QUBT 10-K & 10-Q changes, risk factors and insider trading

QCi was formed in 2018 and merged with QPhoton in June 2022. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limitedlimited, inherently uncertain and subject to anumerous numberfactors ofoutside uncertainties,our control, including our ability to plan for and model future growth. Our ability to generate revenues will largely be dependent on our ability to develop and produce a suite of products based on quantum photonic technologies, with steadily increasing capabilities. Our technical roadmap may not be realized as quickly as hoped, or even at all. As a result, our historical results should not be considered indicative of our future performance. Further, in future periods, our growth could slow or decline for a number of reasons, including but not limited to slowing demand for our quantum products and services, increased competition, changes to technology, our inability to scale up our technology, a decrease in the growth of the market, or our failure, for any reason, to continue to take advantage of growth opportunities. Furthermore, the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We have not emerged from the development stage and may be unable to raise further equity. These factors, among others, that raise substantial doubt about our ability to continue as a going concern may be partially or fully mitigated by the net proceeds received by the Company in conjunction with the sale of 8,163,266 shares of Common Stock (the “PIPE Shares”) issued to the investors pursuant to certain Securities Purchase Agreements dated January 7, 2025. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty or from the sale of the PIPE Shares.

We incurred net losses each year since 2018 and we believeexpect that we willto continue to incur operating and net losses each quarter until at leastfor the timeforeseeable future and may never achieve or sustain profitability, even if we begin generating significant revenue from our products and services, which may never occur. Even with significant production, we may never become profitable from the sale of our products and services.

We have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve or sustain profitability or remaincontinue aoperations goingas concern.planned.

We are an early-stage company and we have not generated any material revenues to offset our operating expenses. We incurred negative cash flows from operating activities and recurring net losses in fiscal years 2025, 2024 and 2023. As of December 31, 20242025 and 2023,2024, our accumulated deficit was $219.2 $200.5 million and $131.9$200.5 million, respectively. If we are unable to generate significant revenues in future periods, we will not be able to to achieve profitability, and even if we shouldachieve achieve,profitability, we may be unable to maintain profitability.it. Beyond this, we may incur significant losses in the future for a number of reasons including other risks described in this document, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not ever achieve profitability.

Commercial tractionadoption of quantum computing technology is uncertain and may never occur. We have no experience in producing large quantities of our products and are currently constructing advanced generations of our products. There are significant technological challenges associated with developing, producing, marketing and selling products and services in the high-performance computing industry, including our products and services, and we may not be able to resolve all of the difficulties that may arise in a timely or cost-effective manner, or at all. We may not be able to cost effectively manage production at a scale or quality consistent with customer demand in a timely or economical manner.

Our ability to scale is dependent also upon components that we must source from multiple countries, including China. Our supply chain could be adversely affected by geopolitical tensions, export controls, trade restrictions, tariffs or other changes in U.S. or foreign government policies affecting cross-border commerce. Shortages or supply interruptions in any of these components will adversely impact our ability to generate revenues. Recent tensions between the United States and China have resulted in the U.S.’s imposition of a series of tariffs and other restrictions on imports from China [and sourcing from certain Chinese persons or entities, as well as other business restrictions. Further, deterioration in the political relationship between the U.S. and China may result in loss of access to suppliers of key components with little or no warning, which would adversely affect our ability to develop and manufacture our products. We are actively searching for alternative suppliers outside of China, including in the United States, but there is no assurance that we can locate comparable components at reasonable prices within the desired timeframes.

If we commence large-scale development of our quantum computers and other products, they may contain defects in design and manufacture that may cause them to not perform as expected or that may require repair and design changes. Our quantum computers are inherently complex and incorporate technology and components that may notenot have been used for computing products and that may contain defects and errors, particularly when first introduced. We have a limited frame of reference from which to evaluate the long-term performance of our computers. There can be no assurance that we will be able to detect and fix any defects in our quantum computers in a timely manner that does not disrupt our services to our customers. If our technology fails to perform as expected, customers may seek out a competitor or turn away from quantum computing entirely, each of which could adversely affect our sales and brand and could adversely affect our business, prospects and results of operations. If defects in our technology lead to erroneous outputs, third parties relying on those outputs may draw from them erroneous conclusions, creating a risk that we will be liable to those third parties.

Our successbusiness willmodel dependdepends uponon our ability to expand,expand and scale our operations,operations and to increase our sales and support capability. Even if the market in which we compete meets the size estimates and and growth forecasted, our business could fail to grow at similar rates, if at all.

Our growth is dependent upon our ability to successfully expand our products and services, retain customers, bring in new customers and retain critical talent. Unforeseen issues associated with scaling up and constructing quantum computing technology at commercially viable levels could negatively impactaffect our business, financial condition and results of operations.

ThereWe canmay be no assurance that financing will be availableunable to usobtain additional financing on favorableacceptable terms, or at all.all, and any such financing may be dilutive to existing stockholders. The inability to obtain financing when needed may make it more difficult for us to operate our business or implement our growth plans and we may be required to delay, limit or substantially reduce our quantum computing development efforts. Our ability to raise additional capital through the sale of securities could be significantly impacted by the resale of our securities by holders of our securities, which could result in a significant decline in the trading price of our securities and potentially hinder our ability to raise capital on terms that are acceptable to us or at all.

In addition, our net operating loss carryforwards are subject to review and possible adjustment by the IRS, and state tax authorities. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), our federal net operating loss carryforwards and other tax attributes will become subject to an annual limitation in the event of certain cumulative changes in the ownership of the Company. An “ownership change” pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules apply under state tax laws. Our ability to utilize our federal net operating loss carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes, including potential changes in connection with the QPhoton MergerMerger, the acquisition of Luminar Semiconductor, Inc., or other transactions. Similar rules may apply under state tax laws.

TFLN Optical Chips manufacturersmanufacturers, suppliers and distributors are concentrated primarily in China and other parts of East Asia, which is an area that is or may be subject to geopolitical uncertainty, trade disputes and restrictions, environmental disasters, and other risks. Any disruption to the operations of these manufacturers or distributors could cause significant delays in the production or shipment of our products and impact our financial condition.

Our success also depends in part on the manufacturing of TFLN Optical Chips.Chips for which we may rely, at least in part, on third-party manufacturers and suppliers. Unforeseen disruption of the manufacture of TFLN Optical Chips could be caused by a number of events, including a maintenance outage, systems outage or other disruption, power or equipment failure, fires, floods, earthquakes or other natural disasters, social unrest or terrorist activity, work stoppages, public health concerns (including pandemics), regulatory measures, or other operational problems. Any disruption in the manufacture of TFLN Optical Chips resulting from such events could cause significant delays in the development and production of our products.

In addition, we may depend on third-party TFLN Optical Chips and wafer manufacturing partners or distributors who may be affected by changes in governmental policies, taxation, rising inflation inflation or interest rates, social instability, geopolitical conflicts and tensions, and diplomatic and social developments which are outside of our control.

Furthermore, our industry generally relies on a limited number of TFLN Optical Chips and wafer manufacturers whose operations tend to be concentrated in China and other parts of East Asia, which makes us especially susceptible to adverse developments in these regions’ economic and political conditions, particularly to the extent that such developments create an unfavorable business environment that significantly affects our operations. Our supply chain could be adversely affected by geopolitical tensions, trade restrictions, export controls, tariffs or changs in United States or foreign government policies affecting cross-border commerce. Although the governments of certain countries, including the United States, have taken actions to make their countries more attractive for chip manufacturing operations, there can be no assurances that the current geographic concentration of chip manufacturing will be meaningfully changed in the near term or at all.

If any of these events, or other macroeconomic trends, should cause a prolonged disruption of operations that impact our third-party TFLN Optical Chips and wafer manufacturing partners, they may experience operational downtimes or have to operate at reduced capacities, which could have a material adverse effect on our business, financial financial condition, and results of operations.

Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, inflation, international trade relations, tariffs, public health emergencies (such as the recent COVID-19 pandemic), political turmoil, natural catastrophes, warfare, and terrorist attacks on the United States or elsewhere, could cause a decrease in business investments, including the progress on development of quantum technologies, and negatively affect the growth of our business. In addition, in challenging economic times, our current or potential future customers may experience cash flow problems and as a result may modify, delay or cancel plans to purchase our products and services. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, amounts they owe. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impactingaffecting our ability to continue our research and development activities or manufacture our products.

Government actions and regulations, such as tariffs and trade protection measures, may limit our ability to obtain products from our suppliers or sell our products and services to customers. Political challenges between the United States and countries in which our suppliers are located and changes to trade policies, including tariff rates and customs duties, trade relations between the United States and those countries and other macroeconomic issues could adversely impact our business. During the last few years, including under the new Presidential administration, the United States has imposed tariffs on certain products imported into the United States from China and some other countries, and China and some other countries have imposed tariffs on U.S. imports in response. The U.S. government continues to add additional entities, in China and elsewhere, to restricted party lists impactingaffecting the ability of U.S. companies to provide products and technology and, in certain cases, services, to these entities and, in some cases, to receive products, technology or services from these entities. The U.S. government also continues to increase end-use restrictions on the provision of products, technology and services to China and other countries including end-uses related to advanced computing. The new U.S. presidential administration has signaled its intention to use U.S. trade policy, including tariffs and other trade restrictions, as an important foreign policy tool presenting uncertainty regarding the impact of future trade policies on our business. As such, there is also a possibility of future tariffs, trade protection measures or other restrictions imposed on our products or on our customers by the United States, China or other countries that could have a material adverse effect on our business. Our technology could be deemed a matter of national security and, as such, our customer base could be tightly restricted. We also may accept government grants that place restrictions on the business’ ability to operate. Any such actions could impact our business operations and have a material adverse effect on our business prospectus, financial condition and results of operations.

In order to expand our products and services and grow our market and client base, we may continue to seek and complete strategic business acquisitions and other combinations, investments, or partnerships that we believe are complementary to our business. For example, in February 2026, we acquired Luminar. The identification of suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our management team from our current operations. The completion of such transactions also have inherent risks that may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to: (i) failure to successfully integrate the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to maintain uniform standard controls, policies and procedures; (ii) diversion of management’s attention from other business concerns; (iii) entry into markets in which we have little or no direct prior experience; (iv)) failure to achieve projected synergies and performance targets; (v) loss of clients or key personnel; (vi) incurrence of debt or assumption of known and unknown liabilities; (vii)) write-off of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; (viii) dilutive issuances of equity securities; and (ix) accounting deficiencies that could arise in connection with, or as a result of, such transactions, including issues related to internal control over financial reporting and the time and cost associated with remedying such deficiencies. Even if we successfully complete a strategic transaction, we may not be able to effectively integrate the acquired business, technology, systems, control environment, solutions, personnel or operations into our business or not be able to achieve projected results or support the amount of consideration paid for such acquired businesses or invested in such transactions. In addition, we may incur unexpected costs, claims or liabilities during the strategic transaction or that we assume from the acquired company, or we may discover adverse conditions post- acquisition for which we have limited or no recourse, and we may not achieve the anticipated benefits of any strategic transaction.

In addition, the stock markets, including the Nasdaq Stock Market LLC (“Nasdaq”) on which our common stock is listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These broad market fluctuations may materially affect our stock price, regardless of our operating results. Furthermore, the market for our common stock historically has been limited and we cannot assure you that an active trading market will ever be developed or maintained. The price at which investors purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, these factors may make it more difficult or impossible for you to sell your shares of our common stock for a positive return on your investment. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

Delays in filing financial reports, internal control weaknesses, and restatements could hinder our ability to regainmaintain Form S-3 eligibility and adversely affect our business and stock price.

To regainmaintain eligibility to use Form S-3, we must be timely and current in our public reportingreporting. for a period of 12 months preceding our intended S-3 filing. While we expect to regain eligibility to use Form S-3 as of September 1, 2025, thereThere can be no guarantees that we will remain timely and current in our public reporting in through suchthe date.future. Should we wish to register the offer and sale of our securities to the public prior towithout the time we are eligibleability to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute execute any such transaction successfully and potentially harming our financial condition.

While we continue to evaluate steps to remediate the material weaknesses in our internal control over financial reporting, as effective internal controls are necessary for us to provide reliable financial reports and prevent fraud, we can give no assurance that the measures we have taken and plan to take in the future will remediate the material weaknesses or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting, circumvention of these controls, or otherwise. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify errors or to facilitate the fair presentation of our consolidated financial statements. Failure to address and remediate any internal control weaknesses could further delayaffect our ability to regainmaintain Form S-3 eligibility and adversely affect our business, operations, and stock price.

A substantial minoritySome of our outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. In addition, we have issued or obligated to issue options to purchase common stock pursuant to certain employment, director and consultant agreements which shares of common stock, when purchased pursuant to the exercise of such options, would also be considered “restricted securities.” As restricted securities, these shares may be resold only pursuant to an effective registration statement or in accordance with the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and applicable state securities laws. Rule 144 provides in essence that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of the issuer’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate of the issuer and who has satisfied a one-year holding period. The resale of significant amounts of our common stock under Rule 144 or under any other exemption from the registration requirements of the Securities Act, if available, or pursuant pursuant to subsequent registrations of shares of our common stock, could cause the market price of our shares of common stock to decline significantly.

As of MarchFebruary 18,27, 2025,2026, our directors and executive officers collectively beneficially own approximately 20.1%12.4% of the shares of our common stock including the beneficial ownership of Dr. Yuping Huang of 17.2%10.9% of the shares of our common stock.

The following discussion and analysis of theour financial condition and results of operations and financial condition for the years ended December 31, 2024 and 2023 should be read in conjunction with our consolidated financial statements and therelated notes to those consolidated financial statements that are included elsewhere in this Annual Report.Report Ouron Form 10-K. This discussion includes contains forward-looking statements based upon current expectations that involve risks and uncertainties,uncertainties. Our such as our plans, objectives, expectations and intentions. Actualactual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of acertain numberfactors 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 factors.2023 Seeitems and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Forward-LookingManagement’s Statements.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.

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,sensing, and quantum cybersecurity. The Company has generated some revenue based on sales of 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.

Revenues for the year ended December 31, 20242025 were $373$682 thousand compared to $358$373 thousand for the year ended December 31, 2023,2024, an increase of $15$309 thousand, or 4%.83%. Revenue was derived from sales of hardware products and professional services in 20242025 and 2023,2024, 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 2024,2025, 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.

Cost of revenues, 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 $261$615 thousand for the year ended December 31, 2024,2025, compared to $196$261 thousand for the prior year, an increase of $65$354 thousand, or 33%.136%. Cost of revenues for each of the years ended December 31, 2025 and 2024 andconsists 2023 consists primarily of salary expense. The increase for 20242025 was predominantlyprimarily drivendue byto 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 costsparts and materials) required to perform on the contracts during 2024the 2025 compared to the prior year.

Gross margin for the year ended December 31, 20242025 was $112$67 thousand compared to $162$112 thousand for the prior year, a decrease of $50$45 thousand, or 31%.40%. On a percentage basis, gross margin was 30%,10%, a decrease of 15%20% year-over-year. The changedecrease in gross margin was largely due to higher than anticipated direct labor expenses required to complete the resultassembly and test of the first unit of a new custom hardware contractproduct. thatCost hadinformation lowerfrom marginsthe due to its costproduction of revenuesthe beingfirst unit comprisedwill be used in adjusting pricing of othersubsequent directproduct component costs in addition to direct labor expenses.sales. Our lack of a scaled and distributed base of revenue generation by product and sales channel can result in significant differences in gross margin between reporting periods. We anticipate product gross margins will improve as we build additional units of each product.

Operating expenses of approximately $26.0$51.1 million induring 2024the decreasedyear ended December 31, 2025 increased as compared to approximately $26.4$26.0 million in 20232024 primarily as a result of ahigher decreaseresearch and indevelopment expenses, sales and marketing expenses and general and administrative expenses, partially offset by an increase in research and development expenses, as set forth in the below tables (in thousands, except except percentages).

Change in fair value of derivative and warrant liability during the year ended December 31, 2025 increased $52,282 or 129% compared with 2024 as a result of the change in the fair value of the QPhoton Warrant Liability (as defined below). The change in value of the warrant liability is a non-cash charge comprised of mark-to-market adjustments for the QPhoton Warrants (as defined below). Future mark-to-market adjustments may result in losses if the Company’s stock price increases above the Company’s closing bid price of $10.26 per share on December 31, 2025; such adjustments may alternatively result in gains if the closing bid share price of the 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 The loss on change in value of warrantderivative 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 10,12, Capital Stock, in the accompanying notes to our consolidated financial statements appearing elsewhere in this report for additional information on the QPhoton Warrants.

We have incurred net losses and experienced negative cash flows from operations since inception. ThroughDuring the year ended December 31, 2024,2025, the Company has raised $167.8net proceeds of $1,475.1 million through itsthe issuanceprivate placement of common stock and $20.1 million through its issuance of convertible promissory notes and other debt for a total of $187.9 million.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, 2024,2025, the Company Company had cash and cash equivalents of $78.9$737.9 million and short-term and long-term investments of $782.5 million.

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 FacilityFacility, andas anywell future-identifiedas spacethe forconstruction or expansion,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, 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.

At December 31, 2024,2025, we had working capital of $74.6$1,122.7 million as compared to working capital deficit of $2.2$74.6 million at December 31, 2023,2024, an increase of $76.8$1,048.0 million. The increase in 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 16 million shares of common stock for an aggregate of $40 million in November 2024 and 1086.3 million shares of common stock for an aggregate of $50$1,475.1 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.2025.

Net cash used in operating activities for the years ended December 31, 31,2025 and 2024 and 2023 was $16.2$30.3 million and $18.3$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 financialderivative liabilities, and depreciation and depreciation and amortization.

Net cash used in investing activities for the years ended December 31, 20242025 and 20232024 was $6.0$788.3 million and $2.6$6.0 million, respectively, and was attributable to our purchase of computer hardware, laboratory equipment and TFLN Optical Chips manufacturing equipment for our AZ Chips Facility,equipment, as well as computer hardware and laboratory equipment. The increase in 2024 is primarily due to the purchase of additional$1,197.9 equipmentmillion in connectionavailable-for-sale-debt securities withoffset establishingby the$376.3 AZmillion Chipin Facility.proceeds from sales of available-for-sale-debt securities.

Net cash provided by financing activities for the years ended December 31, 20242025 and 20232024 was $99.1$1,477.6 million and $17.7$99.1 million, respectively. Cash flows provided by financing activities during year ended December 31, 20242025 were primarily attributable to net 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.issuances.

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 be adversely affected by the products and services offered by our competitors and any prolonged recession periods.

We recognize stock-based compensation expense for all share-based payment awards in accordance with ASC 718, Compensation –- Stock Compensation. Stock-based compensation expense expense for expected-to-vest awards is valued under the single-option approach and amortized on a straight-line basis, accounting for actual forfeitures as they occur. We utilize the Black-Scholes pricing model in order to determine the fair value of stock-based option awards. The Black-Scholes pricing model requires various highly subjective assumptions including volatility, expected option life, and risk-free interest rate. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

Fair Value of WarrantDerivative Liabilities and DerivativesLiability

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 8,10, 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),. and to date thatThat litigation haswas notresolved beenin resolved.2025. Accordingly, as of December 31, 20242025 and 2023,2024, 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.

An additional critical accounting estimates involves determining the fair value of the conversion features ingerentinherent 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.

The integration of LSI andLSI, NuCrypt and NHanced and the scaling of our Arizona thin-film lithium niobate facility and planned “FAB 2” present significant execution risks.

Realizing the anticipated benefits of the LSI LSI, NuCrypt, and NuCryptNHanced acquisitions and our capacity expansion depends on successful integration of technology, systems, processes and personnel; achieving required quality and reliability metrics; and timely scaling of production. Integration and scaling activities may divert management attention, require incremental capital, and lead to unanticipated costs and operational disruptions. We may encounter delays in technology transfers, tool installation and qualification, supply of specialty materials or components, facilities readiness, environmental health and safety permitting, and recruiting and retaining specialized photonics, packaging and operations talent. Failure to execute effectively could delay product and customer qualification milestones, constrain shipments, increase cost of revenue, compress margins, and negatively impact bookings, revenue growth and cash flows. Any of these factors could materially and adversely affect our business, financial condition and results of operations.

QCi is a growth stage company with expanding operations and revenue following the LSILSI, NuCrypt and NuCryptNHanced acquisitions. The Company is developing and marketing quantum and ancillary non-quantum products for high-performance computing, artificial intelligence, networking and sensing applications based on proprietary quantum optics and photonics technology, as well as optical components including lasers and photo detectors. 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’s development team includes optical engineers, technicians, mathematicians, physicists, and software developers. Our go-to-market strategy emphasizes scalability, accessibility, and affordability, and is supported by a professional services offering to help customers implement applications in optimization, sensing, imaging, and cybersecurity.

Our longer-term product development plan is to migrate product designs based on discrete components, including EQC’s current designs, to a set of optical integrated circuits built on wafers using a crystalline material called thin film lithium niobate (“TFLN”). The Company believes that TFLN is an excellent material for optical integrated circuit design, given its advantageous optical properties (linear, non-linear ferroelectric, and electro-optic) and its compatibility with silicon-based semiconductor fabrication methods. In March 2025, the Company substantially completed the buildout of its "state-of-the-art " TFLN chip research and development, prototyping and small-batch manufacturing facility in a leased space within Arizona State University’s Research Park in Tempe, Arizona (the “AZ Chips Facility”). Additional details about our Tempe, AZ and Hoboken, NJ facilities are discussed in Liquidity and Capital Resources in this report and in our 2025 Annual Report on Form 10-K. In addition, through the NHanced acquisition, the Company is inhas the planning stages forlaunched another higher volume manufacturing facility, which we sometimes refer to as “FAB 2.”

As part of our long-term strategic plan to acquire complimentarycomplementary businesses, in February 2026, the Company acquired Luminar Semiconductor, Inc. (“LSI”). LSI provides products and services that leverage its advanced photonics semiconductor technologies. LSI designs chip-scale devices including laser diodes, semiconductor optical amplifiers, avalanche photodiodes, passive waveguides, photonic integrated circuits, and other related photonic chips, which are incorporated into products at various levels of integration by leveraging extensive in-house advanced photonic packaging technologies. The LSI integrated solutions include components, modules, subsystems, and systems that serve a broad set of customer requirements. Extensive design capabilities are complemented by an in-house III-V photonic semiconductor fabrication facility and photonics module manufacturing capabilities. These production resources are employed to deliver high performance, high reliability products to a growing number of customers in a wide array of industries that include aerospace and defense, sensing and instrumentation, and optical communications. Acquiring LSI provides QCi with advanced semiconductors and related components, as well as design, testingtesting, manufacturing, and consulting services to industry, in particular for Aerospace and Defense applications. Through the acquisition of LSI, QCi has broadened its photonic chip design capability as well as our its optical component and system design and advancedoptical packaging capabilities. LSI’s capabilities are highly synergistic with the QCi technology roadmap and will support the integration of chip-scale devices such as laser diodes and photodetectors with QCi’s thin film lithium niobate photonic integrated circuit (“PIC”) platform. Collaborative efforts between the LSI and QCi technical teams will beare instrumental to delivering QCi’s photonic- and quantum-based system products.

The Company continued to add to its communications product options with the acquisition of NuCrypt in March 2026. This acquisition helps establish boost quantum communications as an important commercialization vertical within QCi’s broader quantum technology strategy. By integrating NuCrypt’s suite of quantum communications systems and products, QCi expects to advance its technology roadmap while extending its portfolio of quantum communications and quantum photonics solutions.

The markets for high-performance conventional and quantum computing, photonics, and cloud-based services are dynamic and competitive. Aggregate demand for our solutions is correlated with macroeconomic and geopolitical conditions (including inflation, interest rates, currency fluctuations, trade policy and tariffs, and international conflicts), which can affect customer budgets, purchasing timelines, our supply chain, component availability and pricing, and gross margins. In the near term, under utilizationunder-utilization of production facilities is likely to depress gross margins and amortization of intangibles acquired in the LSILSI, NuCrypt and NuCryptNHanced acquisitions will add to operating expenses.

Our future performance depends on advancing our Entropy Quantum Computer (EQC) and thin-film lithium niobate photonic integrated circuit (PIC) platforms to commercial readiness, completing required hardware and systems testing, and readying supporting infrastructure. We operate with lengthy development, qualification, and sales cycles; our ability to convert research collaborations and pilot projects into production deployments and multi-year engagements will influence bookings, revenue trajectory, and margin. U.S. federal budget conditions and the timing of government grants and procurement for advanced computing, sensing, and defense applications may also affect demand and award timing. See Part II, Item 1A, "Risk Factors, Factors", for related risks, including dependence on certain suppliers and third-party manufacturers, significant cash requirements to fund product development and manufacturing capacity, and risks associated with integrating LSILSI, NuCrypt and NHanced and scaling our Arizona Chips Facility.

Our ability to attract, develop, and retain engineers, scientists, and other key personnel is critical to executing our roadmap. The integration of LSILSI, NuCrypt and NHanced, the scaling of our Arizona Chips Facility and plannedthe expansion of “FAB 2” will require additional investment, and execution outcomes will influence product cost, time-to-market, and margin profile. See “Liquidity and Capital Resources.”

Our results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025 are as follows (in thousands, except percentages, with non-meaningful percentage changes labeled as “NM”):

Revenue for the three months ended MarchJune 31,30, 2026 was $3.7$5.6 million compared to $39$61 thousand for the comparable prior year period, an increase of $3.7$5.5 million. Revenue for the six months ended June 30, 2026 was $9.2 million compared to $100 thousand for the comparable prior year period, an increase of $9.1 million. Acquisitions, including our LSILSI, NuCrypt and NuCrypt NHanced acquisitions, contributed $3.5$5.1 million and $8.6 million in total revenue during the three and six months ended MarchJune 31,30, 2026. Revenue for the six months ended June 30, 2026 without the acquisitions increased $0.2$0.6 million over the prior year.

Cost of revenue was $4.4$6.7 million for the three months ended MarchJune 31,30, 2026, compared to $26$35 thousand for the comparable prior year period, an increase of $4.4$6.7 million. Cost of revenue was $11.1 million for the six months ended June 30, 2026, compared to $61 thousand for the comparable prior year period, an increase of $11.1 million. The increase was primarily due to the LSILSI, NuCrypt and NuCryptNHanced acquisitions which added $4.2$6.5 million and $10.7 million in costs for the three and six months ended MarchJune 31,30, 2026. Cost of revenue without the acquisitions increased $0.2$0.4 million over the prior year.

Gross Margin Profit (loss)

Gross margin profit (loss) for the three months ended MarchJune 31,30, 2026 was a loss of $0.7$1.2 million compared to $13$26 thousand for the comparable prior year period. Gross profit (loss) for the six months ended June 30, 2026 was a loss of $1.9 million compared to $39 thousand for the comparable prior year period. The decrease in gross marginprofit (loss) was largelyprimarily due to the under-absorption of fixed costs due to lower production volumes.volumes at QCI, LSI and NHanced. We anticipate product gross marginsprofit (loss) will improve as production volumes recover. However, there can be no assurance that production volumes will increase as expected or that gross margins will approve.

Operating expenses for the three and six months ended March 31,June 30, 2026 increased by $11.5$11.7 million and $23.2 million compared to the three months and six months ended MarchJune 31,30, 2025. Acquisitions, including our LSILSI, NuCrypt and NuCrypt NHanced acquisitions, added $1.9$2.4 million and $4.3 million in total operating expenses.expenses for the three and six months ended June 30, 2026, respectively. The increase is further discussed below.

Research and development expenses consist primarily of labor expenses for employees that primarily engage in research and development efforts and non-labor expenses for the development of hardware products and supporting software. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities. Research and development costs were $7.0$8.4 million for theand three months ended March 31, 2026, compared to $3.0$15.4 million for the three and six months ended MarchJune 31,30, 2025.2026 Researchas compared to $6.0 million and development expenses increased $4.0$9.0 million for the three and six months ended MarchJune 31,30, 2026.2025. Research and development expenses increased $2.5 million and $6.4 million for the three and six months ended June 30, 2026, respectively, as compared to the comparable prior year period. Acquisitions, including our LSILSI, NuCrypt and NuCryptNHanced acquisitions, contributed to $0.7$1.1 million and $1.8 million of the increase withfor the three and six months ended June 30, 2026, respectively. The remaining increase is primarily due to higher headcount and related payroll costs, higher recurring lab equipment and consumables costs, and higher depreciation for long-lived laboratory equipment, partially offset by lower stockstock-based based compensation expense. The Company is aggressively pursuing its technology roadmap and has hired additional scientists, engineers and technicians in order to accelerate the development of key technologies and products.

Sales and marketing expenses consist primarily of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs. Sales and marketing expenses were $1.6$1.9 million and $3.5 million for the three and six months ended MarchJune 31,30, 2026 as compared to $0.7 million and $1.4 million for the three and six months ended March 31,June 2025,30, a2025. 138%Sales increase.and marketing expenses increased 184% and 161% for the three and six months ended June 30, 2026, respectively as compared to the prior comparable period. Acquisitions added $0.3$0.5 million and $0.8 million of selling and marketing expenses.expenses for the three and six months ended June 30, 2026. The remaining increase is primarily due to increases in the sales staff, higher tradeshow and travel-related costs and increased marketing program costs.

General and administrative expenses consist primarily of compensation expenses for employees performing administrative functions and professional fees incurred for legal, auditing and other consulting services. General and administrative expenses were $11.3$11.5 million forand the three months ended March 31, 2026 compared to $4.6$22.8 million for the three and six months ended MarchJune 31,30, 2026 as compared to $3.5 million and $8.2 million for the three and six months ended June 30, 2025. General and administrative expenses increased 143% 224% and 178% for the three and six months ended MarchJune 31,30, 2026, compared to the comparable prior year periodperiod. Acquisitions added $0.9 million and $1.8 million for the three and six months ended June 30, 2026, respectively. The remaining increase is primarily due to acquisitions ($0.9 million), acquisition-related transaction expenses ($5.6$7.3 million) and ongoing litigation ($0.1 million).

Interest and other income was $13.5$13.0 million for the three months ended March 31, 2026 and $1.7$26.4 million for the three and six months ended MarchJune 31,30, 2025,2026 anand increase$1.8 overmillion and $3.5 million for the three and six months ended June 30, 2025. Interest and other income increased $11.1 million and $22.9 million for the three and six months ended June 30, 2026, compared to the comparable prior year of $11.8 million.period. The increase in interest income was primarily due to the Company maintaining higher cash balances in mutual funds, deposit and money market accounts, U.S. Treasuries, U.S. agency securities, corporate debt securities, asset-backed securities and certificates of deposits Interestin expense,2026 netcompared consistswith primarilythe ofprior interest onyear financial liabilities, including payroll-related taxes.periods.

The Company recognized a gainloss of $3.2$1.7 million during the three months ended MarchJune 31,30, 2026 and a gain of $1.5 million during the six months ended June 30, 2026 as a result of the change in fair value of the QPhoton Warrant liability. The change in value of the warrant liability is comprised of mark-to-market adjustments for the QPhoton Warrants. Future mark-to-market adjustments may result in losses if the Company’s stock price increases above the Company’s closing bid price of $6.85$9.70 per share on MarchJune 31,30, 2026.

We have incurred net losses and experienced negative cash flows from operations since inception. During the threesix months ended MarchJune 31, 30, 2026, the Company raised $3.5$4.3 million through the exerciseissuance of stock options.stock. 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 MarchJune 31,30, 2026, the Company had cash and cash equivalents of $257.7$189.2 million and investments of $1.2$1.1 billion.

The following table summarizes total condensed consolidated current assets, liabilities and working capital at MarchJune 31,30, 2026, compared to December 31, 2025 (in thousands):

At March 31,June 30, 2026, we had working capital of $990.0$969.7 million as compared to working capital of $1.1 billion at December 31, 2025, a decrease of $133.0$152.9 million. The decrease in working capital is primarily attributable to the use of cash to finance acquisitions.

The following table summarizes our cash flow for the threesix months ended MarchJune 31,30, 2026 and 2025 (in thousands).

Net cash used in operating activities for the threesix months ended March 31,June 30, 2026 was $9.4$23.3 million compared to $4.4$10.5 million for the same period in 2025. Cash used in the threesix months ended MarchJune 31,30, 2026 consisted of net loss of $4.1$15.8 million and a change in operating assets and liabilities of $5.7$(14.9) million partially offset by non-cash charges of $0.4 $7.4 million. The non-cash charges consist of depreciation and amortization of $2.3$5.1 million and stock basedstock-based compensation of $1.2$3.0 million offset by the change in fair value of derivatives of $3.2$1.5 million.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 and 2025 was $474.3$529.7 million and $1.7$2.8 million, respectively, and was attributable to net purchases of available for sale securities of $372.5$356.5 million, cash paid for acquisitions of $99.9$168.7 million and capital expenditures of $1.8$4.5 million.

Net cash provided by financing activities was $3.5$4.3 million and $93.6$283.1 million, respectively, for the threesix months ended MarchJune 31,30, 2026 and 2025. Cash flows provided by financing activities during the threesix months ended MarchJune 31,30, 2026 were attributable to net proceeds for our stock issuances.