Quantum Computing Inc.

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K,

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed under Item 1A, “Risk Factors.” The following analysis generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on March 20, 2025.

Previous wording

QCi is a development stage company with limited operations and revenue. The Company is developing quantum and ancillary non-quantum products for high-performance computing applications based on proprietary photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas of high-performance computing, sensing and imaging, and quantum cybersecurity. The Company has generated some revenue based on sales of products and related services to date and is expanding its sales and marketing efforts. The Company’s development team includes optical engineers, mathematicians, physicists, and software developers.* *

Current wording

QCi is a development stage company with limited operations and revenue. The Company is developing quantum and ancillary non-quantum products for high-performance computing applications based on proprietary photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas of high-performance computing, sensing, and quantum cybersecurity. The Company has generated some revenue based on sales of products and related services to date and is expanding its sales and marketing efforts. The Company’s development team includes optical engineers, technicians, mathematicians, physicists, and software developers.* *

Previous wording

Revenues for the year ended December 31, 2024 were $373 thousand compared to $358 thousand for the year ended December 31, 2023, an increase of $15 thousand, or 4%. Revenue was derived from sales of hardware products and professional services in 2024 and 2023, in each case provided to multiple commercial and government customers under multi-month contracts. The year-over-year change was driven by changes in the number of, size of and level of effort performed on active customer proof of concept and research and development services and customer hardware contracts. In 2024, the Company continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems. While we have made significant progress toward this overarching objective, the generation of revenue from customers has been slow to develop, in part due to the fact that quantum computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small, exploratory contracts to better understand its applicability to their requirements. Accordingly, the Company has focused on providing professional services and research and development offerings to introduce customers to quantum-based solutions to their operating needs as well as on customer education and building customer awareness as a means to generating sales. We have developed and released multiple products, including commercial and research and development offerings and foundry services for TFLN Optical Chips manufacturing that we are now in the process of marketing. As a result, we expect product revenues to continue to increase going forward.

Current wording

Revenues for the year ended December 31, 2025 were $682 thousand compared to $373 thousand for the year ended December 31, 2024, an increase of $309 thousand, or 83%. Revenue was derived from sales of hardware products and professional services in 2025 and 2024, in each case provided to multiple commercial and government customers under multi-month contracts. Product revenue increased substantially compared to 2024 due to successful sales of vibrometer and quantum networking devices which were delivered during 2025. During 2025 we were able to sell more off the shelf products as opposed to 2024 where we mostly provided services to create bespoke solutions for our customers. The year-over-year change was driven by changes in the number of, size of and level of effort performed on active customer proof of concept and research and development services and customer hardware contracts. In 2025, the Company continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems. While we have made significant progress toward this overarching objective, the generation of revenue from customers has been slow to develop, in part due to the fact that quantum computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small, exploratory contracts to better understand its applicability to their requirements. Accordingly, the Company has focused on providing professional services and research and development offerings to introduce customers to quantum-based solutions to their operating needs as well as on customer education and building customer awareness as a means to generating sales. We have developed and released multiple products, including commercial and research and development offerings and foundry services for TFLN Optical Chips manufacturing that we are now in the process of marketing. As a result, we expect product revenues to continue to increase going forward. The Company also started to recognize revenue for cloud-based access to the Dirac-3 quantum optimization system during 2025.

Previous wording

Cost of revenues, which consists of direct labor expenses, primarily salary costs for engineering and solutions staff delivering services, and other direct component costs for custom hardware on research and development contracts, was $261 thousand for the year ended December 31, 2024, compared to $196 thousand for the prior year, an increase of $65 thousand, or 33%. Cost of revenues for each of the years ended December 31, 2024 and 2023 consists primarily of salary expense. The increase for 2024 was predominantly driven by the increases in direct labor expenses and other direct costs required to perform on the contracts during 2024 compared to the prior year.

Current wording

Cost of revenue, which consists of direct labor expenses, primarily salary costs for engineering and solutions staff delivering services, and other direct component costs for custom hardware on research and development contracts, was $615 thousand for the year ended December 31, 2025, compared to $261 thousand for the prior year, an increase of $354 thousand, or 136%. Cost of revenues for each of the years ended December 31, 2025 and 2024 consists primarily of salary expense. The increase for 2025 was primarily due to the increases in direct labor expenses on R&D services contracts and custom hardware contracts, an increase in production overhead, and increased other direct costs (primarily parts and materials) required to perform on the contracts during the 2025 compared to the prior year.

Previous wording

Gross margin for the year ended December 31, 2024 was $112 thousand compared to $162 thousand for the prior year, a decrease of $50 thousand, or 31%. On a percentage basis, gross margin was 30%, a decrease of 15% year-over-year. The change was the result of a new custom hardware contract that had lower margins due to its cost of revenues being comprised of other direct component costs in addition to direct labor expenses. Our lack of a scaled and distributed base of revenue generation by product and sales channel can result in significant differences in gross margin between reporting periods.

Current wording

Gross margin for the year ended December 31, 2025 was $67 thousand compared to $112 thousand for the prior year, a decrease of $45 thousand, or 40%. On a percentage basis, gross margin was 10%, a decrease of 20% year-over-year. The decrease in gross margin was largely due to higher than anticipated direct labor expenses required to complete the assembly and test of the first unit of a new hardware product. Cost information from the production of the first unit will be used in adjusting pricing of subsequent product sales. Our lack of a scaled and distributed base of revenue generation by product and sales channel can result in significant differences in gross margin between reporting periods. We anticipate product gross margins will improve as we build additional units of each product.

Previous wording

Operating expenses of approximately $26.0 million in 2024 decreased as compared to approximately $26.4 million in 2023 primarily as a result of a decrease in general and administrative expenses, partially offset by an increase in research and development expenses, as set forth in the below tables (in thousands, except percentages).

Current wording

Operating expenses of approximately $51.1 million during the year ended December 31, 2025 increased as compared to approximately $26.0 million in 2024 primarily as a result of higher research and development expenses, sales and marketing expenses and general and administrative expenses, as set forth in the below tables (in thousands, except percentages).

Previous wording

Research and development expenses consist primarily of compensation for employees that primarily engage in research and development efforts and fees for the development of hardware products and supporting software. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.

Current wording

Research and development expenses consist primarily of labor expenses for employees that primarily engage in research and development efforts and non-labor expenses for the development of hardware products and supporting software. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.

Previous wording

Selling and marketing expenses consist primarily of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.

Current wording

Sales and marketing expenses consist primarily of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.

Previous wording

The loss on change in value of warrant liability is entirely comprised of mark-to-market adjustments for the QPhoton Warrants, as defined below in the accompanying notes to our consolidated financial statements appearing elsewhere in this report, which had no carrying value as of December 31, 2023. Future mark-to-market adjustments may result in continued losses if the price of the Company’s common stock increases above the closing bid price of $16.55 per share at December 31, 2024; such adjustments may alternatively result in gains if the closing bid share price of the Company’s common stock decreases. See Note 10,Capital Stock, in the accompanying notes to our consolidated financial statements appearing elsewhere in this report for additional information on the QPhoton Warrants.

Current wording

The loss on change in value of derivative liability is entirely comprised of mark-to-market adjustments for the QPhoton Warrants, as defined below in the accompanying notes to our consolidated financial statements appearing elsewhere in this report, which had no carrying value as of December 31, 2023. Future mark-to-market adjustments may result in continued losses if the price of the Company’s common stock increases above the closing bid price of $16.55 per share at December 31, 2024; such adjustments may alternatively result in gains if the closing bid share price of the Company’s common stock decreases. See Note 12,Capital Stock, in the accompanying notes to our consolidated financial statements appearing elsewhere in this report for additional information on the QPhoton Warrants.

Previous wording

We have incurred net losses and experienced negative cash flows from operations since inception. Through December 31, 2024, the Company has raised $167.8 million through its issuance of common stock and $20.1 million through its issuance of convertible promissory notes and other debt for a total of $187.9 million. The Company has no lines of credit or short-term debt obligations outstanding. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs. As of December 31, 2024, the Company had cash and cash equivalents of $78.9 million.

Current wording

We have incurred net losses and experienced negative cash flows from operations since inception. During the year ended December 31, 2025, the Company raised net proceeds of $1,475.1 million through the private placement of equity. The Company has no lines of credit or short-term debt obligations outstanding. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs. We also expect to incur additional integration and scaling costs associated with the LSI acquisition. As of December 31, 2025, the Company had cash and cash equivalents of $737.9 million and short-term and long-term investments of $782.5 million.

Previous wording

Our primary uses of cash are to fund and invest in our operations as we continue to grow our business. We will require a significant amount of cash for continued investment in our Foundry Services offering, including but not limited to our AZ Chips Facility and any future-identified space for expansion, as well as ongoing research and development for our non-linear quantum optical products and photonics chips. Until such time as we can generate significant revenue from sales or subscriptions of our hardware offerings, we expect to finance our operating and investing needs through our cash and cash equivalents and, equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and loan programs. We may, however, be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all. In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest rates, bank failures, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our product development and go-to-market efforts. There can be no assurances that the Company will be able to secure additional equity and/or debt investments or achieve an adequate sales level. We believe, however, that the Company’s existing cash and cash equivalents, together with any cash generated from operations and the proceeds from any additional equity or debt issuances will be sufficient to meet the Company’s liquidity needs for at least the next 12 months.

Current wording

Our primary uses of cash are to fund and invest in our operations as we continue to grow our business. We will require a significant amount of cash for continued investment in our Foundry Services offering, including but not limited to future-identified space for expansion of our AZ Chips Facility, as well as the construction or acquisition of a high-volume chip manufacturing facility, as well as ongoing research and development for our non-linear quantum optical products and photonics chips. Until such time as we can generate significant revenue from sales or subscriptions of our hardware offerings, we expect to finance our operating and investing needs through our cash and cash equivalents and, equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and loan programs. We may, however, be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all. In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, interest rates, bank failures, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our product development and go-to-market efforts. There can be no assurances that the Company will be able to secure additional equity and/or debt investments or achieve an adequate sales level. We believe, however, that the Company’s existing cash and cash equivalents, together with any cash generated from operations and the proceeds from any additional equity or debt issuances will be sufficient to meet the Company’s liquidity needs for at least the next 12 months.

Previous wording

At December 31, 2024, we had working capital of $74.6 million as compared to working capital deficit of $2.2 million at December 31, 2023, an increase of $76.8 million. The increase in working capital is primarily attributable to an increase in cash from the net proceeds of our sales of 16 million shares of common stock for an aggregate of $40 million in November 2024 and 10 million shares of common stock for an aggregate of $50 million in December 2024, and our issuance of 23.7 million shares of common stock for an aggregate of $23.8 million through the Company’s ATM, as defined below, managed by Ascendiant Capital Markets, LLC during 2024, offset by the use of cash to pay for operating expenses and capital investments in property and equipment. For more information on the November and December issuances, please see Note 10,Capital Stock, in the accompanying notes to our consolidated financial statements appearing elsewhere in this report.

Current wording

At December 31, 2025, we had working capital of $1,122.7 million as compared to working capital of $74.6 million at December 31, 2024, an increase of $1,048.0 million. The increase in working capital is primarily attributable to an increase in cash and available-for-sale debt securities from the net proceeds of our sales of our sales of 86.3 million shares of common stock for an aggregate of $1,475.1 million during 2025.

Previous wording

On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Demand for the Company’s products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. As much revenues will be derived from the sales of our products and services, our business operations may be adversely affected by the products and services offered by our competitors and any prolonged recession periods.

Current wording

On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Demand for the Company’s products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. As revenues will be derived from the sales of our products and services, our business operations may be adversely affected by the products and services offered by our competitors and any prolonged recession periods.

Previous wording

Net cash used in operating activities for the years ended December 31, 2024 and 2023 was $16.2 million and $18.3 million, respectively, in each case primarily as a result of our net loss in each period offset by noncash adjustments for stock-based compensation, mark-to-market valuation adjustments on financial liabilities, and depreciation and amortization.

Current wording

Net cash used in operating activities for the years ended December 31, 2025 and 2024 was $30.3 million and $16.2 million, respectively, in each case primarily as a result of our net loss in each period offset by noncash adjustments for stock-based compensation, mark-to-market valuation adjustments on derivative liabilities, and depreciation and amortization.

Previous wording

Net cash used in investing activities for the years ended December 31, 2024 and 2023 was $6.0 million and $2.6 million, respectively, and was attributable to our purchase of TFLN Optical Chips manufacturing equipment for our AZ Chips Facility, as well as computer hardware and laboratory equipment. The increase in 2024 is primarily due to the purchase of additional equipment in connection with establishing the AZ Chip Facility.

Current wording

Net cash used in investing activities for the years ended December 31, 2025 and 2024 was $788.3 million and $6.0 million, respectively, and was attributable to our purchase of computer hardware, laboratory equipment and TFLN Chips manufacturing equipment, as well as the purchase of $1,197.9 million in available-for-sale-debt securities offset by $376.3 million in proceeds from sales of available-for-sale-debt securities.

Previous wording

Net cash provided by financing activities for the years ended December 31, 2024 and 2023 was $99.1 million and $17.7 million, respectively. Cash flows provided by financing activities during year ended December 31, 2024 were attributable to proceeds from our stock issuances in November and December 2024, and the proceeds from our sale of shares of common stock pursuant to the ATM facility and our issuance of the Streeterville Convertible Note, partially offset by repayments on the Streeterville Unsecured Note, as defined below, and the Streeterville Convertible Note as well as redemptions of shares of Series A Preferred Stock.

Current wording

Net cash provided by financing activities for the years ended December 31, 2025 and 2024 was $1,477.6 million and $99.1 million, respectively. Cash flows provided by financing activities during year ended December 31, 2025 were primarily attributable to net proceeds from our stock issuances.

Previous wording

Determining the fair market value of the QPhoton Warrants, which were included in the merger consideration paid to the stockholders of QPhoton (the “QPhoton Merger Consideration”), is a critical accounting estimate. The QPhoton Warrants are comprised of warrants to purchase up to 7,028,337 shares of the Company’s common stock at an exercise price of $0.0001 per share (the “QPhoton Warrants”) and are exercisable when and if stock options and warrants issued by the Company and outstanding as of June 15, 2022 are exercised. The Merger Consideration for shareholders Yuping Huang and The Trustees of the Stevens Institute of Technology was issued in 2022. A third alleged shareholder, BV Advisory, rejected the Merger Consideration and commenced litigation in Delaware Chancery Court (see Note 8,Contingencies – Legal Proceedings, in this Form 10-K for additional information and Item 3,Legal Proceedings, in this Form 10-K for a full discussion), and to date that litigation has not been resolved. Accordingly, as of December 31, 2024 and 2023, we had only issued 6,325,503 of the QPhoton Warrants. In determining the fair market value of the QPhoton Warrants, the Company determines which underlying options and warrants are in-the-money or out-of-the-money at period end by comparing to the bid price of the Company’s common stock, then accounts for changes period-over-period by realizing a mark-to-market gain or loss for the period.

Current wording

Determining the fair market value of the QPhoton Warrants, which were included in the merger consideration paid to the stockholders of QPhoton (the “QPhoton Merger Consideration”), is a critical accounting estimate. The QPhoton Warrants are comprised of warrants to purchase up to 7,028,337 shares of the Company’s common stock at an exercise price of $0.0001 per share (the “QPhoton Warrants”) and are exercisable when and if stock options and warrants issued by the Company and outstanding as of June 15, 2022 are exercised. The Merger Consideration for shareholders Yuping Huang and The Trustees of the Stevens Institute of Technology was issued in 2022. A third alleged shareholder, BV Advisory, rejected the Merger Consideration and commenced litigation in Delaware Chancery Court (see Note 10,Contingencies - Legal Proceedings, in this Form 10-K for additional information and Item 3,Legal Proceedings, in this Form 10-K for a full discussion). That litigation was resolved in 2025. Accordingly, as of December 31, 2025 and 2024, we had only issued 6,325,503 of the QPhoton Warrants. In determining the fair market value of the QPhoton Warrants, the Company determines which underlying options and warrants are in-the-money or out-of-the-money at period end by comparing to the bid price of the Company’s common stock, then accounts for changes period-over-period by realizing a mark-to-market gain or loss for the period.

Previous wording

An additional critical accounting estimates involves determining the fair value of the conversion features ingerent in the Streeterville Convertible Note (the “Streeterville Derivative Liability”), which involves inherent uncertainties and the application of management judgement. The Streeterville Derivative Liability will be mark-to-market adjusted on a quarterly basis and accreted as interest expense while the Streeterville Convertible Note is outstanding.

Current wording

An additional critical accounting estimates involves determining the fair value of the conversion features inherent in the Streeterville Convertible Note (the “Streeterville Derivative Liability”), which involves inherent uncertainties and the application of management judgement. The Streeterville Derivative Liability will be mark-to-market adjusted on a quarterly basis and accreted as interest expense while the Streeterville Convertible Note is outstanding. The Streeterville Convertible Note was paid off in 2024.

Previous wording

As of December 31, 2024, we had federal and state net operating loss (“NOL”) carryforwards of approximately $89.4 million, or $19.6 million on a tax-effected basis. We believe that it is more likely than not that the benefit from these NOL carryforwards will not be realized. Accordingly, we have provided a full valuation allowance on any potential deferred tax assets relating to these NOL carryforwards. If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of December 31, 2024, will be accounted for as a reduction of income tax expense.

Current wording

As of December 31, 2025, we had federal and state net operating loss (“NOL”) carryforwards of approximately $158.1 million, or $27.1 million on a tax-effected basis. We believe that it is more likely than not that the benefit from these NOL carryforwards will not be realized. Accordingly, we have provided a full valuation allowance on any potential deferred tax assets relating to these NOL carryforwards. If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of December 31, 2025, will be accounted for as a reduction of income tax expense.