# Quantum Computing Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Quantum Computing Inc.](/companies/qubt.md) (CIK 1758009)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 22:28 ET
- Period: 2023-09-30
- Accession: 0001213900-23-086246
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1758009/000121390023086246/f10q0923_quantum.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1758009/000121390023086246/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $50.4k | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $283.2k | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $23.7k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $131.1k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $26.7k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $152.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $1.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $4.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $2.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $4.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$7.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$19.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$8.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$21.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.22 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.29 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 96,646,401 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 96,646,401 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$14.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $2.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $7.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $8.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $89.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $8.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $8.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $81.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,998 characters.

*This quarterly report on Form 10-Q and other reports filed Quantum Computing, Inc. (the “Company,” “QCi,” “we,” “our,” and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.*

*Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.*

*Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.*

### Overview

Quantum Computing Inc. is a nanophotonic-based quantum technology company. Our mission is to be the democratizing force that brings quantum solutions to business, academia, government, and ultimately individual users. Our quantum technologies enable end users to get answers to critical business problems today, using the quantum solutions that deliver solutions otherwise unavailable in the market.

The Company was formed in 2018, to focus on providing a software platform to connect end-users with several commercially available quantum computers. The growth of our business was dependent on the ability of those quantum computers to provide viable business solutions that they were then, and today still are, incapable of providing. Consequently, in June 2022, the Company dramatically expanded the scope of its business through its merger with QPhoton, Inc. (“QPhoton”). By combining QPhoton’s quantum hardware intellectual property with QCi’s quantum software platform and its expertise in various quantum hardware platforms, the Company has transformed into a full-stack innovative solutions company providing quantum technologies in high-performance computing, remote sensing, imaging and cyber security. We believe that QCi, with its breadth of quantum technologies that are, all based on its core photonic computing capability of measuring, conditioning and manipulating single photons, is well-positioned, to address multiple quantum technology market areas that few of its competitors can claim. We believe that the key to our competitive advantage over other quantum computing hardware is the ability of our products to operate at room temperature with no expensive specialized cryogenic cooling, controlled noise and vibration free environments.

The first of the Company’s technology, the Dirac series, is the Company’s Entropy Quantum Computing (“EQC”). The Dirac series includes room-temperature, photonic quantum information processing systems underpinned by a series of patented and patent pending technologies. We believe that this will enable us to develop and produce multiple generations of information processors with increasing computational power, capacity, and speed, as well as the hardware miniaturization that will exceed the computing capabilities of current conventional high-performance computing systems, which are based solely on silicon chips and don’t use quantum effects when processing information. Our product development goals are to both (1) deliver compelling performance advantages over and (2) to eventually be able to solve complex problems more effectively and efficiently in terms of scalability, power consumption, and cost compared to such conventional systems. Our technology, supported by professional services through our “Quantum Solutions” offering, benefits our clients by providing a cloud-based pathway to access and adopt quantum technologies.

The Company’s products are in early commercialization. Revenues to date have consisted of professional services that utilize the Dirac-series computers and other prototype design and configuration services. We expect hardware sales to commence in the fourth quarter of 2023.

In addition, our photonic technology and engineering teams are enabling QCi to continue to expand its product line into adjacent computing markets by using quantum effects and technology to produce enhanced LiDAR, vibrometry and sensing systems, imaging systems, cybersecurity and secured network solutions, and photonic

chips. Several of these technologies are already in early stages of commercialization.

While we are continuing to develop and improve our technology, our short-term goals and core business model are based on generating revenue from selling access to our advanced quantum computing systems (via the cloud) and on premise, both available with support from our Quantum Solutions team. As previously stated, we are developing commercial quantum imaging, sensing, and cybersecurity products that we are offering to both commercial and government clients. The Company’s near-term model is focused on selling desktop or rack-sized as well as portable quantum devices that will power hybrid computing systems that will create the combination of conventional computing and quantum computing to deliver alternative problem-solving solutions. Our long-term product goal is to build laptop quantum computers at price points that will make them affordable to computer users at every business level, not just the largest companies that can afford to spend significant sums to obtain better technology. We currently offer access to our quantum computing machines via our own in-house cloud service and have begun the process to be able to take orders for select hardware and device products.

A central capability that will drive our entire product development is our quantum nanophotonic chip technology. The Company already produces its own lithium niobate nanophotonic circuits and has plans to scale production to meet the requirements of our product roadmap as well as projected demand for our technologies. As further discussed below, the Company has announced plans to construct and operate a new state-of-the-art quantum nanophotonics technology manufacturing and research center.

We are focused on providing integrated quantum information gathering, transmission, and processing solutions, including both the user interface software and the quantum hardware. With our proprietary nanophotonic quantum technologies designed using our solution-oriented system architectures, we believe that we will have a competitive advantage in the market. As an integrated engineering team that works across multiple quantum technology domains, we believe that we are well-positioned to leverage our expertise in software, hardware, and nanophotonic circuits to develop quantum services and products, from quantum chip design and manufacturing through cloud delivery and eventually sales of hardware systems. We believe that this full-stack development approach offers both the fastest and lowest risk path to building commercially valuable quantum machines.

### Market Opportunity

For the past 45 years or so, silicon-based processor manufacturers have been able to double their processing power every 18 to 24 months, a phenomenon known in the computer industry as “Moore’s Law.” Recently, the computer processor industry has found it increasingly difficult to offer faster, more powerful processors due to fundamental physical effects limiting further size reduction of transistors, according to *We’re not prepared for the end of Moore’s Law*, MIT Technology Review, February 2020; https:// www.technologyreview.com/2020/02/24/905789/ (Information contained on, or that can be accessed through, this website is not incorporated by reference in this Quarterly Report, and you should not consider information on this website to be part of this Quarterly Report). Despite this progress in transistors and computing power, many of the world’s most important computational problems are still considered impractical to solve using computer technology that is available today and that is expected to be available in the foreseeable future.

With this in mind, quantum computing represents a potential alternative approach to the hard limits now being approached by conventional computers that utilize silicon-based processors. This is because quantum computers apply the properties of quantum physics to operate in a fundamentally different way. Conventional computer chips use binary bits (ones and zeros) to represent information. Quantum computers utilize qubits, which leverage some of the properties of quantum physics to potentially process computations that would otherwise be intractably difficult using conventional computers.

Research suggests that quantum computers may be ideally suited to run optimization algorithms, where further advancements in approaches and quantum computing hardware could result in computational benefit over currently used conventional systems. See *Quantum Computing for Finance: Overview and Prospects, https://www.sciencedirect.com/science/article/pii/S2405428318300571* (Information contained on, or that can be accessed through, this website is not incorporated by reference in this Quarterly Report, and you should not consider information on this website to be part of this Quarterly Report). The ability to solve challenging computational problems in a reasonable period of time is of particular interest in compute-heavy fields that include, among others, big data, artificial intelligence, healthcare, and cybersecurity. We believe that these are natural markets for quantum computing, due to the immense compute power required to process large data sets.

However, quantum technologies (particularly QCi’s) reach far beyond computing. Other aforementioned adjacent technologies in domains such as imaging, sensing, and cybersecurity will greatly benefit from the advances of quantum science to bring better technologies in medicine, engineering, autonomous vehicles, and cyber security to protect the most sensitive national and commercial systems from quantum enabled attacks. We believe that these markets will likely outpace and outperform the computing market in the near term and likely for the foreseeable future.

### Strategy

QCi’s strategy has evolved to become a nanophotonic quantum solutions company, regularly launching an increasing selection of products and services. When QCi was formed, quantum computing was a fundamentally new paradigm compared with conventional computing, requiring a new and highly technical set of skills to create the hardware and software to drive quantum results. The pool of people with those skills is limited, in high demand and expensive. In addition, the predominant quantum computer programming approach, using one or more software development toolkits (“SDKs”) to create a quantum computing program, was and continues to be, slow and costly, and therefore poorly suited for non-quantum experts attempting to solve real world problems. Moreover, many types of quantum computing hardware require delicate and expensive cryogenic isolation systems just to maintain stability, which makes it difficult for users to interact with quantum computing systems. Until recently, the use of quantum computing was generally limited to research and science experiments conducted at universities and laboratories. A larger user community is now emerging, demanding greater capabilities from quantum systems. QCi is helping to drive that shift in the market with its available computing technologies, and we believe that QCi is prepared to address this growing need.

QCi’s merger with QPhoton, combined with QCi’s significant intellectual property work that culminated in the development of our Qatalyst software, enables the Company to offer room temperature quantum computation systems through cloud services today and, we expect, will enable us to offer affordable, turn-key products in the future as well. This combination of quantum hardware and software will address the steep learning curve and highly particular skillsets generally associated with quantum information processing, which have historically presented significant barriers to adoption for companies and government entities looking to leverage novel quantum computing capabilities to solve problems. We believe that QCi’s core proprietary photonic methodology offers:

- significant advantages to existing quantum technologies, including greater speed and processing power to tackle extremely large amounts of data with higher accuracy;
- scalability and compatibility with existing infrastructure;
- significantly lower power consumption; and
- smaller device footprint requiring no special conditions such as cryogenic temperatures or zero vibration levels.

In short, our core technology offers practical, cost-effective solutions that materially advance the computing capability available in the market. We leverage this core competency across our five product platforms that include:

1\. Quantum Computing;

2\. Quantum Intelligence;

3\. Quantum Remote Sensing Quantum;

4\. Cyber Security; and

5\. Quantum Imaging.

#### Quantum Optical Chips – leveraged across all five product platforms and a key component to future product development

We believe that nanophotonic chips will ultimately provide the greatest scalability and performance advantages for quantum information processing, sensing and imaging. We continue to develop our proprietary nanophotonic chip designs and are actively working on the specification and design for a dedicated chip fabrication facility to develop and produce lithium niobate nanophotonic chips (“Quantum Optical Chips”) for quantum information processing and other single photon detection and sensing applications. Our plan for the facility is to produce a range of Quantum Optical Chips for use in our own products and for general sale in the market. With respect to building such a facility, QCi believes that we have an opportunity to benefit from the CHIPS and Science Act of 2022 (the “CHIPS Act”), which allocates $52 billion for the revitalization and onshoring of semiconductor manufacturing in the U.S. During 2023, we began to take steps to establish a U.S.-based chip facility. We have submitted a letter of interest and are progressing in the grant application process. We have also secured an optimum site location at the ASU Research Park in Tempe, Arizona and have placed deposits to secure certain long-lead time equipment. QCi is prepared, however, to finance some or all of the required funding to build the facility, if necessary, and believes that it has multiple sources available to do so. Currently, QCi leases facilities to develop Quantum Optical Chips and has secured additional capabilities to scale in order to meet anticipated future demand until our new fabrication facility is completed and operational, which is dependent on permitting and supply chain factors.

We believe that QCi’s ability to sell its innovative solutions in the marketplace would be enhanced by partners who represent significant experience and success in their respective domains. QCi is continuing to expand its partner base to address opportunities in the federal government, including the Department of Defense as well as civilian federal government agencies, and the commercial sector, including major firms with successful business lines in the medical, civil engineering, and supply chain domains, among others.

The U.S. government recognizes that quantum technologies are essential to maintaining technology leadership in the world today. See the *National Strategic Overview for Quantum Information Science, https://www.quantum.gov/wp-content/uploads/2020/10/2018\_NSTC\_National\_Strategic\_Overview\_QIS.pdf*, on the National Quantum Initiative website. In order to fully support tremendous potential for our market-ready quantum solutions to this important market, in February 2023 QCi launched a wholly owned subsidiary, QI Solutions, Inc. (“QiS”), to deliver quantum products and services to the U.S. government agencies and defense markets to best serve the unique requirements of this market. QiS is strategically headquartered in Arizona, a leading force in the field of optics whose government leaders are early champions of advanced photonic research, supporting strong research universities interested in exploring mission-ready quantum computing and related technologies. Furtermore, in September 2023, QiS, signed a five-year Overarching Cooperative Research and Development Agreement (OCRADA) with U.S. Special Operations Command (USSOCOM) to develop quantum technology applications in support of USSOCOM programs. USSOCOM is the premier entity of the U.S. Department of Defense that deploys the world’s latest technology to conduct global special operations and activities as part of the Joint Force, in concert with the U.S. government interagency, allies, and partners. QiS will work with USSOCOM’s Science & Technology Directorate on the development of advanced quantum solutions for use by Special Operations Forces in their unique mission roles.

We believe that our unique capabilities that can be adopted for immediate applications are appropriate for multiple programs within various government departments and agencies and anticipate that we could soon see our solutions utilized in a wide variety of boutique applications for our clients. To illustrate, in July 2023, the Company received a NASA Ames subcontract award from Bay Area Environmental Research Institute (BAERI) to build and test an innovative photonic sensor instrument that provides accurate measurement of atmospheric particulates such as clouds, aerosols, smoke flume, volcanic ashes, etc. to identify physical properties including size, shape and chemical composition. This award represents the third distinct task order from NASA in 2023 and is the second research center within NASA to subcontract with the Company. Under the nine-month subcontract, QCi will deliver a compact system, programmed to process a substantial amount of data that can support standalone operations for days, and designed to be powered by a 12-volt battery that consumes no more than 30 watts of power. The possible long-term objective of this engagement is to position these instruments for field deployment to create a monitoring network.

### Industry Trends

Our industry is dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. At QCi, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces.

### Economic Conditions, Challenges, and Risks

The markets for high-performance conventional and quantum computing and cloud-based services are dynamic and highly competitive. Our competitors are developing new computing devices, while also enhancing competing cloud-based services for businesses. Aggregate demand for our solutions, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic. We must continue to evolve and adapt over an extended time in pace with this changing environment.

The investments we are making in Quantum Optical Chips and devices will continue to increase our operating costs and may decrease our operating margins. Components for our devices are primarily manufactured by third-parties. Some of our products contain certain components for which there are very few qualified suppliers. Extended disruptions at these suppliers could impact our ability to manufacture devices on time to meet consumer demand.

Our success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent. We compete for talented individuals by offering an exceptional working environment, an ability to work on new, ground-breaking quantum technology, the ability to grow one’s career across many different products and businesses, and competitive compensation and benefits.

### Results of Operations

#### Three Months Ended September 30, 2023 and 2022

The following table summarizes the highlights of our financial performance for the three months ended September 30, 2023 and September 30, 2022 as well as the increase (decrease) and percentage changes between the periods presented:

|  | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Dollar Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $50,435 | $37,646 | $12,789 | 34% |
| Cost of revenue | 23,721 | 24,891 | (1,170) | (5)% |
| Operating expenses | 7,694,231 | 6,846,748 | 847,483 | 12% |
| Loss from operations | (7,667,517) | (6,833,993) | 833,524 | 12% |
| Other income (expenses) | (608,402) | (735,285) | (126,883) | (17)% |
| Net loss | (8,275,919) | (7,569,278) | (706,641) | 9% |
| Loss per common share – basic | $(0.11) | $(0.22) | $0.11 | 50% |

6

#### Revenues

|  | Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | Increase (Decrease) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Products | $0 | $0 | $0 | 0% |
| Services | 50,435 | 37,646 | 12,789 | 34% |
| Total | $50,435 | $37,646 | $12,789 | 34% |

Revenues for the three months ended September 30, 2023 were $50,435 compared to $37,646 for the comparable prior year period, an increase of $12,789 or 34%. The increase in revenues is primarily due to changes in the number and size of active customer contracts and the level of effort performed on each one during the periods. Revenue in the current reporting period is derived from professional services provided to multiple government and commercial customers under multi-month contracts.

#### Cost of Revenues

Cost of revenues, which consists of direct labor expenses, primarily salary expense for engineering and solutions staff delivering services, was $23,721 for the three months ended September 30, 2023 compared to $24,891 for the comparable prior year period, a decrease of $1,170 or 5%. The decrease is primarily due to the decrease in direct labor expense required to perform on the contracts in the current quarter compared to the prior year period.

#### Gross Profit/Gross Margin

Gross profit and gross margin for the three months ended September 30, 2023 was $26,714 and 53%, respectively, compared to $12,755 and 34%, respectively, for the comparable prior year period, an increase of $13,959 and 109%, respectively. The increase in gross profit is primarily due to the increase in gross revenue during the three months ended September 30, 2023 compared to the prior year period, and the increase in gross margin is primarily due to the decrease in the amount of direct labor required to perform the contracted services in the current period.

#### Operating Expenses

Operating expenses consist of payroll and employee benefits, external contractor, consulting and professional services costs, stock-based compensation expense and general and administrative expenses, including other headcount-related expenses associated with finance, legal, human resources and other administrative personnel, depreciation and amortization, certain taxes, and legal and other administrative fees. Operating expenses for the three months ended September 30, 2023 were $7,694,231 compared to $6,846,748 for the comparable prior year period, an increase of $847,483 or 12%. The increase in operating expenses compared to the comparable prior year period is due in large part to the $872,885 net increase in combined stock-based compensation and salary expenses and the $431,910 increase in research and development expenses for additional technical labor, parts and supplies needed to design and test new hardware products, offset by the $356,383 decrease in other SG&A costs driven by lower intangibles amortization related to the QPhoton merger and the $100,929 decrease in consultant expense driven in large part by our trend to increasingly use full and part time employees to perform work for which we previously relied on consultants.

#### Net Loss

Our net loss for the three months ended September 30, 2023 was $8,275,919 compared to a net loss of $7,569,278 for the comparable prior year period, an increase of $706,641 or 9%. The increase in net loss is primarily due to the changes in operating expenses discussed above, which were offset in part by the $124,558 increase in interest income related to the Company’s cash and equivalents invested in highly liquid money market funds.

#### Nine Months Ended September 30, 2023 and 2022

The following table summarizes the highlights of our financial performance for the nine months ended September 30, 2023 and September 30, 2022 as well as the increase (decrease) and percentage changes between the periods presented:

|  | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | Dollar Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $283,154 | $134,370 | $148,784 | 111% |
| Cost of revenue | 131,117 | 41,692 | 89,425 | 214% |
| Operating expenses | 19,466,158 | 18,443,966 | 1,022,192 | 6% |
| Loss from operations | (19,314,121) | (18,351,288) | (962,833) | (5)% |
| Other income (expenses) | (2,110,383) | (1,456,258) | (654,125) | (45)% |
| Net loss | (21,424,504) | (19,807,546) | (1,616,958) | (8)% |
| Loss per common share – basic | $(0.29) | $(0.58) | $0.29 | 50% |

#### Revenues

|  | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | Increase (Decrease) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Products | $0 | $0 | $0 | 0% |
| Services | 283,154 | 134,370 | 148,784 | 111% |
| Total | $283,154 | $134,370 | $148,784 | 111% |

Revenues for the nine months ended September 30, 2023 were $283,154 compared to $134,370 for the comparable prior year period, an increase of $148,784 or 111%. The increase in revenues is primarily due to changes in the number and size of active customer contracts and the level of effort performed on each one during the periods. Revenue in the current reporting period is derived from professional services provided to multiple government and commercial customers under multi-month contracts.

#### Cost of Revenues

Cost of revenues for the nine months ended September 30, 2023 was $131,117 compared to $41,692 for the comparable prior year period, an increase of $89,425 or 214%. The increase in cost of revenues is primarily due to the increase in direct labor expense required to perform on the contracts in the current quarter compared to the prior year period. Cost of revenues for the current reporting period consists primarily of salary expense.

#### Gross Profit/Gross Margin

Gross profit and gross margin for the nine months ended September 30, 2023 was $152,037 and 54%, respectively, compared to $92,678 and 69%, respectively, for the comparable prior year period, an increase of $59,359. The increase in gross profit is primarily due to the increase in gross revenue during the nine months ended September 30, 2023 compared to the prior year period, and the decrease in gross margin is primarily due to the increase in the amount of direct labor required to perform the contracted services in the current period.

#### Operating Expenses

Operating expenses for the nine months ended September 30, 2023 were $19,466,158 compared to $18,443,966 for the comparable prior year period, an increase of $1,022,192 or 6%. The increase in operating expenses compared to the comparable prior year period is due in large part to the $1,676,187 increase in research and development expenses for additional technical labor, parts and supplies needed to design and test new hardware products and the net $892,433 increase in combined stock-based compensation and salary expenses, offset by the $1,227,307 decrease in other SG&A costs driven by reductions in legal expenses and adjustments in intangibles related to the QPhoton merger, and the $319,121 decrease in consultant and professional services expense driven in large part by an increasing use of full and part time employees.

#### Net Loss

Our net loss for the nine months ended September 30, 2023 was $21,424,504 compared to a net loss of $19,807,546 for the comparable prior year period, an increase of $1,616,958 or 8%. The increase in net loss is primarily due to the changes in operating expenses discussed above, and the increased financing costs for the ATM facility that we began using in January 2023 and for the Streeterville Note that we issued in September 2022.

### Liquidity and Capital Resources

We have incurred net losses and experienced negative cash flows from operations since inception. To date, since February 2018, the Company has raised $51,229,464 through private and public placements of equity and $12,633,000 through private placements of convertible promissory notes and other debt for a total of $63,862,464 through September 30, 2023. The Company has no lines of credit and $4,546,843 in short-term debt obligations outstanding. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs. We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing. As of September 30, 2023, the Company had cash and cash equivalents of $7,379,362.

Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and Quantum Optical Chips and fund business operations. Until such time as we can generate significant revenue from sales or subscriptions of our hardware and our Quantum Solutions offerings, we expect to finance our cash needs through public and/or private equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and loan programs. However, we may 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, banking collapses, 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 quantum computing development and go-to-market efforts.

The following table summarizes total current assets, liabilities and working capital at September 30, 2023, compared to December 31, 2022:

|  | September 30, 2023 | December 31, 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Current Assets | $8,109,515 | $5,587,647 | $2,521,868 |
| Current Liabilities | $8,088,926 | $6,545,320 | $1,543,606 |
| Working Capital (Deficit) | $20,589 | $(957,673) | $978,262 |

At September 30, 2023, the Company had working capital of $20,589 compared to a working capital deficit of $957,673 at December 31, 2022. The $978,262 increase in working capital is primarily due to additional cash of $2,070,896 obtained from net proceeds from sales of our common stock under the ATM facility during the current period, offset by the remaining principal of the Streeterville Note becoming a current liability and reductions to accrued expenses.

### Cash Flows

Net cash used in operating activities for the nine months ended September 30, 2023 and 2022 was $14,635,011 and $11,565,125, respectively, in each case primarily as a result of our net loss in each period offset by noncash adjustments for stock based compensation.

Net cash used in investing activities for the nine months ended September 30, 2023 and 2022 was $2,733,374 and $1,478,281, respectively. Net cash used in investment activities related primarily to our purchase of $2,164,600 of computer hardware and laboratory equipment and our $500,000 investment in MW Notes during the nine months ended September 30, 2023. For the period ended September 30, 2022, net cash used in investment activities was almost entirely attributable to our merger with QPhoton in September 2022.

Net cash provided by financing activities was $19,439,281 and $8,361,290 for the nine months ended September 30, 2023 and 2022, respectively. Cash flows provided by financing activities during the nine months ended September 30, 2023 were attributable to use of the ATM facility to sell shares of our common stock, offset by repayments on the Streeterville Note. The cash provided by financing activities during the period ended September 30, 2022 was attributable to the issuance of the Streeterville Note and amortization of the original issue discount for the outstanding shares of our Series A Convertible Preferred stock.

During the first nine months of 2023, we have funded our operations primarily through the sale of shares of our common stock and the use of cash on hand. As of November 10, 2023, we had cash on hand of approximately $3.6 million We have approximately $96,921 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses that are due monthly.

On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature.

### Critical Accounting Estimates

Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.

#### Revenue

The Company recognizes revenue in accordance with ASC 606 – *Revenue from Contracts with Customers*. We recognize revenue from time and materials-based contracts as the direct hours worked during the period times the contractual hourly rate, plus direct materials and other direct costs as appropriate, plus negotiated materials handling burdens, if any. Revenue from fixed price contracts is recognized as work is performed with estimated profits recorded on a percentage of completion basis. The Company has no cost reimbursement (“cost-plus”) type contracts at this time.

#### Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our consolidated financial statements.

## Market risk

As filed, 182 characters.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

## Controls and procedures

As filed, 2,480 characters.

#### (a) Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on such evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2023, our disclosure controls and procedures were not effective to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our Chief Executive Officer and President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Specifically, the Company does not have sufficient accounting staff to enable proper segregation of duties.

#### (b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 217 characters.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-086246. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.