrying value of $40.5 million as a Level 3 derivative liability on the balance sheet as of December 31, 2024, resulting from a mark-to-market loss[431] Note 11 – Stock-based Compensation Stock-based compensation expense increased to $5.8 million in 2024, with significant option and restricted stock activity under the company's equity plans - The 2019 Equity and Incentive Plan au