ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of the
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 the notes to those consolidated financial statements that are included elsewhere in this Annual Report. Our discussion
includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. See “Forward-Looking Statements.”
You should read the following discussion and
analysis of our financial condition and results of operations together with our audited consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K,
Overview
QCi is a development stage company with limited operations and revenue.
The Company is developing quantum and ancillary non-quantum products for high-performance computing applications based on proprietary
photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas
of high-performance computing, sensing and imaging, and quantum cybersecurity. The Company has generated some revenue based on sales of
products and related services to date and is expanding its sales and marketing efforts. The Company’s development team includes
optical engineers, mathematicians, physicists, and software developers.
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Results of Operations
Our results of operations for the years ended
December 31, 2024 and 2023 is as follows (in thousands, except percentages):
Year Ended December 31,
Revenue:
Gross profit margin 30 % 45 %
Operating expenses:
Non-operating income and (expense):
Change in fair value of warrant liabilities (40,532 ) 528 NM
Total non-operating income (expense) (42,605 ) (779 ) NM
Revenues
The Company’s revenues during the years ended December 31, 2024
and 2023 consisted of (in thousands):
Year Ended December 31,
Revenues for the year ended December 31, 2024
were $373 thousand compared to $358 thousand for the year ended December 31, 2023, an increase of $15 thousand, or 4%. Revenue was derived
from sales of hardware products and professional services in 2024 and 2023, in each case provided to multiple commercial and government
customers under multi-month contracts. The year-over-year change was driven by changes in the number of, size of and level of effort performed
on active customer proof of concept and research and development services and customer hardware contracts. In 2024, the Company continued
to execute its business strategy to provide quantum-ready solutions for solving real-world problems. While we have made significant progress
toward this overarching objective, the generation of revenue from customers has been slow to develop, in part due to the fact that quantum
computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small, exploratory contracts
to better understand its applicability to their requirements. Accordingly, the Company has focused on providing professional services
and research and development offerings to introduce customers to quantum-based solutions to their operating needs as well as on customer
education and building customer awareness as a means to generating sales. We have developed and released multiple products, including
commercial and research and development offerings and foundry services for TFLN Optical Chips manufacturing that we are now in the process
of marketing. As a result, we expect product revenues to continue to increase going forward.
Cost of Revenues
Cost of revenues, which consists of direct labor
expenses, primarily salary costs for engineering and solutions staff delivering services, and other direct component costs for custom
hardware on research and development contracts, was $261 thousand for the year ended December 31, 2024, compared to $196 thousand for
the prior year, an increase of $65 thousand, or 33%. Cost of revenues for each of the years ended December 31, 2024 and 2023 consists
primarily of salary expense. The increase for 2024 was predominantly driven by the increases in direct labor expenses and other direct
costs required to perform on the contracts during 2024 compared to the prior year.
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Gross Margin
Gross margin for the year ended December 31, 2024
was $112 thousand compared to $162 thousand for the prior year, a decrease of $50 thousand, or 31%. On a percentage basis, gross margin
was 30%, a decrease of 15% year-over-year. The change was the result of a new custom hardware contract that had lower margins due to its
cost of revenues being comprised of other direct component costs in addition to direct labor expenses. Our lack of a scaled and distributed
base of revenue generation by product and sales channel can result in significant differences in gross margin between reporting periods.
Operating Expenses
Operating expenses of approximately $26.0 million
in 2024 decreased as compared to approximately $26.4 million in 2023 primarily as a result of a decrease in general and administrative
expenses, partially offset by an increase in research and development expenses, as set forth in the below tables (in thousands, except
percentages).
Year Ended December 31, %
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 in 2024 decreased
$2.8 million or 27% compared with 2023 primarily due to lower employee- and advisor-related expenses, including stock-based compensation,
payroll, bonus and travel expenses, as well as lower legal fees and consulting services driven by changes made within and by the Company’s
management team, offset by increased audit fees driven by the Company retaining a new independent registered public accounting firm in
May 2024and such firm’s re-audit of the Company’s consolidated financial statements for the years ended December 31, 2023
and 2022.
Year Ended December 31, %
Research and development expenses consist primarily
of compensation for employees that primarily engage in research and development efforts and fees for the development of hardware products
and supporting software. We focus the bulk of our research and development activities on the continued development of existing products
and the development of new offerings for emerging market opportunities.
Research and development expenses in 2024 increased
$2.4 million or 27% compared with 2023 primarily due to higher employee-related expenses, primarily as a result of higher stock-based
compensation and bonus expenses to incentivize and retain key technologists, as well as higher depreciation for long-lived laboratory
equipment, offset partially by lower professional and hosting services.
Year Ended December 31, %
Selling and marketing expenses consist primarily
of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and
selling costs.
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Net selling and marketing expenses in 2024 were
largely unchanged as compared with 2023, with increases primarily due to higher stock-based compensation, offset by lower outsourced professional
services costs, related marketing program costs, and lower trade show and travel-related costs in 2024.
Non-operating Income (Expense)
The following table summarizes our non-operating
income (expense) for the years ended December 31, 2024 and 2023 (in thousands, except percentages).
Year Ended December 31 %
Interest and other income $ 423 $ 295 43 %
Change in value of derivative and warrant liabilities (40,532 ) 528 NM
Other income (expense) $ (42,605 ) $ (779 ) NM
Non-operating expense increased to $42.6 million
for 2024 compared to $779 thousand for 2023, primarily as the result of a $40.5 million decrease in the change in fair value of the derivative
liability for the QPhoton Warrants, as defined below, during 2024 compared to a $528 thousand increase in 2023.
The loss on change in value of warrant liability
is entirely comprised of mark-to-market adjustments for the QPhoton Warrants, as defined below in the accompanying notes to our consolidated
financial statements appearing elsewhere in this report, which had no carrying value as of December 31, 2023. Future mark-to-market adjustments
may result in continued losses if the price of the Company’s common stock increases above the closing bid price of $16.55 per share
at December 31, 2024; such adjustments may alternatively result in gains if the closing bid share price of the Company’s common
stock decreases. See Note 10, Capital Stock, in the accompanying notes to our consolidated financial statements appearing elsewhere
in this report for additional information on the QPhoton Warrants.
In addition, interest expense, net, which consists of interest on financial
liabilities and amortization of debt issuance costs, increased $128 thousand or 43% in 2024 compared to 2023, which increase was primarily
attributable to interest paid on the secured convertible promissory note in the original principal amount of $8.25 million that we issued
to Streeterville Capital, LLC in August 2024 (the “Streeterville Convertible Note”), which we paid in full as of December
31, 2024. See Note 7, Financial Liabilities, in the accompanying notes to our consolidated financial statements appearing elsewhere
in this report for additional information.
Liquidity and Capital Resources
We have incurred net losses and experienced negative
cash flows from operations since inception. Through December 31, 2024, the Company has raised $167.8 million through its issuance of common
stock and $20.1 million through its issuance of convertible promissory notes and other debt for a total of $187.9 million. The Company
has no lines of credit or short-term debt obligations outstanding. We expect to incur additional losses and higher operating expenses
for the foreseeable future as we continue to invest in research and development and go-to-market programs. As of December 31, 2024, the
Company had cash and cash equivalents of $78.9 million.
Our primary uses of cash are to fund and invest
in our operations as we continue to grow our business. We will require a significant amount of cash for continued investment in our Foundry
Services offering, including but not limited to our AZ Chips Facility and any future-identified space for expansion, as well as ongoing
research and development for our non-linear quantum optical products and photonics chips. Until such time as we can generate significant
revenue from sales or subscriptions of our hardware offerings, we expect to finance our operating and investing needs through our cash
and cash equivalents and, equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and
loan programs. We may, however, be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms,
or at all. In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary
pressures, rising interest rates, bank failures, and financial and credit market fluctuations, could reduce our ability to access capital
on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, or substantially reduce our product development and go-to-market efforts. There can be no
assurances that the Company will be able to secure additional equity and/or debt investments or achieve an adequate sales level. We believe,
however, that the Company’s existing cash and cash equivalents, together with any cash generated from operations and the proceeds
from any additional equity or debt issuances will be sufficient to meet the Company’s liquidity needs for at least the next 12 months.
32
The following table summarizes total current assets,
liabilities and working capital at December 31, 2024, compared to December 31, 2023 (in thousands):
At December 31, 2024, we had working capital of
$74.6 million as compared to working capital deficit of $2.2 million at December 31, 2023, an increase of $76.8 million. The increase
in working capital is primarily attributable to an increase in cash from the net proceeds of our sales of 16 million shares of common
stock for an aggregate of $40 million in November 2024 and 10 million shares of common stock for an aggregate of $50 million in December
2024, and our issuance of 23.7 million shares of common stock for an aggregate of $23.8 million through the Company’s ATM, as defined
below, managed by Ascendiant Capital Markets, LLC during 2024, offset by the use of cash to pay for operating expenses and capital investments
in property and equipment. For more information on the November and December issuances, please see Note 10, Capital Stock, in the
accompanying notes to our consolidated financial statements appearing elsewhere in this report.
Cash Flows
The following table summarizes our cash flow for
the years ended December 31, 2024 and 2023 (in thousands):
Year Ended December 31,
Net cash used in operating activities $ (16,213 ) $ (18,315 )
Net cash used in investing activities (6,036 ) (2,612 )
Net cash provided by financing activities 99,135 17,678
Net increase (decrease) in cash and cash equivalents $ 76,886 $ (3,249 )
Net cash used in operating activities for the
years ended December 31, 2024 and 2023 was $16.2 million and $18.3 million, respectively, in each case primarily as a result of our net
loss in each period offset by noncash adjustments for stock-based compensation, mark-to-market valuation adjustments on financial liabilities,
and depreciation and amortization.
Net cash used in investing activities for the
years ended December 31, 2024 and 2023 was $6.0 million and $2.6 million, respectively, and was attributable to our purchase of TFLN Optical
Chips manufacturing equipment for our AZ Chips Facility, as well as computer hardware and laboratory equipment. The increase in 2024 is
primarily due to the purchase of additional equipment in connection with establishing the AZ Chip Facility.
33
Net cash provided by financing activities for
the years ended December 31, 2024 and 2023 was $99.1 million and $17.7 million, respectively. Cash flows provided by financing activities
during year ended December 31, 2024 were attributable to proceeds from our stock issuances in November and December 2024, and the proceeds
from our sale of shares of common stock pursuant to the ATM facility and our issuance of the Streeterville Convertible Note, partially
offset by repayments on the Streeterville Unsecured Note, as defined below, and the Streeterville Convertible Note as well as redemptions
of shares of Series A Preferred Stock.
On a long-term basis, our liquidity is dependent
on continuation and expansion of operations and receipt of revenues. Demand for the Company’s products and services will be dependent
on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions,
which are cyclical in nature. As much revenues will be derived from the sales of our products and services, our business operations may
be adversely affected by the products and services offered by our competitors and any prolonged recession periods.
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 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 consolidated financial statements.
Fair Value of Stock-based Compensation
We recognize stock-based compensation expense
for all share-based payment awards in accordance with ASC 718, Compensation – Stock Compensation. Stock-based compensation
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 Warrant Liabilities and Derivatives
Determining the fair market value of the QPhoton Warrants, which were
included in the merger consideration paid to the stockholders of QPhoton (the “QPhoton Merger Consideration”), is a critical
accounting estimate. The QPhoton Warrants are comprised of warrants to purchase up to 7,028,337 shares of the Company’s common stock
at an exercise price of $0.0001 per share (the “QPhoton Warrants”) and are exercisable when and if stock options and warrants
issued by the Company and outstanding as of June 15, 2022 are exercised. The Merger Consideration for shareholders Yuping Huang and The
Trustees of the Stevens Institute of Technology was issued in 2022. A third alleged shareholder, BV Advisory, rejected the Merger Consideration
and commenced litigation in Delaware Chancery Court (see Note 8, Contingencies – Legal Proceedings, in this Form 10-K for
additional information and Item 3, Legal Proceedings, in this Form 10-K for a full discussion), and to date that litigation has
not been resolved. Accordingly, as of December 31, 2024 and 2023, we had only issued 6,325,503 of the QPhoton Warrants. In determining
the fair market value of the QPhoton Warrants, the Company determines which underlying options and warrants are in-the-money or out-of-the-money
at period end by comparing to the bid price of the Company’s common stock, then accounts for changes period-over-period by realizing
a mark-to-market gain or loss for the period.
An additional critical accounting estimates involves
determining the fair value of the conversion features ingerent in the Streeterville Convertible Note (the “Streeterville Derivative
Liability”), which involves inherent uncertainties and the application of management judgement. The Streeterville Derivative Liability
will be mark-to-market adjusted on a quarterly basis and accreted as interest expense while the Streeterville Convertible Note is outstanding.
34
Fair Market Value and Useful Life of Intangible
Assets
Determining the fair market value and useful life
of the intangible assets acquired by the Company through the QPhoton Merger is another critical accounting estimate. In the absence of
market pricing for the intangible assets, the Company relied on independent third-party appraisal experts and comparison with similar
transactions to arrive at estimates of value as well as useful life. The Company will perform periodic assessments of the intangible assets
for impairment, but if any of the initial estimates are incorrect, that could result in a calculation of amortization expense that is
too high or too low.
Valuation Allowances for Deferred Taxes
Our income tax expense, deferred tax assets and
liabilities, and reserves for unrecognized tax benefits reflect management’s assessment of estimated current and future income taxes
to be paid. We are subject to income taxes in the United States. Significant judgments and estimates are required in determining the consolidated
income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits.
Deferred tax assets and liabilities arise from
temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements,
which are expected to result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets
within the jurisdiction from which they arise, for all material jurisdictions, we consider all available positive and negative evidence,
including scheduled reversals of deferred tax balances, projected future taxable income, tax-planning strategies and results of recent
operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future
state, federal and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future
taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying businesses.
In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating results.
As of December 31, 2024,
we had federal and state net operating loss (“NOL”) carryforwards of approximately $89.4 million, or $19.6 million on a tax-effected
basis. We believe that it is more likely than not that the benefit from these NOL carryforwards will not be realized. Accordingly, we
have provided a full valuation allowance on any potential deferred tax assets relating to these NOL carryforwards. If our assumptions
change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on
deferred tax assets as of December 31, 2024, will be accounted for as a reduction of income tax expense.
The calculation of our
tax liabilities involves evaluating uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions
across our global operations. ASC 740, Income Taxes, states that a tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be sustained upon examination, including the resolution of any related appeals
or litigation processes, on the basis of the technical merits.
We record unrecognized tax benefits as liabilities
in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not
previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a tax payment that
is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as
increases or decreases to income tax expense in the period in which new information is made available.
We believe that none of the unrecognized tax benefits
may be recognized by the end of 2024.
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.
35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Our consolidated financial statements are contained
in pages F-1 through F-29 which appear at the end of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,”
as such term is defined in Rule 13a-15(e) under the Exchange Act. In designing and evaluating our disclosure controls and procedures,
our management recognized that disclosure controls and procedures, no matter how well designed 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 was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible
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 Annual
Report on Form 10-K, 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 December 31, 2024, our disclosure controls and procedures
were not effective to provide reasonable assurance that (i) 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 (ii) 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 disclosures.
Report of Management on Internal Control over
Financial Reporting
Company management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial
reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected
by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Material Weakness in Internal Control over
Financial Reporting
Company management has assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework
(2013).
36
Based on this assessment, management has determined
that the Company’s internal control over financial reporting was not effective.
A material weakness,
as defined by the Public Company Accounting Oversight Board, is a deficiency, or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis.
The ineffectiveness of
the Company’s internal control over financial reporting was due to the following material weaknesses which are common to many small
companies with limited staff:
(i) inadequate segregation of duties consistent with control objectives;
(ii) inadequate controls related to revenue recognition;
Management’s Plan to Remediate the
Material Weakness
The Company has been
implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses
are remediated, such that these controls are designed, implemented, and operating effectively. In addition to identifying and remediating
design deficiencies in its processes, the Company has formally documented its procedures for many of the significant accounting and financial
reporting processes, including implementation of procedures for revenue recognition and segregation of duties. The other remediation actions
planned include:
We are committed to maintaining
a strong internal control environment and believe that these remediation efforts will represent significant improvements in our control
environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our
internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing
additional enhancements or improvements, as necessary and as funds allow.
Management’s report
on internal control over financial reporting was not subject to attestation by the Company’s registered public accounting firm pursuant
to rules of the SEC that permit a Smaller Reporting Company to provide only Management’s report in this annual report, which may
increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.
Changes in Internal
Control over Financial Reporting
As discussed above, we
are implementing certain measures to remediate the material weaknesses identified in the design and operation of our internal control
over financial reporting. Other than those measures, there have been no changes in our internal control over financial reporting (as defined
in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2024 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
Rule 10b5-1 Trading
Plans
During the three months
ended December 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified
the amount, pricing or timing provisions of a “Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K,
or a “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(c) of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS.
Not applicable.
37
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.
Directors and Executive Officers
The following table contains information with
respect to our directors and executive officers. To the best of our knowledge, none of our directors or executive officers have an arrangement
or understanding with any other person pursuant to which he or she was selected as a director or officer. There are no family relationships
between any of our directors or executive officers. Directors serve one-year terms. Our executive officers are appointed by and serve
at the pleasure of the Board.
Name Current Age Position
Dr. Yuping Huang 45 Chairman of the Board and Chief Quantum Officer
Robert Fagenson 76 Vice Chairman of the Board
Michael Turmelle 65 Director
Dr. Carl Weimer 63 Director
Dr. Javad Shabani 43 Director
Dr. McGann has served as the Company’s
CEO and President since February 1, 2024. Prior to that, he had served as the Company’s Chief Technology Officer and Chief
Operations Officer since January 2022 and as a Director of the Company from September 2021 to December 2021. Prior to
joining Quantum Computing, Dr. McGann was the Chief Technology Officer for the Security, Detection and Automation business at Leidos
Holdings, Inc., a provider of technical services, primarily to the U.S. government, from May 2019 to January 2022. Dr. McGann
has a strong, directed passion for transforming credible science into practical technology solutions in solving some of the world’s
greatest challenges. Prior to joining Leidos, Dr. McGann held numerous business and technology leadership positions and roles including
(a) Founder of the first explosives trace detection company, Ion Track Instruments, (b) Chief Technology Officer for GE Security,
(c) VP of Engineering for United Technologies Fire and Security business, (d) CEO and board member of Implant Sciences Corp.,
and (e) Chief Technology Officer at L3Harris Aviation Security and Detection business. Dr. McGann holds a Ph.D. in Chemical
Physics from the University of Connecticut and undergraduate degrees in Chemistry and Biology.
Mr. Boehmler has served as the Company’s
Chief Financial Officer since July 1, 2023. Mr. Boehmler joined Quantum Computing Inc. as Controller in March 2022. He
worked as an independent consultant from June 2018 until March 2022, serving both private and non-profit organizations.
Previous to June 2018, his corporate finance experience includes 12 years in senior management positions for private and public
technology-driven and financial institutions, primarily at Bridgewater Associates, LP and Intelsat. During this time, he also led
the finance functions for two start-ups where he was instrumental in raising private equity and performing due diligence on acquisition
targets. His financial expertise spans capital markets, planning & analysis, accounting operations, management and regulatory
reporting, financial systems integrations, and financial risks and controls. He started his career working in the investment
banking division of Credit Suisse First Boston, followed by strategic management consulting for Booz Allen Hamilton. Mr. Boehmler
has an undergraduate degree in Economics with a minor in Germanic Studies from the University of Chicago.
38
Dr. Huang has served as the Company’s
Chairman of the Board since December 10, 2024 and as Chief Quantum Officer and a Director since June 14, 2022. Dr. Huang
has over 20 years of experience in commercial and academic settings, with pioneering research in a wide spectrum of quantum physics,
optics, and technology. Prior to joining the Company, Dr. Yuping founded QPhoton, Inc., where he served as Chairman of the Board
and Chief Executive Officer from 2020 until its acquisition by the Company in 2022. QPhoton was a development stage company commercializing
quantum photonic technology and devices to provide innovative and practical quantum solutions for critical challenges facing big data,
cyber, remote sensing, and healthcare industries. Dr. Huang worked as a postdoctoral fellow, a research faculty member, and principal
investigator at Northwestern University from 2009-2014. Dr. Huang has been a Professor of Physics at the Stevens Institute of
Technology, a private research technological university in Hoboken, New Jersey, since 2014 (from 2014 to 2019 as assistant professor,
from 2019-2023 as associate professor and as a full professor since 2023). Dr. Huang is the founding director of the Center
for Quantum Science and Engineering and Gallagher Associate Professor of Physics at the Stevens Institute of Technology. He received a
Bachelor of Science in modern physics from the University of Science and Technology of China in 2004 and a PhD in quantum AMO physics
in 2009 from Michigan State University. Dr. Huang’s expertise in quantum physics and optics and leadership experience in quantum
research qualifies him to serve as a member of the Board.
Mr. Fagenson has served as a Director
of the Company since March 2021 and as Vice Chairman since December 10, 2024. Mr. Fagenson has served as a member of the board
of directors of National Holdings Corporation (“NHC”), a broker-dealer, since March 2012. He has served as Vice Chairman
of the board of directors of NHC since September 2016. Mr. Fagenson previously served as Co-Chief Executive Officer of
NHC from January 3, 2017 to January 31, 2017, as Chief Executive Officer and Chairman of the board of directors of NHC from
December 2014 to September 2016, and as Executive Vice Chairman of the board of directors of NHC from July 2012 to
December 2014. NHC was acquired by B. Riley Financial in February 2024. Mr. Fagenson has been a branch owner at National
Securities Corp, an operating company of NHC, since 2012, and president of Fagenson & Co., Inc., a family investment company,
since 1982. Mr. Fagenson spent the majority of his career at the New York Stock Exchange (“NYSE”), where he was
managing partner of one of the exchange’s largest specialist firms. While at the NYSE, Mr. Fagenson served as a governor on
the trading floor and was elected to the NYSE board of directors in 1993, where he served for six years, eventually becoming vice
chairman of the NYSE board of directors from 1998 to 1999 and 2003 to 2004. Mr. Fagenson has served as director of the New York
City Police Museum since 2005 and as director of the Federal Law Enforcement Officers Association Foundation since 2009. He has also served
on the board of directors of Sigma Alpha Mu Foundation since 2011 and on the board of directors of New York Edge since 2015. In addition,
Mr. Fagenson served as the non-executive chairman of Document Security Systems, Inc. from 2012 to 2018 (NYSEMKT: DSS).
He is currently a member of the alumni boards of the Whitman School of Business at Syracuse University. Mr. Fagenson received his
B.S. in Transportation Sciences & Finance from Syracuse University in 1970. Mr. Fagenson’s experience in the financial
services industry and in senior leadership positions qualifies him to serve as a member of the board and as chairman of the compensation
committee.
Mr. Turmelle has served as a Director
of the Company since January 2022. Mr. Turmelle has served on the board of directors of Ideal Power Inc. since December 2017
and as chairman of the Ideal Power board since 2021. From January 2018 through January 2024, Mr. Turmelle served as the
Managing Director of Hayward Tyler, a United Kingdom private equity-backed manufacturer and service provider of pumps and motors,
which he joined in February 2015. Mr. Turmelle also served on the boards of Hayward Tyler and Energy Steel (a Hayward Tyler
subsidiary) from 2017 until January 2024. Hayward Tyler designs, manufactures, and services performance-critical electric motors
and pumps to meet the most demanding of applications for the global energy industry, as both an original equipment manufacturer supplier
and trusted partner. Previously, Mr. Turmelle ran his own consulting company, working with start-ups and turn-arounds in
the areas of renewable energy, medical, and other advanced technologies. Mr. Turmelle has served on numerous Boards of Directors
including the Board of Directors of Implant Sciences Corp., an explosive and narcotic trace detection company, where he served as Chairman
of the Board from 2015 to 2017. Mr. Turmelle was Chief Financial Officer and Chief Operating Officer and a member of the Board
of Directors of SatCon Technology Corporation, a maker of energy management systems, from 1992 to 2005. Mr. Turmelle was also
on the Board of Directors of Beacon Power, a SatCon spin-off company dealing in flywheel energy storage, from 1996 to 2000. Mr. Turmelle
has a BA in Economics from Amherst College and is a graduate of General Electric’s Financial Management Program. Mr. Turmelle’s
experience as a public company director and executive as well as extensive experience in finance, business operations and technology,
qualifies him to serve as a member of the Board and as chairman of the audit committee.
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Dr. Weimer has served as a director
of the Company since January 14, 2023. Dr. Weimer has over 25 years of experience in the aerospace industry. He has previously
been involved in two companies in the aerospace industry, holding positions including Director of Research, Principal Investigator, Chief
Systems Engineer, and Chief Technologist. From 1994 through 2000, Dr. Weimer was a Director Research for Ophir Corporation, an aerospace
optics company. From 2000 to 2025 he was Technical Leader for Ball Aerospace & Technologies Corp. (now BAE Systems SMS)
developing advanced high-reliability instrumentation, and in 2008 he was awarded a NASA Distinguished Public Service Medal for space-based
lidar technologies. Since 2014 he’s been the Chief Technologist for the Civil Business Unit Leading a team performing R&D for
future space missions. In addition, Dr. Weimer has been a Principal Investigator for the NASA Earth Science Technology Office since
2008, and he holds seven U.S. patents in optical systems. Dr. Weimer received a Bachelor of Science degree from Harvey Mudd
College (1984) and a Master of Science (1987) and a PhD (1992) from Colorado State University, all in experimental Physics.
He did his graduate and postdoctoral research in the Ion Storage Group at NIST Boulder and a second postdoc in the Optical Standards Group.
Dr. Weimer’s expertise in advanced optics and leadership experience in the aerospace industry qualifies him to serve as a member
of the Board.
Dr. Shabani has served as a director
of the Company since April 19, 2024. Dr. Shabani has over 13 years of experience in advanced physics and quantum information
physics. Dr. Shabani has been a professor in the New York University Physics Department and director of the NYU Center for Quantum
Information Physics since 2024. From 2022 to 2024, he was an Associate Professor at the NYU Physics Department. From 2017 to 2022, he
was an Assistant Professor at the NYU Physics Department. From 2015 to 2017, Dr. Shabani was an Assistant Professor at the City College
of New York Physics Department. From 2014 to 2015, he was a Project Scientist in the California Nanosystems Institute at the University
of California Santa Barbara. He was a Postdoctoral Fellow at the Harvard University Physics Department from 2011 to 2012 and the California
Nanosystems Institute at the University of California Santa Barbara from 2012 to 2014. He was awarded the IBM Q Scholar Award in 2021,
and the US Air Force Young Investigator Program Award and the US Army Young Investigator Award in 2016. Dr. Shabani holds four patents
in quantum physics applications and has published over 85 papers. Dr. Shabani received Bachelor of Science degrees in physics and
electrical engineering from Sharif University of Technology (2004) a Master of Science in Electrical Engineering from the University
of California, Santa Cruz (2005), a Master of Arts in Electrical Engineering from Princeton University (2007) and a PhD in Electrical
Engineering from Princeton University (2011). Dr. Shabani’s scholarship and experience in physics and electrical engineering
qualifies him to serve on the Board to help lead the Company towards continued growth and success.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the
Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section
12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive
officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of
all reports filed by them in compliance with Section 16(a).
Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to the Company during the fiscal year ended December 31, 2023, including those reports that we have filed
on behalf of our directors and Section 16 officers, no director, Section 16 officer, beneficial owner of more than 10% of the outstanding
common stock, or any other person subject to Section 16 of the Exchange Act, failed to file with the SEC on a timely basis during the
fiscal year ended December 31, 2023, except (i) as previously disclosed by the Company, (ii) Robert Liscouski filed a Form 4 on July 7,
2023, which was delinquent, in connection with his sale of common stock, the earliest of which occurred on November 25, 2022.
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Code of Ethics
The Company currently maintains a code of ethics
that applies to all directors, officers, and employees. A copy of our code of ethics can be found on our website at www.quantumcomputinginc.com.
We expect that any amendments to such code, or any waivers of its requirements, will be disclosed on our website.
Insider Trading Policy
The Company has adopted an insider trading policy
that governs the purchase, sale and other dispositions of our securities that applies to our officers and directors, as
well as our employees that have regular access to material, nonpublic information about the Company in the normal course of their duties.
We believe that our insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations,
and listing standards applicable to us. A copy of our insider trading policy is filed as Exhibit 19.1 to this Form 10-K.
Board Composition and Director Independence
The Board is authorized to have up to seven members
and currently consists of five members. The nominees elected as directors at the Annual Meeting will serve until our next annual meeting
and until their successors are duly elected and qualified. Nasdaq Listing Rule 5605(a)(2) requires a majority of a listed company’s
board of directors be composed of independent directors. In addition, Nasdaq Listing Rules require that, subject to specified exceptions,
each member of a listed company’s audit, compensation, and nominating committees be independent, and that compensation and audit
committee members also satisfy additional independence criteria under the Exchange Act. Compensation committee members also should qualify
as “non-employee directors” under Rule 16b-3 of the Exchange Act.
In making the determination of whether a member
of the board is independent, the Board considers, among other things, transactions and relationships between each director and his immediate
family and the Company, including those reported under the caption “Certain Relationships and Related-Party Transactions.”
The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with
a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions,
the Board affirmatively determined that Robert Fagenson, Michael Turmelle, Carl Weimer and Javad Shabani are qualified as independent
and that they have no material relationship with us that might interfere with his exercise of independent judgment.
Board Committees; Audit Committee Financial
Expert; Stockholder Nominations
The Board has established an audit committee,
a compensation committee and a nominating and corporate governance committee. Each such committee has its own charter, which is available
on our website at www.quantumcomputing.com. Each of such Board committees has the composition and responsibilities described below.
The following table identifies the committee members:
Name Audit Compensation Nominating and Corporate Governance Independent
Robert Fagenson X Chairman X X
Michael Turmelle Chairman X X X
Javad Shabani X X X
Carl Weimer X Chairman X
Yuping Huang
The Board has determined that Michael Turmelle
is an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of SEC Regulation S-K.
Members will serve on these committees until their
resignation or until otherwise determined by the Board.
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Involvement in Certain Legal Proceedings.
Our Chief Executive Officer, Dr. McGann, was the
Chief Executive Officer of Implant Sciences Corporation, when it filed a petition for bankruptcy on October 11, 2016 in the Delaware Bankruptcy
Court.
With the exception of the foregoing, to the best
of our knowledge, none of our directors or executive officers has, during the past ten years:
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ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table sets
forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2024
and 2023.
2024 EXECUTIVE OFFICER COMPENSATION TABLE
Employment Agreements and Change-in-Control
Provisions
Executive Employment Agreements
Dr. McGann Employment Agreement
We entered into an employment agreement with Dr. William
J. McGann, our Chief Executive Officer and President, on January 3, 2022, as amended on February 1, 2024 and December 30, 2024.
Dr. McGann’s employment agreement, as amended, is for a term ending on December 31, 2025. Dr. McGann’s employment
agreement, as amended, provides for an annual base salary of $420,000, subject to annual review and adjustment as determined by the Board
or its compensation committee. Dr. McGann is also eligible to earn an annual cash bonus in an amount of up to 37.5% of his base salary,
subject to achieving certain performance milestones established and approved by the Board, with a minimum annual cash bonus of 5%. Pursuant
to the agreement, on January 3, 2022, Dr. McGann was granted options to purchase up to 535,000 shares of our common stock, with
one-third of the options vesting immediately upon grant and one-third vesting upon each of the first and second anniversary
of the date of grant.
Pursuant to the terms of his employment agreement,
the Company may terminate Dr. McGann’s employment with or without Cause, as defined in the agreement, and Dr. McGann may
terminate his employment with or without Good Reason, as defined in the agreement, upon written notice to the Company as set forth in
the agreement. Upon termination of Dr. McGann’s employment by the Company without Cause or by Dr. McGann for Good Reason,
the Company shall continue to pay Dr. McGann his then current monthly base salary for 12 months from the date of termination.
The Company must also continue Dr. McGann’s coverage under and its contributions to his health care, dental, and life insurance
benefits for six months, unless he is or becomes covered by an equivalent benefit, and pay him a pro rata portion of any bonus he
has earned prior to his termination. In addition, if the Company terminates Dr. McGann’s employment without Cause or he terminates
his employment for Good Reason within 12 months after a Change of Control, as define in the agreement, or an acquisition, then the
Company must pay to Dr. McGann an additional sum equal to 12 months of his base salary.
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As a full-time employee of the Company, Dr. McGann
is eligible to participate in all of the Company’s bonus and benefit programs.
Mr. Boehmler Employment Agreement
We entered into an employment agreement with Mr.
Christopher Boehmler, our Chief Financial Officer, dated as of June 26, 2023, pursuant to which Mr. Boehmler serves as our Chief
Financial Officer. The agreement provides for an indefinite term, that Mr. Boehmler’s employment is at-will, and that either the
Company or Mr. Boehmler can terminate his employment for any reason. Mr. Boehmler’s employment agreement provides for an annual
base salary of $300,000 per year, subject to annual review and adjustment as determined by the Board or its compensation committee. Under
his employment agreement, Mr. Boehmler is also eligible for an annual incentive bonus in the amount of up to 50% of his base salary, subject
to Mr. Boehmler achieving certain performance milestones established by the Board or its compensation committee, and, subject to
Board approval, an annual grant of options to purchase 125,000 shares of our common stock at an exercise price equal to 110% of the grant
date fair market value, one-third of which shall vest on the grant date and the remainder becoming exercisable in equal monthly installments
over the following three years. Pursuant to the agreement, Mr. Boehmler was issued options to purchase 300,000 shares of the Company’s
common stock in 2023, 100,000 of which vested on the grant date and 100,000 of which shall vest on each of the 12- and 24-month anniversary
of the grant date.
If the Company terminates Mr. Boehmler’s
employment without Cause, as defined in the agreement, or Mr. Boehmler terminates his employment for Good Reason, as defined in the agreement,
with 90 days prior notice to the Company and subject to his execution of a release in favor of the Company, the Company shall pay Mr.
Boehmler an amount equal to his then current monthly base salary for 12 months from the date of termination. The Company must also, subject
to his timely election of continuation coverage under COBRA, continue payment or reimbursement of 100% of Mr. Boehmler’s premiums
for such health insurance coverage for six months following his termination or until he becomes covered by an equivalent benefit, and
pay him a pro rata portion of any bonus he has earned prior to his termination. In addition, if the Company terminates Mr. Boehmler’s
employment without Cause or he terminates his employment for Good Reason within 12 months after a Change of Control, as define in the
agreement, then the Company must pay to Mr. Boehmler an additional sum equal to 12 months of his base salary.
As a full-time employee of the Company, Mr. Boehmler
is eligible to participate in all of the Company’s benefit programs.
Mr. Liscouski Employment Agreement
The Company and Mr. Robert Liscouski were parties
to an amended and restated employment agreement dated as of April 26, 2021, pursuant to which Mr. Liscouski served as our Chief Executive
Officer during the fiscal years ended December 31, 2022 and 2023 (the “Liscouski Employment Agreement”). The Liscouski Employment
Agreement provided for an initial term of three years and would be automatically renewed for consecutive one-year terms at the end of
the initial term unless terminated or either party provided notice of non-renewal to the other. The agreement provided that Mr. Liscouski
would receive an annual base salary of $400,000, subject to review and increases (but not decreases) by the Board or its compensation
committee and be eligible to earn a performance bonus of up to 50% of his base salary subject to his achieving certain performance milestones
established by the Board. The agreement also provided that, beginning on the first anniversary thereof, Mr. Liscouski would receive an
annual grant of options to purchase 150,000 shares of our common stock at an exercise price equal to 110% of the grant date fair market
value, with one-third vesting on the date of grant and the remainder vesting in equal monthly installments thereafter. Pursuant to the
Liscouski Employment Agreement, Mr. Liscouski also received (i) options to purchase 250,000 shares of common stock of the Company upon
execution of the agreement and (ii) 250,000 options to purchase shares of common stock of the Company upon the Company’s listing
on Nasdaq.
In connection with the termination of Mr. Liscouski