UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 001-40615

 

QUANTUM COMPUTING INC.

(Exact name of registrant as specified in its charter)

 

Delaware   82-4533053
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)

 

5 Marine View Plaza, Suite 214, Hoboken, NJ   07030
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (703) 436-2121

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $.0001   QUBT   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  ☐ Accelerated filer  ☐
Non-accelerated filer  ☒ Smaller reporting company  ☒
    Emerging growth company  ☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ☐ No ☒

 

As of November 4, 2024, there were 99,086,476 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

QUANTUM COMPUTING INC.

 

TABLE OF CONTENTS

 

    Page No.
PART I.  FINANCIAL INFORMATION F-1
   
Item 1. Financial Statements (Unaudited) F-1
  Condensed Consolidated Balance Sheets F-1
  Condensed Consolidated Statements of Operations F-2
  Condensed Consolidated Statements of Mezzanine and Stockholders’ Equity F-3
  Condensed Consolidated Statements of Cash Flows F-5
  Notes to the Unaudited Condensed Consolidated Financial Statements F-6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Item 4. Controls and Procedures 9
     
PART II.  OTHER INFORMATION 10
     
Item 1. Legal Proceedings 10
Item 1A. Risk Factors 11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Mine Safety Disclosures 11
Item 5. Other Information 11
Item 6. Exhibits 12

 

i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements 

 

QUANTUM COMPUTING INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except par value data)

 

   September 30,   December 31, 
   2024   2023 
Assets        
Current assets:        
Cash and cash equivalents  $3,064   $2,059 
Accounts receivable, net   63    65 
Inventory   241    73 
Loans receivable, net   306    279 
Prepaid expenses and other current assets   238    180 
Total current assets   3,912    2,656 
Property and equipment, net   5,826    2,870 
Operating lease right-of-use assets   1,622    1,051 
Intangible assets, net   9,748    12,076 
Goodwill   55,573    55,573 
Other non-current assets   129    129 
Total assets  $76,810   $74,355 
           
Liabilities, Mezzanine, and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $923   $1,462 
Accrued expenses   539    639 
Financial liabilities, net of issuance costs   
-
    1,925 
Deferred revenue   48    
-
 
Other current liabilities   921    786 
Total current liabilities   2,431    4,812 
Financial liabilities, net of issuance costs   6,514    
-
 
Derivative liability   666    
-
 
Operating lease liabilities   1,297    840 
Total liabilities   10,908    5,652 
Contingencies (see Note 10)   
 
    
 
 
Mezzanine equity   5,463    
-
 
Stockholders’ equity:          
Preferred stock, $0.0001 par value, 1,550 shares Series A Preferred authorized; 993 thousand and 1,490 thousand shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively; 3,080 thousand shares of Series B Preferred Stock authorized; no shares issued and outstanding as of September 30, 2024 and December 31, 2023   
-
    
-
 
Common stock, $0.0001 par value, 250,000 thousand shares authorized; 94,416 thousand and 77,451 thousand shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively   9    8 
Additional paid-in capital   209,675    200,635 
Accumulated deficit   (149,245)   (131,940)
Total stockholders’ equity   60,439    68,703 
Total liabilities and mezzanine and stockholders’ equity  $76,810   $74,355 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-1

 

 

QUANTUM COMPUTING INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2024   2023   2024   2023 
       (Restated)(1)       (Restated)(1) 
Total revenue  $101   $50   $311   $283 
Cost of revenue   92    24    233    131 
Gross profit   9    26    78    152 
Operating expenses                    
Research and development   2,244    2,328    6,560    6,977 
Sales and marketing   363    584    1,243    1,397 
General and administrative   2,840    3,725    9,298    11,442 
Total operating expenses   5,447    6,637    17,101    19,816 
Loss from operations   (5,438)   (6,611)   (17,023)   (19,664)
Non-operating income (expense)                    
Interest and other income   70    126    180    219 
Interest expense, net   (307)   (369)   (462)   (1,334)
Change in value of warrant liabilities   
-
    13    
-
    384 
Loss before income tax provision   (5,675)   (6,841)   (17,305)   (20,395)
Income tax provision   
-
    
-
    
-
    
-
 
Net loss   (5,675)   (6,841)   (17,305)   (20,395)
                     
Less: Series A convertible preferred stock dividends   
-
    (215)   
-
    (646)
Net loss attributable to common stockholders  $(5,675)  $(7,056)  $(17,305)  $(21,041)
                     
Loss per share – basic and diluted  $(0.06)  $(0.10)  $(0.19)  $(0.33)
Weighted average shares used in computing net loss per common share – basic and dilutive   93,048    71,588    89,063    64,246 

 

(1) As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2023.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-2

 

 

QUANTUM COMPUTING INC.

Condensed Consolidated Statements of Mezzanine and Stockholders’ Equity

(Unaudited, in thousands)

 

   Three Months Ended September 30, 2024 
   Mezzanine   Series A
Preferred
Stock		   Common Stock   Additional
Paid-in		   Accumulated   Total
Stockholders’		 
   Equity   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balances, July 1, 2024  $6,829    1,241   $
     -
    94,416   $      9   $209,086   $(143,570)  $65,525 
Issuance of shares for cash   
-
    -    
-
    -    
-
    
-
    
-
    
-
 
Repurchase of redeemable shares   (1,366)   (248)   
-
    -    
-
    
-
    
-
    
-
 
Stock-based compensation   
-
    -    
-
    -    
-
    587    
-
    587 
Stock-based compensation for services   
-
    -    
-
    -    
-
    2    
-
    2 
Net loss   
-
    -    
-
    -    
-
    
-
    (5,675)   (5,675)
Balances, September 30, 2024  $5,463    993   $
-
    94,416   $9   $209,675   $(149,245)  $60,439 

 

   Nine Months Ended September 30, 2024 
   Mezzanine   Series A
Preferred
Stock		   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Equity   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balances, January 1, 2024  $
-
    1,490   $
      -
    77,451   $      8   $200,635   $(131,940)  $68,703 
Issuance of shares for cash   
-
    -    
-
    16,605    1    14,628    
-
    14,629 
Reclassification of Series A preferred stock to mezzanine equity   8,195    -    
-
    -    
-
    (8,195)   
-
    (8,195)
Repurchase of redeemable shares   (2,732)   (497)   
-
    -    
-
    
-
    
-
    
-
 
Stock-based compensation   
-
    -    
-
    218    
-
    2,473    
-
    2,473 
Stock-based compensation for services   
-
    -    
-
    142    
-
    134    
-
    134 
Net loss   
-
    -    
-
    -    
-
    
-
    (17,305)   (17,305)
Balances, September 30, 2024  $5,463    993   $
-
    94,416   $9   $209,675   $(149,245)  $60,439 

 

F-3

 

 

QUANTUM COMPUTING INC.

Condensed Consolidated Statements of Mezzanine and Stockholders’ Equity

(Unaudited, in thousands)

 

   Three Months Ended September 30, 2023 
   Series A
Preferred Stock		   Common Stock   Additional
Paid-in		   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balances, July 1, 2023 (Restated) (1)   1,490   $
     -
    67,215   $    7   $187,751   $(118,042)  $69,716 
Issuance of shares for cash   -    
-
    6,380    1    8,536    
-
    8,537 
Conversion of preferred stock   -    
-
    -    
-
    
-
    
-
    
-
 
Preferred stock dividends   -    
-
    -    
-
    
-
    (215)   (215)
Stock-based compensation   -    
-
    1,500    
-
    984    
-
    984 
Stock-based compensation for services   -    
-
    -    
-
    (22)   
-
    (22)
Net loss   -    
-
    -    
-
    
-
    (6,841)   (6,841)
Balances, September 30, 2023 (Restated) (1)   1,490   $
-
    75,095   $8   $197,249   $(125,098)  $72,159 

 

   Nine Months Ended September 30, 2023 
   Series A
Preferred Stock		   Common Stock   Additional
Paid-in		   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balances, January 1, 2023 (Restated) (1)   1,500   $
       -
    55,963   $    6   $169,175   $(104,057)  $65,124 
Issuance of shares for cash   -    
-
    15,291    2    22,762    
-
    22,764 
Conversion of preferred stock   (10)   
-
    11    
-
    1    
-
    1 
Preferred stock dividends   -    
-
    -    
-
    
-
    (646)   (646)
Stock-based compensation   -    
-
    2,330    
-
    2,904    
-
    2,904 
Stock-based compensation for services   -    
-
    1,500    
-
    2,407    
-
    2,407 
Net loss   -    
-
    -    
-
    
-
    (20,395)   (20,395)
Balances, September 30, 2023 (Restated) (1)   1,490   $
-
    75,095   $8   $197,249   $(125,098)  $72,159 

 

(1) As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-4

 

 

QUANTUM COMPUTING INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

   Nine Months Ended 
   September 30, 
   2024   2023 
       (Restated)(1) 
Cash flows from operating activities:        
Net loss  $(17,305)  $(20,395)
Adjustments to reconcile net loss to net cash used in operations          
Depreciation and intangibles amortization   2,542    2,509 
Amortization of issuance costs   323    730 
Change in fair value of warrant liability   
-
    (384)
Other recognized losses (gains)   31    
-
 
Stock-based compensation expense   2,680    3,110 
Stock-based compensation expense for services   21    282 
Changes in operating assets and liabilities          
Accounts receivable   2    11 
Inventories   (168)   
-
 
Prepaid expenses and other current assets   (115)   (110)
Other non-current assets   (571)   89 
Accounts payable   (539)   259 
Deferred revenue   48    12 
Accrued expenses and other current liabilities   155    939 
Other long-term liabilities   457    (400)
Net cash used in operating activities   (12,439)   (13,348)
           
Cash flows from investing activities:          
Purchase of property and equipment   (3,170)   (2,165)
Loans receivable   
-
    (500)
Net cash used in investing activities   (3,170)   (2,665)
           
Cash flows from financing activities:          
Proceeds raised from financial liabilities, net of issuance costs   6,995    
-
 
Payments of financial liabilities, net of interest   (2,063)   (4,030)
Series A Preferred stock dividend payments   (215)   (650)
Repurchase of Series A preferred stock   (2,732)   
-
 
Proceeds from stock issuance related to ATM facility   14,629    22,764 
Net cash provided by financing activities   16,614    18,084 
           
Net increase in cash   1,005    2,071 
Cash and cash equivalents, beginning of period   2,059    5,308 
Cash and cash equivalents, end of period  $3,064   $7,379 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $31   $720 
Non-cash investing and financing activities:          
Reclassification of Series A preferred stock to mezzanine equity  $8,195   $
-
 
Valuation of derivative associated with convertible financial liability  $666   $
-
 

 

(1)As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2023.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-5

 

 

QUANTUM COMPUTING INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, 2024

 

Note 1. Nature of the Organization and Business

 

Corporate History

 

Quantum Computing Inc. (“QCi” or the “Company”) was formed in the State of Nevada on July 25, 2001, under its original name, Ticketcart, Inc., which was changed to Innovative Beverage Group Holdings, Inc. in 2009. The Company redomiciled to Delaware on February 22, 2018 and changed its name to Quantum Computing Inc. Effective July 20, 2018, the trading symbol for the Company’s common stock, par value $0.0001, on the OTC Market changed from “IBGH” to “QUBT”. On July 15, 2021 the Company uplisted to The Nasdaq Stock Market LLC. On June 16, 2022, the Company merged with QPhoton, Inc. (“QPhoton”), a developer of quantum photonic systems and related technologies and applications.

 

Nature of Business

 

QCi is an American company utilizing integrated photonics and non-linear quantum optics to deliver quantum and ancillary products for high-performance computing applications based on patented and proprietary photonics technology. QCi’s products are designed to operate at room temperature and at very low power levels beyond the capabilities of other systems in the market. Our core photonics technology enables the execution of a go-to-market strategy which emphasizes accessibility and affordability. Our quantum machines enable subject matter experts (SMEs) and end users to deliver critical business solutions today in working with highly complex optimization problems.

 

The Company initially focused on providing software tools and applications for several commercially available quantum computers. However, following the June 2022 merger with QPhoton and its associated intellectual property and engineering team, the Company now offers integrated high-performance quantum systems, ancillary products and services.

 

The core of our quantum offerings today is our Entropy Quantum Computing (“EQC”) technology. We have built room-temperature, photonic quantum information processing systems underpinned by a series of patented and patent pending technologies. Our technology, supported by professional services through our “Quantum Solutions” offering, enables our clients to solve complex optimization problems. In addition, our engineering teams are using our leading-edge photonics technology to continue to enhance and further develop quantum LIDAR sensing and imaging systems, quantum-secured network solutions, and photonic chips.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, the realization of assets, and the satisfaction of liabilities in the normal course of business. Cash and cash equivalents on hand were $3.1 million as of September 30, 2024. The Company has historically incurred losses and negative cash flows from operations. As of September 30, 2024, the Company also had an accumulated deficit of $149.2 million and working capital of $1.5 million. Furthermore, we have not achieved a level of sales adequate to support the Company’s cost structure and may need to raise additional funds in the next 12 months by selling additional equity or incurring debt. It is management’s opinion that these conditions raise substantial doubt about our ability to continue as a going concern.

 

F-6

 

 

Note 2. Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation:

 

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (the “FASB”), including Accounting Standards Codification (“ASC”) 810, Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year end is December 31.

 

Reclassifications

 

Certain reclassifications have been made to the fiscal year 2023 audited consolidated financial statements to conform to the presentation in the three and nine months ended September 30, 2024. The reclassifications had no impact on consolidated net loss, total consolidated assets, total consolidated liabilities, or consolidated stockholders’ equity.

 

Risk and Uncertainties

 

The Company is subject to certain risks and uncertainties and believes changes in any of the following areas could have a material adverse effect on the Company’s future consolidated financial position or consolidated results of operations or cash flows: new product development, including market receptivity; litigation or claims against the Company based on intellectual property, patent, product regulation or other factors; competition from other products; general economic conditions; the ability to attract and retain qualified employees; and, ultimately, to sustain profitable operations.

 

Use of Estimates

 

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include the valuation of goodwill and intangible assets, deferred tax assets, equity-based transactions and liquidity assessment. Actual results may differ from these estimates.

 

Cash and Cash Equivalents

 

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. The Company maintains its cash in mutual funds and deposit and money market accounts with high quality financial institutions which, at times, may exceed federally insured limits. As of September 30, 2024 and December 31, 2023, the Company had $2.3 million and $2.1 million, respectively, in cash equivalents invested in mutual funds. The Company has not experienced any losses on these deposits and believes it is not exposed to significant credit risk on cash. 

  

Revenue

 

The Company recognizes revenue in accordance with ASC 606 – Revenue from Contracts with Customers, by analyzing contracts with its customers using a five-step approach:

 

  1. Identify the contract
     
  2. Identify the performance obligations
     
  3. Determine the transaction price
     
  4. Allocate the transaction price to the performance obligations
     
  5. Recognize revenue when performance obligations are satisfied

 

F-7

 

 

The revenue the Company has recognized in the nine months ended September 30, 2024 and 2023 were primarily derived from contracts to perform professional services. Revenue from time and materials-based contracts is recognized 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 units-based contracts is recognized as the number of units delivered or performed during the period times the contractual unit price. 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-plus type contracts at this time.

 

The Company includes depreciation and amortization expenses in manufacturing overhead, which is a component of cost of revenue. However, at the present time manufacturing overhead, including depreciation and amortization expense related to production equipment, is not material and the primary components of cost of revenue are direct labor and direct materials, with a small amount of shipping expenses.

 

Accounts Receivable

 

Accounts receivable consists of amounts due from customers for work performed on contracts. The Company records accounts receivable at their net realizable value. Periodically the Company evaluates its accounts receivable to establish a provision for credit losses, when deemed necessary, based on the history of past write-offs, collections and current credit conditions. The customer accounts receivable as of September 30, 2024 are considered not fully collectible and thus the Company has recorded a provision for credit losses of $3.5 thousand; the customer accounts receivable as of December 31, 2023 are considered fully collectible.

 

Provision for Credit Losses

 

The Company estimates losses on loans and other financial instruments in accordance with Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces the current expected credit losses (“CECL”) methodology for estimating allowances for credit losses. The CECL framework requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supporting forecasts. Under CECL, the allowance for credit losses is measured as the difference between the financial asset’s cost basis and the net amount expected to be collected on the financial asset. CECL allows us to use information about past events including historical loan loss experience, current conditions, and reasonable and supportable forecasts to assess the collectability of the financial assets. The receivables for financial assets as of September 30, 2024 and December 31, 2023 are not considered fully collectible and thus management has recorded a provision for credit losses. See Note 9, Loan Receivable, for additional information.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis which approximates actual cost on a first in-first out method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory and are charged to cost of revenue. Once the cost of the inventory is reduced, a new lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Factors influencing these adjustments include changes in demand, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from our estimates.

 

Operating Leases

 

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets, net on the consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities and noncurrent operating lease liabilities, respectively, on the consolidated balance sheets.

 

F-8

 

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, and the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. All of our operating leases are comprised of office space leases, and as of September 30, 2024 and December 31, 2023, we had no finance leases.

 

Business Combinations and Valuation of Goodwill

 

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded withing general and administrative expenses.

 

The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an annual impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to assess impairment, its common stock price is an important component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment in future periods. The Company performs its annual impairment test during the fourth quarter of each fiscal year. As of September 30, 2024, we had not identified any factors that indicated there was an impairment of our goodwill and determined that no additional impairment analysis was then required.

 

Property and Equipment

 

Property and equipment are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Maintenance and repairs are charged against expense as incurred.

 

Impairment of Long-Lived Assets

 

The Company has long-lived assets such as tangible property and equipment, identified intangible assets consisting of acquired patents and core technology. When events or changes in circumstances occur that could indicate the carrying value of long-lived assets may not be recoverable, the Company assesses recoverability by determining whether the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If the undiscounted cash flow is less, an impairment charge is recognized for the excess of the carrying amounts of these assets over the fair values. Fair values are determined by discounted future cash flows, appraisals or other methods.

 

During the three and nine months ended September 30, 2024 and 2023, the Company did not record any impairment from long-lived assets.

 

Fair Value of Financial Instruments

 

The carrying amount of certain financial instruments held by the Company, such as cash equivalents, accounts receivable, contract assets and liabilities, accounts payable, and accrued and other current liabilities, approximate fair value due to their short maturities. The carrying amount of the liabilities for the convertible preferred stock warrants represent their fair value. The carrying amounts of the Company’s borrowings and lease liabilities approximate fair value due to the market interest rates that these obligations bear and interest rates currently available to the Company.

 

F-9

 

 

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

 

  Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;

 

  Level 2 Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

  Level 3 Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

 

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As of September 30, 2024 and December 31, 2023, the Company had $2.3 million of the $3.1 million cash and cash equivalents and $793 thousand of the $2.1 million cash and cash equivalents, respectively, in Level 1 assets, comprised of U.S. Government mutual funds, and $666 thousand and no carrying value, respectively, for Level 3 liabilities, which are comprised of derivative and warrant liabilities. See Note 11, Capital Stock – Warrants, for a full discussion of the warrant liability. 

 

Research and Development Costs

 

Research and development costs include costs directly attributable to the conduct of research and development programs, including the cost of services provided by outside contractors, acquiring work-in-progress intellectual property, development, and mandatory compliance fees and contractual obligations. All costs associated with research and development are expensed as incurred.

 

Software Development Costs

 

Software development costs incurred subsequent to the establishment of technological feasibility for software intended to be sold, licensed or otherwise marketed to customers will be capitalized, but development costs not meeting the criteria for capitalization are expensed as incurred. With respect to internal use software, the Company will capitalize such development costs incurred during the application development stage, but development costs incurred prior to that stage will be expensed as incurred. No amortization expense will be recorded until the software is ready for its intended use. To date the Company has not incurred any material capitalizable software development costs.

 

Stock-based 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 pre-vesting 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.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets where, based upon the available evidence, management concludes that it is more-likely-than-not that the deferred tax assets will not be realized. Realization of deferred tax assets is also dependent upon future earnings, if any, the timing and amount of which are uncertain.

 

F-10

 

 

The Company records a liability for the uncertain tax positions taken or expected to be taken on the Company’s tax return when it is more-likely-than-not that the tax position might be challenged despite the Company’s belief that the tax return positions are fully supportable, and additional taxes will be due as a result. To the extent that the assessment of such tax positions changes, for example, based on the outcome of a tax audit, the change in estimate is recorded in the period in which the determination is made. The provision for income taxes includes the impact of provisions for uncertain tax positions.

 

Loss Per Share

 

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the number of additional common shares that would have been outstanding if the common share equivalents had been issued (computed using the “If-Converted” method), unless the effect of such issuances would have been anti-dilutive.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. The Company has evaluated the recently implemented accounting standards and concluded that none currently apply to the Company.

 

Note 3. Net Loss per Common Share

 

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

 

   

Three Months Ended

September 30,

    

Nine Months Ended

September 30,

  
    2024     2023     2024     2023  
Numerator:                        
Net loss   $ (5,675 )   $ (6,841 )   $ (17,305 )   $ (20,395 )
Less: Series A convertible preferred stock dividends     -       (215 )     -       (646 )
Net loss attributable to common stockholders – basic and diluted   $ (5,675 )   $ (7,056 )   $ (17,305 )   $ (21,041 )
Denominator:                                
Weighted average shares used in computing net loss per common share – basic and diluted     93,048       71,588       89,063       64,246  
Net loss per common share – basic and diluted   $ (0.06 )   $ (0.10 )   $ (0.19 )   $ (0.33 )

  

Net loss per share is based on the weighted average number of the Company’s common shares and common share equivalents outstanding during the period.

 

F-11

 

 

In periods with a reported net loss, the effect of anti-dilutive stock options, unvested restricted common stock and warrants are excluded and diluted loss per share is equal to basic loss per share. Due to a net loss in the three and nine months ended September 30, 2024 and 2023, there were therefore no dilutive securities and hence basic and diluted loss per share were the same. The following is a summary of the weighted average common stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Warrants   2,212    5,973    2,538    6,092 
Options   12,407    13,069    12,882    11,410 
Unvested restricted common stock   2,997    1,783    2,997    771 
Total potentially dilutive shares   17,616    20,825    18,417    18,273 

 

As all potentially dilutive securities are anti-dilutive as of September 30, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each period.

 

Note 4. Income Taxes

 

Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax loss from continuing operations as a result of both temporary and permanent differences in the U.S. GAAP vs tax treatment of certain types of expenses, including stock-based compensation, depreciation and amortization, research and development and meals and entertainment. Additionally, the Company's policy is to account for interest and penalties as income tax expense. As of September 30, 2024 and December 31, 2023, the Company had no interest related to unrecognized tax benefits, and no amounts for penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within 12 months of this reporting date.

 

As of September 30, 2024, in addition to the $15.6 million in tax-effected NOL carryforwards, at an assumed tax rate of 26%, the significant components of the Company’s net deferred tax assets included stock-based compensation of $11.7 million, capitalized research and development expenditures of approximately $2.5 million and an intangible asset basis difference of approximately $1.1 million. The Company believes that it is more likely than not that the benefit from the net deferred tax assets will not be realized. Accordingly, it has provided a full valuation allowance on any potential deferred tax assets. The valuation allowance increased by approximately $4.0 million for the period ended September 30, 2024, as compared to the year ended December 31, 2023. The provision for income taxes is not material in the years presented due to there being no taxable income.

 

The Company has federal R&D credit carryforwards of approximately $623 thousand for the period ended September 30, 2024, which will be applied against payroll taxes, not against income taxes. The Company has no state R&D credit carryforwards.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, with varying statutes of limitations. The tax years from inception through 2024 remain open to examination due to the carryover of unused net operating losses that are being carried forward for tax purposes.

 

Note 5. Intangible Assets and Goodwill

 

As a result of the merger with QPhoton in June 2022 (the “QPhoton Merger”), the Company has the following amounts related to intangible assets (in thousands):

 

   September 30, 2024   December 31, 2023 
   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Non-compete agreement with founder  $3,251   $(2,528)  $723   $3,251   $(1,715)  $1,536 
Website domain name and trademark   1,009    (471)   538    1,009    (320)   689 
Technology and licensed patents   12,731    (4,244)   8,487    12,731    (2,880)   9,851 
Total  $16,991   $(7,243)  $9,748   $16,991   $(4,915)  $12,076 

 

F-12

 

 

The amortization expense of the Company’s intangible assets for the three and nine months ended September 30, 2024 and 2023 was approximately $780 thousand and $2.3 million, respectively. The Company expects future amortization expense to be the following (in thousands):

 

   Amortization 
2024 (remaining three months)  $776 
2025   2,472 
2026   2,021 
2027   1,903 
2028   1,819 
Thereafter   757 
Total  $9,748 

 

The Company recorded goodwill resulting from the QPhoton Merger, calculated as the difference between the total purchase price and the value of tangible and intangible assets acquired less the liabilities assumed. The Company recorded goodwill of $55.6 million resulting from the QPhoton Merger.

 

The Company considered the intangible assets and goodwill for indicators of impairment as of September 30, 2024 and concluded there were no indicators of impairment at that time.

 

Note 6. Property and Equipment

 

The Company’s property and equipment are primarily located at the Company’s leased facilities in Hoboken, NJ and Tempe, AZ and consist of (in thousands):

 

   September 30,
2024		   December 31,
2023		 
Computer and lab equipment  $5,899   $2,999 
Network equipment   29    29 
Furniture and fixtures   32    32 
Software   77    49 
Leasehold improvements   275    33 
Total cost of property and equipment   6,312    3,142 
Accumulated depreciation   (486)   (272)
Property and equipment, net  $5,826   $2,870 

 

The Company recorded depreciation expense of $75 thousand and $76 thousand during the three months ended September 30, 2024 and 2023, respectively, and $214 thousand and $203 thousand during the nine months ended September 30, 2024 and 2023, respectively, using useful lives of the Company’s long-lived assets as follows:

 

   Estimated
Useful Life
(Years)
Computer and laboratory equipment  5
Network equipment  4
Furniture and fixtures  7
Software  3
Leasehold improvements  Lessor of lease term or 5

 

Maintenance and repairs are charged to operations when incurred. When property and equipment are sold or otherwise disposed, the asset account and related accumulated depreciation and amortization accounts are relieved, and any gain or loss is included in other income or expense.

 

F-13

 

 

Note 7. Operating Leases

 

As of September 30, 2024, the Company has use of space in three different locations, Hoboken, NJ, Tempe, AZ, and Arlington, VA, under lease or membership agreements, which expire at various dates through November 30, 2028. The Company’s leases do not provide an implicit rate, and the rates implicit in our leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease assets and liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company’s leases all contain options to extend or renew the lease or membership term.

 

The table below reconciles the undiscounted future minimum lease payments under these operating leases to the total operating lease liabilities recognized on the consolidated balance sheet as of September 30, 2024 (in thousands):

 

Year  Lease Payments
Due		 
2024 (remaining three months)  $88 
2025   437 
2026   591 
2027   515 
2028   212 
Total minimum payments   1,843 
Less: imputed interest   (161)
Present value of operating lease liabilities   1,682 
Less: current portion included in other current liabilities   (385)
Long-term operating lease liabilities  $1,297 

 

Other information related to operating lease liabilities consists of the following (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Cash paid for operating lease liabilities (in thousands)  $117   $92   $274   $214 
Weighted average remaining lease term in years   3.5    3.9    3.5    3.9 
Weighted average discount rate   10%   10%   10%   10%

 

F-14

 

 

Note 8. Financial Liabilities

 

The Company has the following amounts related to financial and derivative liabilities at the dates indicated (in thousands):

 

   September 30,
2024		   December 31,
2023		 
Remaining loan balances  $8,250   $2,063 
Remaining unamortized debt issuance costs   (1,736)   (138)
Financial liabilities, net of issuance costs  $6,514   $1,925 
           
Derivative liability  $666   $
-
 

 

Additionally, the Company has accrued interest payable of $122 thousand and $14 thousand as of September 30, 2024 and December 31, 2023, respectively, which was included in accrued expenses.

 

Secured Promissory Note

 

On August 6, 2024, the Company entered into a Securities Purchase Agreement (the “Secured SPA”) with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued and sold to Streeterville a Secured Convertible Promissory Note (the “Streeterville Convertible Note”) in the original principal amount of $8.25 million. The principal amount includes an original issue discount of $750 thousand. Streeterville paid $7.5 million in cash for the Streeterville Convertible Note. The Streeterville Convertible Note accrues interest at a rate of 10% per annum and has a maturity date of February 6, 2026, unless earlier prepaid, redeemed or accelerated in accordance with its terms prior to such date. The Company intends to use the net proceeds from the sale of the Streeterville Convertible Note primarily for general working capital purposes, including for (i) operations as the Company increases its sales and marketing efforts; (ii) capital expenditures in outfitting its chip fabrication facility in Tempe, AZ; and (iii) for any other planned or unplanned expenditures that might arise in support of the Company’s business plan. Ascendiant Capital Markets, LLC served as the placement agent on the transaction and received a fee of $450 thousand, and the Company recognized $55 thousand in other issuance costs, primarily for legal services.

 

The Streeterville Convertible Note is secured by all of the Company’s tangible and intangible assets, including intellectual property, pursuant to that certain Security Agreement (the “Security Agreement”) and IP Security Agreement (the “IP Security Agreement”), each entered into with Streeterville on August 6, 2024. In addition, the Company’s wholly-owned subsidiaries, QPhoton, LLC, a Delaware limited liability company, Qubittech International, Inc., a Delaware corporation, Qubittech, Inc., a Delaware corporation, and QI Solutions, Inc., a Delaware corporation (collectively, the “Guarantors”), provided a guarantee (the “Guaranty”), dated as of August 6, 2024, of the Company’s obligations to Streeterville under the Streeterville Convertible Note and the other transaction documents.

 

Beginning on February 6, 2025, Streeterville has the right to redeem up to $750,000 of the Streeterville Convertible Note per calendar month. The Company may pay such redemption amounts in cash, by converting such applicable redemption amount into shares of common stock at the applicable Conversion Price (as defined below) at such time, or in any combination of cash and shares of common stock, provided that the Company is required to pay any redemption amounts in cash under certain circumstances set forth in the Streeterville Convertible Note and that the payment of any redemption amount or portion thereof in cash is subject to an 10% premium.

 

F-15

 

 

Beginning on the earlier of: (a) February 6, 2025, and (b) the effectiveness of a registration statement registering the Conversion Shares (as defined below), Streeterville may convert all or any portion of the outstanding balance of the Streeterville Convertible Note into shares (“Conversion Shares”) of the Company’s common stock on any trading day (and the following trading day) on which any intraday trading bid price of the Company’s common stock is 8% greater than the closing trade price on the previous trading day or at any time following an event of default, at a conversion price equal to 92% of the average of the two lowest daily volume weighted average prices of the Company’s common stock during the eight trading day period prior to the respective conversion date (the “Conversion Price”), subject to anti-dilution adjustments and provided that Streeterville may not request any conversion of the Streeterville Convertible Note to the extent that such conversion would cause Streeterville (together with its affiliates) to beneficially own shares of Common Stock exceeding 4.99% (or 9.99% if the Market Capitalization, as defined below, is less than $10 million) of the number of shares of Common Stock outstanding on such date. For the ownership limitation, “Market Capitalization” means a number equal to (a) the average volume weighted average price of the Company’s common stock for the immediately preceding 15 trading days, multiplied by (b) the aggregate number of outstanding shares of common stock as reported on Company’s most recently filed Form 10-Q or Form 10-K or as reported to Nasdaq in a subsequent shares outstanding change form. Absent an uncured event of default, as set forth in the Streeterville Convertible Note, Streeterville agreed to limit its aggregate sales of Conversion Shares on the open market in any given calendar week to 10% of the weekly trading volume of the Company’s common stock on our principal trading market (Nasdaq) for such week. Upon evaluation, the Company determined that the conversion features inherent in the Streeterville Convertible Note meet the definition of a derivative liability (the “Streeterville Derivative Liability”) covered under the ASC topic 815, Derivatives and Hedging. Applying ASC 820, Fair Value Measurement, the initial fair value of the Streeterville Derivative Liability is $666 thousand, which will be mark-to-market adjusted on a quarterly basis and accreted as interest expense using the effective interest rate method while the Streeterville Convertible Note is outstanding.

 

In addition to the beneficial ownership limitations provided in the Streeterville Convertible Note, the sum of the number of shares of the Company’s common stock that the Company may issue to Streeterville under the Secured SPA, the Streeterville Convertible Note and any related documents without stockholder approval may not exceed the number of shares it could so issue pursuant to Nasdaq Listing Rule 5635(d) (the “Share Cap”), unless shareholder approval (the “Approval”) to exceed such limitation is obtained by the Company. The Company is required, under the Secured SPA to obtain the Approval by February 2, 2025. If the Company does not obtain the Approval by such date, it must continue seeking the Approval every 90 days until the Approval is obtained. If the total cumulative number of Conversion Shares that the Company issues to Streeterville equals the Share Cap and the Company has not obtained the Approval, any remaining outstanding balance of the Streeterville Convertible Note must be repaid in cash.

 

The Streeterville Convertible Note provides for customary events of default (each as defined in the Streeterville Convertible Note, an “Event of Default”), including, among other things, the event of nonpayment of principal, interest, fees or other amounts, a representation or warranty proving to have been incorrect when made, failure to perform or observe covenants within a specified cure period, a cross-default to certain other indebtedness and material agreements of the Company, and the occurrence of a bankruptcy, insolvency or similar event affecting the Company. Upon the occurrence of an Event of Default that is deemed a “Major Trigger Event” as defined in the Streeterville Convertible Note, Streeterville may increase the outstanding balance of the Streeterville Convertible Note by 10%, and upon the occurrence of an Event of Default that is deemed a “Minor Trigger Event” as defined in the Streeterville Convertible Note, Streeterville may increase the outstanding balance of the Streeterville Convertible Note by 5%. Streeterville can exercise its right to increase the outstanding balance upon a Major or Minor Trigger Event three times each. Upon the occurrence of an Event of Default, Streeterville may declare all amounts owed under the Streeterville Convertible Note immediately due and payable. In addition, upon the occurrence of an Event of Default, upon the election of Streeterville, interest shall begin accruing on the outstanding balance of the Streeterville Convertible Note from the date of the Event of Default equal to the lesser of 15% per annum and the maximum rate allowable under law.

 

Unsecured Promissory Note

 

On September 23, 2022, the Company entered into a Note Purchase Agreement (the “Streeterville Unsecured NPA”) with Streeterville, pursuant to which Streeterville purchased an unsecured promissory note (the “Streeterville Unsecured Note”) in the initial principal amount of $8.25 million. The Note bore interest at 10% per annum, had a maturity date of 18 months from the date of its issuance and carried an original issue discount of $750 thousand, which is included in the principal balance of the Streeterville Unsecured Note.

 

Beginning on March 23, 2023, Streeterville had the right to redeem up to $750 thousand of the outstanding balance of the Streeterville Unsecured Note per month (“Redemption Amount”) by providing written notice to the Company (“Redemption Notice”). The Company paid the applicable Redemption Amount in cash to Streeterville within three trading days of the Company’s receipt of any such Redemption Notice. As of September 30, 2024, Streeterville has redeemed the full principal amount of the Streeterville Unsecured Note. There was an outstanding balance of $1.9 million as of December 31, 2023. As of September 30, 2024, there was no outstanding balance and the Company has no further obligations with respect to the Streeterville Unsecured NPA or Streeterville Unsecured Note.

 

F-16

 

 

For a full discussion of the terms and conditions of the Streeterville Unsecured Note, see the Company’s Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2023.

 

Note 9. Loan Receivable

 

On May 16, 2023, the Company entered into a Summary of Proposed Terms (the “Letter of Intent”) with millionways, Inc. (“millionways”) to provide bridge loans to millionways and enter into due diligence to acquire up to 100% of the AI firm. On June 6, 2023, the Company entered into a Note Purchase Agreement (the “MW Agreement”) with millionways, pursuant to which the Company agreed to purchase from millionways up to three unsecured promissory notes (each, a “MW Note”), in an aggregate principal amount of up to $2.0 million, subject to the terms and conditions of the MW Agreement. Also on June 6, 2023, pursuant to the terms of the MW Agreement, the Company purchased the MW Notes from millionways and loaned an aggregate principal amount of $500 thousand to millionways.

 

The MW Agreement contains customary representations and warranties by millionways and the Company, as well as a “most favored nations” provision for the benefit of the Company. The MW Notes issued under the MW Agreement, including the MW Notes issued on June 6, 2023, provide that the indebtedness evidenced by the applicable MW Note bears simple interest at the rate of 10% per annum (or 15% per annum during the occurrence of an event of default, as defined in the MW Notes), and becomes due and payable in full on the earlier of (i) May 16, 2024, (ii) a change of control (as defined in the MW Notes) of millionways, (iii) dollar-for-dollar prepayment for additional capital received through any vehicle from a third party or (iv) an event of default. 

 

The Company reserved approximately $306 thousand of the outstanding $613 thousand receivable as uncollectible based on credit risk in the unaudited condensed consolidated financial statements as of September 30, 2024, and $279 thousand of the outstanding $558 thousand receivable as of December 31, 2023.

 

Note 10. Contingencies 

 

Indemnification Arrangements

 

We enter into standard indemnification arrangements in our ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties (generally our business partners or customers) in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to our products. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these agreements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal.

  

We have entered into indemnification agreements with our directors and officers that may require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature. These agreements also require us to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified and to make good faith determination whether or not it is practicable for us to obtain directors and officers insurance. We currently have directors and officers liability insurance.

 

Legal Proceedings

 

From time to time, we may be involved in legal proceedings arising in the ordinary course of business. In general, management believes that ordinary course of business matters will not have a material adverse effect on our consolidated financial position or results of operations and are adequately covered by our liability insurance. However, it is possible that condensed consolidated cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one of more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.

 

F-17

 

 

See Part II, Item 1, Legal Proceedings, in this Form 10-Q for additional details on the status of motions on the following proceedings.

 

BV Advisory v. QCi Breach Lawsuit

 

At the time of the QPhoton Merger in June 2022, QPhoton had an outstanding balance of principal and interest due to BV Advisory Partners, LLC (“BV Advisory”) based on a Note Purchase Agreement that QPhoton had entered into with BV Advisory on March 1, 2021. Accordingly, the Company has recorded an estimated payable (the “BV Advisory Payable”), recognized as other current liabilities on the unaudited condensed consolidated financial statements, based on best available information in the amount of $536 thousand as of September 30, 2024 and December 31, 2023.

 

On August 16, 2022, BV Advisory filed a complaint in the Court of Chancery of the State of Delaware (the “DE Chancery Court”) naming the Company and certain of its directors and officers (among others) as defendants seeking, among other relief, monetary damages. The Company believes that BV Advisory’s claims have no merit and intends to defend itself vigorously. BV Advisory’s claims are not covered by the Company’s liability insurance, nor does the Company believe it is necessary to accrue an amount in addition to the BV Advisory Payable at this time.

 

BV Advisory v. QCi Appraisal Action

 

BV Advisory was purportedly a shareholder of QPhoton, Inc., the predecessor in interest to QPhoton, LLC, a wholly owned subsidiary of the Company (both referred to as “QPhoton” in this Legal Proceedings discussion). BV Advisory rejected the Merger Consideration (as defined below) and on October 13, 2022, commenced litigation by filing a petition in the DE Chancery Court seeking appraisal rights on the shares of QPhoton it allegedly owned (which shares represented 10% of the shares of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton). The Company included BV Advisory’s purported ownership of QPhoton in the purchase price accounting for the QPhoton Merger.

 

The Company’s total purchase price of QPhoton was approximately $71.0 million, or $69.9 million net of cash acquired, consisting of Company common stock, Series B Preferred Stock and QPhoton Warrants (as defined below). While the total shares of the Company’s common stock on an as-converted basis offered in the QPhoton Merger was 36,600,823 (the “Merger Consideration”), the fair market valuation contemplated 31,299,417 of the shares, which assumed full conversion of the 2,377,028 shares of Series B Preferred Stock to common stock at the 10:1 ratio, and that only 1,726,931 of the warrants to purchase up to 7,028,337 shares of the Company’s common stock (the “QPhoton Warrants”) would eventually be exercised (specifically only the QPhoton Warrants for which the associated Company options and/or warrants had an exercise price at or below $2.27 at the time of the QPhoton Merger).

 

Accordingly, as of September 30, 2024 and 2023, the Company has neither issued 2,957,251 shares of the Company’s common stock on an as converted basis (the “Unissued QPhoton Shares”) nor 702,834 warrants to purchase shares of the Company’s common stock (the “Unissued QPhoton Warrants”) that were included in the Merger Consideration. The Unissued QPhoton Shares are included in the statement of stockholder’s equity as additional paid in capital as of as of September 30, 2024 and 2023, and the Unissued QPhoton Warrants have no carrying value as a liability on the Company’s condensed consolidated balance sheet as of September 30, 2024.

 

Note 11. Capital Stock

 

Authorized Classes of Stock

 

As of September 30, 2024, the Company’s Board of Directors has authorized two classes of preferred stock. The Board has authorized 1,550,000 shares of preferred stock as Series A preferred stock, par value $0.0001 per share, of which 993,306 and 1,490,004 shares, respectively, are issued and outstanding at September 30, 2024 and December 31, 2023. The Board has also authorized 3,079,864 shares of preferred stock as Series B preferred stock, par value $0.0001 per share, none of which are issued and outstanding as of September 30, 2024 and December 31, 2023.

 

F-18

 

 

Series A Convertible Preferred Offering

 

From November 10, 2021 through November 17, 2021, the Company conducted a private placement offering (the “Private Placement”) pursuant to securities purchase agreements with 7 accredited investors (the “Series A Investors”), whereby the Series A Investors purchased from the Company an aggregate of 1,545,459 shares of the Company’s newly created Series A convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”) and warrants to purchase 1,545,459 shares of the Company’s common stock (the “Preferred Warrants”) for an aggregate purchase price of $8.5 million. The Private Placement was completed and closed to further investment on November 17, 2021.

 

The Series A Preferred Stock ranks senior to common stock with respect to the payment of dividends and liquidation rights. Each holder of Series A Preferred Stock is entitled to receive, with respect to each share of Series A Preferred Stock then outstanding and held by such holder, dividends at the rate of ten percent (10%) per annum (the “Preferred Dividends.”) The Company is obligated to pay the Preferred Dividends quarterly, in arrears, within fifteen (15) days of the end of each quarter. The Company has the option to pay the Preferred Dividends in cash or in common stock, at a price per share of common stock equal to the average of the closing sale price of the common stock for the five (5) trading days preceding the applicable dividend payment date. The Preferred Dividends are accrued monthly, but not compounded, and are recorded as interest expense, because the Preferred Dividends are mandatory and not declared at the discretion of the Board of Directors.

 

The number of shares of the Company’s common stock issuable upon conversion of any share of Series A Preferred Stock shall be determined by dividing (x) the Conversion Amount of such share of Series A Preferred Stock by (y) the Conversion Price. “Conversion Amount” means, with respect to each share of Series A Preferred Stock, as of the applicable date of determination, the sum of (1) the stated value thereof plus (2) any accrued dividends. “Conversion Price” means, with respect to each share of Series A Preferred Stock, as of any optional conversion date, Mandatory Conversion Date or other date of determination, $5.50, subject to adjustment for stock splits, dividends, recapitalizations and similar corporate events.

 

The Preferred Warrants were two-year warrants to purchase shares of the Company’s common stock at an exercise price of $7.00 per share, subject to adjustment, were exercisable at any time on or after the date that was six months following the issuance date, and provided for cashless exercise in the event the underlying shares of the Company’s common stock are not registered. As of December 31, 2023, all of the Preferred Warrants had expired unexercised.

 

In connection with the Purchase Agreement, the Company and the Series A Investors entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement to register the shares of the Company’s common stock underlying the Series A Preferred Stock and warrants within 180 days. Pursuant to the Registration Rights Agreement, the Series A Investors received certain rights, including but not limited to piggyback registration rights, providing that the holder be given notice of any proposed registration of securities by the Company, and requiring that the Company register all or any portion of the registrable securities that the holders request to be registered, in each case, subject to the terms and conditions of the Registration Rights Agreement. On April 27, 2022 the Company filed a Resale Form S-3 as required by the Registration Rights Agreement. The Resale Form S-3 went effective on June 2, 2022.

 

On June 13, 2022, one of the Series A Investors, Falcon Capital Partners, converted 45,455 shares of Series A Preferred Stock into 47,728 shares of the Company’s common stock.

 

On February 9, 2023, one of the Series A Investors, Greenfield Children, LLC, converted 10,000 shares of Series A Preferred Stock plus accrued dividends into 11,096 shares of the Company’s common stock.

 

F-19

 

 

On March 19, 2024, the Company entered into a Redemption and Waiver Agreement (the “Series A Redemption Agreement”) with the current holders (the “Series A Holders”) of its Series A Preferred Stock. Accordingly, $8.125 million of additional paid in capital was reclassified from shareholders’ equity to mezzanine equity (the “Mezzanine Equity”) on the Company’s condensed consolidated balance sheet as of September 30, 2024, in accordance with Accounting Series Release No. 268, Presentation in Financial Statements of “Redeemable Preferred Stocks”. The Mezzanine Equity is valued at the date of the Private Placement issuance. Pursuant to the Series A Redemption Agreement, the Company agreed to redeem all outstanding shares of the Series A Preferred Stock for an aggregate cash purchase price of $8,195,000, or $5.50 per share, at its sole discretion, in 18 monthly payments (each a “Monthly Redemption Threshold” payment), which may be accelerated at the Company’s sole discretion. In addition, the Series A Holders agreed to waive (the “Waivers”), on a month-by-month basis following each monthly payment, certain rights granted to them in (i) the Preferred Stock Certificate of Designation (the “Preferred Stock COD”), including for the accrual and payment of accrued and future dividends; and (ii) the Preferred Stock Securities Purchase Agreement (the “Preferred Stock SPA”). In the event the Company opts to not make a Monthly Redemption Threshold payment, the Waivers are forfeited and the terms revert to those detailed in the Preferred Stock COD and Preferred Stock SPA. During the three and nine months ended September 30, 2024, the Company redeemed 248,349 and 496,698 shares of Series A Preferred Stock, respectively, for approximately $1.4 million and $2.7 million, in cash paid to the Series A Holders, respectively. As of September 30, 2024 and December 31, 2023, there were 993,306 and 1,490,004 shares of Series A Preferred Stock, respectively, issued and outstanding.

 

At-the-Market-Facility

 

On October 28, 2022, the Company filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, which was declared effective on November 8, 2022 (the “2022 shelf”). Under the 2022 Shelf at the time of effectiveness, the Company had the ability to raise up to $100 million by selling common stock, preferred stock, debt securities, warrants and units. On December 5, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”) whereby the Company may, but is not obligated to, offer and sell, from time to time, shares of its common stock (the “ATM Facility”), and incorporated the ATM Agreement into the 2022 Shelf by amendment that was declared effective January 10, 2023. On August 17, 2023, the Company and Ascendiant entered into an amendment (the “ATM Amendment”) to the ATM Agreement, increasing the amount of common stock that the Company may offer and sell via the ATM Facility from $25 million to $50 million (the “ATM Upsize”). Following the ATM Upsize, the Company filed a prospectus supplement, dated August 18, 2023, with the Securities and Exchange Commission and became able to offer and sell shares of the Company’s common stock having an aggregate offering price of up to $27,362,717 via the ATM Facility.

 

The Company intends to use any net proceeds from the sale of securities under the ATM Facility for operations and for other general corporate purposes, including, but not limited to, capital expenditures, including our AZ Chips Facility, as defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, payments under the Series A Redemption Agreement and general working capital. The Company did not sell any shares through the ATM Facility for the three months ended September 30, 2024, and for the nine months ended September 30, 2024, the Company sold 16,604,770 shares of the Company’s common stock through the ATM Facility at an average price of $0.88, from which the Company received net proceeds of $14.6 million.

 

Warrants

 

The table below summarizes the warrants outstanding at September 30, 2024 (in thousands, except exercise price data):

 

Issuance Date  Expiration Date  Exercise Price   Issued   Exercised   Forfeited /
Canceled		   Warrants
Outstanding		 
August 18, 2020  August 18, 2025  $2.00    171    (150)   
-
    21 
November 15, 2021  November 15, 2023  $7.00    1,545         (1,545)   
-
 
June 16, 2022  May 9, 2027  $0.0001    6,325    
-
    (4,148)   2,177 

 

In connection with a restricted stock units offering in June 2020, the Company issued warrants in August 2020 to purchase 171,000 shares of the Company’s common stock, at an exercise price of $2.00. Those warrants are exercisable for five years from the date of issuance.

 

In connection with the offering of Series A Preferred Stock in November 2021, the Company issued warrants to purchase 1,545,459 shares of the Company’s common stock at an exercise price of $7.00. Those warrants were exercisable for two years from the date of issuance and have now expired.

 

F-20

 

 

In connection with the QPhoton Merger on June 16, 2022, the Company issued 6.3 million warrants to purchase shares of the Company’s common stock at an exercise price of $0.0001. Those warrants are exercisable when and if stock options and warrants issued by the Company and outstanding as of June 15, 2022 (the “Underlying Options”) are exercised. As of September 30, 2024, none of the QPhoton Warrants linked to the outstanding Underlying Options are expected to be exercised as the exercise prices of the Underlying Options are above the closing stock price as of September 30, 2024. The 6.3 million issued warrants represent a portion of the 7.0 million warrants included in the Merger Consideration, having been received by two QPhoton shareholders. A third alleged shareholder rejected the Merger Consideration and commenced litigation, and to date that litigation has not been resolved and the 702,834 warrants have not been issued. See Part II, Item 1, Legal Proceedings, for additional information on the status of the litigation.

 

Accordingly, as of September 30, 2024, of the 6.3 million QPhoton Warrants issued, approximately 66% have been forfeited because the corresponding Underlying Options had expired or been forfeited. Further, as discussed in Note 2, Significant Accounting Policies – Fair Value of Financial Instruments, the QPhoton Warrants issued on June 16, 2022, are considered Level 3 liabilities for fair value measurement on the valuation hierarchy. Accordingly, the Company recognized mark-to-market gains of $13 thousand and $384 thousand during the three and nine months ended September 30, 2023, respectively, with an ending balance of $144 thousand as of September 30, 2023. As of September 30, 2024 and December 31, 2023, the QPhoton Warrants have no carrying value as a liability on the Company’s condensed consolidated balance sheet and there was no mark-to-market adjustment recognized during the nine months ended September 30, 2024.

 

Note 12. Stock-based Compensation

 

Incentive Plans

 

The Company’s 2019 Equity and Incentive Plan, as amended in 2021 (the “2019 Plan”) enabled the Company to grant incentive stock options or nonqualified stock options and other equity awards to employees, directors and consultants of the Company up to a total of 3 million shares of the Company’s common stock. All 3 million shares available for issue under the 2019 Plan have been issued.

 

On July 5, 2022, the Board of Directors adopted the Company’s 2022 Equity and Incentive Plan (the “2022 Plan”) which provides for the issuance of up to 16 million shares of the Company’s common stock. The 2022 Plan was approved by a majority of the shareholders in September 2022. Per the 2022 Plan, the 2022 Plan reserves increased automatically by 1 million shares on January 1, 2023 and January 1, 2024, providing for a total issuance of up to 18 million shares of the Company’s common stock. As of September 30, 2024, a total of 12.4 million shares and options were issued and outstanding.

 

Options

 

The following table summarizes the Company’s option activity for the nine months ended September 30, 2024 (in thousands, except exercise price and contractual life data):

 

   Number
Outstanding		   Weighted
Average
Exercise
Price per
Share		   Weighted
Average
Remaining
Contractual
Life (Years)		 
Balance as of January 1, 2024   13,843   $2.64    3.7 
Granted   250    1.01    5.0 
Exercised   
-
    
-
    
-
 
Forfeited   (1,724)   4.11    
-
 
Balance as of September 30, 2024   12,369   $2.41    3.1 
Vested and exercisable as of September 30, 2024   8,375   $2.87    2.8 

 

F-21

 

 

The following table presents the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the three and nine months ended September 30, 2024 and 2023:

 

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2024   2023   2024   2023 
Exercise price  $1.00 – 1.12   $1.35 – 1.35   $1.00 – 1.12   $1.35 – 1.84 
Risk-free interest rate   5.2 – 5.2%   4.8 – 4.8%   5.2 – 5.2%   4.7 – 4.8%
Expected volatility   93.2 – 104.6%   134.5 – 134.5%   93.2 – 104.6%   122.2 – 136.9%
Expected dividend yield   0%   0%   0%   0%
Expected life of options (in years)   5.0    5.0    5.0    5.0 

 

The following table summarizes the exercise price range as of September 30, 2024 (in thousands, except exercise price data):

 

Exercise Price   Outstanding Options   Exercisable Options 
$0.00 – 1.00    105    10 
$1.00 – 2.00    5,348    1,794 
$2.00 – 3.00    5,845    5,500 
$3.00 – 6.00    38    38 
$6.00 – 8.00    683    683 
$8.00 – 12.00    350    350 
      12,369    8,375 

 

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2024 and 2023 was $1.01 and $1.42 per share, respectively. As of September 30, 2024, total unrecognized compensation cost related to common stock options was $3.5 million, which is expected to be recognized over a period of 3.3 years.

 

Stock-based Compensation

 

The Company recognized stock-based compensation expense related to common stock options and restricted shares of common stock in the following expense categories of its consolidated statements of operations (in thousands):

 

    Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    2024     2023     2024     2023  
Research and development   $ 562     $ 408     $ 1,761     $ 1,358  
Selling and marketing     12       85       123       (351 )
General and administrative     189       499       796       2,103  
Total stock-based compensation   $ 763     $ 992     $ 2,680     $ 3,110  

 

For the nine months ended September 30, 2024 and 2023, stock-based compensation on the statements of stockholders’ equity was lower by $207 thousand and lower by $206 thousand, respectively, as compared to the expense recorded due to timing differences between award dates and the realization of stock-based compensation expense. The net expense of $2.7 million for the nine months ended September 30, 2024 is primarily attributable to vesting expense recognition, offset by insignificant pre-vesting forfeitures of common stock options for separated employees.

 

In terms of new issuances, the Company issued 218 thousand shares of common stock to former executives in the nine months ended September 30, 2024 per their respective employment and separation agreements (the “Separation Agreement Shares”). In conjunction with the Separation Agreement Shares, the Company recognized $197 thousand of stock-based compensation expense during the nine months ended September 30, 2024, and does not expect future expense related to these offerings as they are fully vested. During the nine months ended September 30, 2023, the Company issued 2.4 million shares of common stock to employees as performance and incentive awards (the “2023 Incentive Shares”). The 2023 Incentive Shares included 854 thousand shares of common stock issued to 35 employees as payment in lieu of cash for 2022 performance bonuses (the “Bonus Incentive Shares”) and 1.5 million shares of common stock as long-term incentive bonuses to five employees identified as key technical staff (the “Retention Incentive Shares”). The Bonus Incentive Shares are restricted and subject to the following vesting schedule: one-half vested on December 31, 2023 and one-half vesting on December 31, 2024. As of December 31, 2023, the Company canceled 23,600 of the issued shares that were forfeited by employees no longer with the Company. The Retention Incentive Shares are restricted and subject to annual vesting in equal amounts over a five-year period as follows: 20% will vest on each of December 31, 2023, December 31, 2024¸ December 31, 2025, December 31, 2026, and December 31, 2027, subject to the grantee continuing to perform services for the Company in the capacity in which the grant was received on each applicable vesting date.

 

F-22

 

 

Stock-based Compensation for Services

 

The Company recognized stock-based compensation expense for services in lieu of cash payments to certain consultants, including expenses for both shares issued and stock option awards granted, in the following expense categories of its consolidated statements of operations (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Selling and marketing  $
-
   $(107)  $
-
   $(174)
General and administrative   2    107    21    456 
Total stock-based compensation  $2   $
-
   $21   $282 

 

For the nine months ended September 30, 2024 and 2023, stock-based compensation for services on the statements of stockholders’ equity was higher by $113 thousand and $2.1 million, respectively, as compared to the expense recorded due to timing differences between award dates and the realization of stock-based compensation expense.

 

In terms of new issuances, the Company issued 142 thousand and 1.5 million shares of common stock, respectively, for services in the nine months ended September 30, 2024 and 2023.

 

Note 13. Related Party Transactions

 

There were no related party transactions during the nine months ended September 30, 2024 and 2023. 

 

Note 14. License Agreement – Stevens Institute of Technology

 

Effective December 17, 2020, QPhoton signed a License Agreement with the Stevens Institute (the “Stevens License Agreement”). The Stevens License Agreement enables the Company to commercially use technology such as licensed patents, licensed patent applications and licensed “Know-How” and is also able to issue sublicenses for the technology under the agreement. The agreement is effective until the later of: (i) the 30-year anniversary of the effective date, or (ii) the expiration of the licensed patent or licensed patent application that is last to expire. As part of the merger of the Company and QPhoton, the Stevens License Agreement was assigned to the Company.

 

During the term of the Stevens License Agreement and prior to any commercialization or sublicensing of the technology by the Company, the Company is required to submit annual reports to the Stevens Institute reporting on all research, development, and efforts toward commercialization and/or sublicensing made during the year. Once any commercialization and/or sublicensing has been initiated, the Company will deliver quarterly reports to the Stevens Institute reporting on the revenue received by the Company, all sublicenses derived from the sale of licensed products, and the net sales price associated with each transaction. The Company will be responsible for reimbursing Stevens for any costs associated with the prosecution and maintenance of the licensed patents and licensed patent applications moving forward.

 

Consideration for the Agreement

 

As consideration for the license and other rights granted under the agreement, QPhoton agreed to pay the following: (i) $35 thousand within 30 days of execution of the agreement, (ii) $28 thousand within 30 days of each annual anniversary of the effective date, (iii) equity in the Company equivalent to nine percent of the outstanding equity of the Company within 30 days of the execution of the agreement, and (iv) royalties of 3.5% of the net sales price of each licensed product sold or licensed by the company during the quarter then-ended, for which it also received payment, concurrent with the delivery of the relevant quarterly report.

 

As of September 30, 2024, the Company has begun to commercialize some of the licensed technology, though has not recognized any related revenue and hence has not incurred any royalty expenses payable to the Stevens Institute.

 

F-23

 

 

Note 15. Restatement of Previously Issued Financial Statements

 

Subsequent to the issuance of our Annual Report on Form 10-K for the year ended December 31, 2023, and our subsequent retention of BPM LLP to replace BF Borgers CPA PC as our independent registered public accounting firm, management became aware of various adjustments to be recorded to our consolidated financial statements. Accordingly, on September 11, 2024, we filed Amendment 1 to our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Amendment”), amending our consolidated balance sheets as of December 31, 2023 and 2022, and amending our consolidated statements of operations, our consolidated statements of stockholders’ equity, and our consolidated statements of cash flows for the years ended December 31, 2023 and 2022, primarily with regard to the purchase accounting of the QPhoton Merger, stock-based compensation accounting, financing costs, and other matters. The restated consolidated financial statements in the 2023 Amendment also reflect the correction of certain previously-identified errors and out-of-period adjustments that were deemed immaterial to the annual or interim period in which they were recorded and have been restated in the 2023 Amendment to properly reflect the corrections in the appropriate periods.

 

In this Quarterly Report on Form 10-Q for the nine months ended September 30, 2024, we amended our consolidated statements of operations, our consolidated statements of stockholders’ equity, and our consolidated statements of cash flows for the nine months ended September 30, 2023, which restate and revise items in line with the disclosures and reclassifications discussed in the 2023 Amendment. The aggregate impact of these errors on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023, is a decrease in net loss of approximately $1.4 million and $1.0 million, respectively. The estimated aggregate impact of these errors on the Company’s condensed consolidated balance sheet for the nine months ended September 30, 2023, is (i) decreased intangible and goodwill assets of $8.6 million; (ii) materially unchanged and increased liabilities of approximately $500 thousand; and (iii) decreased stockholder’s equity of approximately $9.1 million. 

 

Note 16. Subsequent Events

 

In October and November 2024, the Company redeemed 165,566 shares of Series A Preferred Stock for $910 thousand. As of November 4, 2024, the Company has redeemed 662,264 shares of Series A Preferred Stock for a cumulative redemption amount of $3.6 million in cash paid to the Series A Holders; there are 827,740 shares of Series A Preferred Stock issued and outstanding. 

 

In October 2024, the Company resumed use of its ATM Facility and sold approximately 3.9 million  shares of common stock as of November 4, 2024. The Company intends to use the net proceeds for our operations and for other general corporate purposes, including, but not limited to, capital expenditures, including our AZ Chips Facility, as defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, payments under the Series A Redemption Agreement and general working capital. As of November 4, 2023, the Company has approximately $55 million available under the 2022 Shelf and $5 million available under the ATM Agreement, as amended.

 

There are no other events of a subsequent nature that in management’s opinion are reportable.

 

F-24

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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, 2023, 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 unaudited condensed 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 unaudited condensed 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.

 

As discussed in Note 15, Restatement of Previously Issued Financial Statements, in the accompanying notes to our unaudited condensed consolidated financial statements, we have restated our previously-issued consolidated financial statements as of and for the year ended December 31, 2023; accordingly, the following has been prepared giving effect to such restatement. 

 

Overview

 

QCi is a development stage company. Our strategy is to create a range of accessible and affordable quantum machines and photonics chips for use by commercial and government markets. We have developed and continue to primarily develop quantum and photonics products for high-performance computing applications based on patented and proprietary technology. Our technology is central to our strategy because we believe that it enables us to leverage the advantages of size, weight, power and cost (over competing cryogenic products) to drive market adoption and volume of sales. Specifically, our products are designed to operate at room temperature and at very low power levels at an affordable cost.

 

QCi’s core technology is Entropy Quantum Computing (“EQC”). EQC is a patent pending methodology that utilizes the environment to drive controlled energy loss in a photonic architecture. The Company believes that EQC’s small rack-mountable size and low-energy consumption provides a substantial competitive edge as compared to superconducting, cryogenic quantum systems offered by competitors that are also designed to solve optimization problems. In addition to our photonic computing platform, we have leveraged QCi’s core technology to demonstrate powerful quantum sensing use cases in LIDAR (Light Detection and Ranging), reservoir computing (a form of neural network that can be used in machine learning applications) and quantum cyber authentication (a method for highly secure communication within a network). Several of these important technologies are already in early stages of commercialization.

 

1

 

 

Our longer-term product development plan is to migrate product designs based on discrete components to a set of optical integrated circuits built on wafers using a crystalline material called lithium niobate (“Thin Film Lithium Niobate” or “TFLN”). The Company believes that TFLN is an excellent material for design and implementation of optical integrated circuits (“TFLN Chips”) suitable for our quantum computing and sensing products because it is crystal based and hence can have optical waveguides directly etched into the material. QCi possesses strong domain experience and intellectual property in TFLN design and chip fabrication and has completed initial production of several specialty devices such as electro-optical modulators (“EOM’s”). TFLN EOM’s have the advantages of large bandwidth, low power consumption, and small size. The Company has begun buildout of a state-of-the-art TFLN chip manufacturing facility (the “AZ Chips Facility”) in a leased space within Arizona State University’s Research Park in Tempe, Arizona. The Company’s understanding is that this could be the nation’s first dedicated optical integrated circuit manufacturing foundry using TFLN wafers to achieve quantum effects and superior optical interconnects for data centers. Our plan for the facility is to produce a range of custom lithium niobate chips for use in our own product lines as well as chips for sale in the commercial market. The Company has plans to support this initiative by applying for funding for distinct uses under both the Title 17 Clean Energy Financing Program managed by the US Department of Energy’s Loan Programs Office and also the Creating Helpful Incentives to Produce Semiconductors Act of 2022, which specifically includes $39 billion in manufacturing incentives and $13 billion to support new research and development.

 

We believe that the practical benefits to the customer of QCi’s core offerings are:

 

  ● Powerful performance in speed and quality of solution for large complex optimization problems;
     
  ● Plug and play compatibility with existing IT infrastructure;
     
  ● Low power consumption – normal operation under 80 watts; and
     
  ● Scalability with potential for migration to nanophotonic system-on-a-chip designs.

 

The Company has limited operations, has generated limited revenue based on sales of products and related services to date, and is expanding our sales and marketing efforts to support our current portfolio of commercially-available products and planned TFLN Chips.

 

Market Opportunity

 

Despite enormous growth in the capabilities of conventional computers and silicon microprocessors, some of the world’s most important computational problems are still considered impractical to solve in a reasonable period of time. Quantum computing represents a potential alternative approach to solving those problems 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 (quantum bits), which leverage some of the properties of quantum physics, namely superposition and entanglement, to process computations that would be intractably difficult using conventional computers. Quantum machines are intrinsically able to search very large solution spaces using these quantum effects and are thereby able to perform optimization calculations in polynomial time vs. exponential time.

 

While quantum-based computers will not replace conventional computers in most applications, they are ideally suited to run optimization algorithms, as well as to calculate certain sensing, imaging, and cybersecurity problems that are beyond the reach of general silicon-based computing today. The Company believes that quantum solutions have the potential to bring order of magnitude advances in the fields of medicine, engineering, autonomous vehicles, and cybersecurity and that the demand for quantum computing in these market sectors will likely outpace and outperform the general-purpose computing market in the near- to mid-term and into the foreseeable future.

 

Our core technology offers practical, cost-effective solutions that materially advance the adoption of quantum machines across several market segments including:

 

  1. Quantum Computing;

 

  2. Quantum Intelligence (Artificial Intelligence and Machine Learning);

 

  3. Remote Sensing;

 

  4. Imaging; and

 

  5. Cybersecurity.

 

2

 

 

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

 

Our results of operations for the three and nine months ended September 30, 2024 and 2023 is as follows (in thousands, except percentages):

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2024     2023     % Change     2024     2023     % Change  
Revenue:                                    
Total revenue   $ 101     $ 50       102 %   $ 311     $ 283       10 %
Gross profit     9       26       (65 )%     78       152       (34 )%
Gross profit margin     9 %     52 %     (43 )%     25 %     54 %     (29 )%
Operating expenses:                                                
Research and development     2,244       2,328       (4 )%     6,560       6,977       (6 )%
Sales and marketing     363       584       (38 )%     1,243       1,397       (11 )%
General and administrative     2,840       3,725       (24 )%     9,298       11,442       (19 )%
Total operating expenses     5,447       6,637       (18 )%     17,101       19,816       (14 )%
Loss from operations     (5,438 )     (6,611 )     (18 )%     (17,023 )     (19,664 )     13 %
Non-operating income and (expense):                                                
Interest and other income     70       126       (44 )%     180       219       (18 )%
Interest expense, net     (307 )     (369 )     (17 )%     (462 )     (1,334 )     (65 )%
Change in value of derivative and warrant liabilities     -       13       (100 )%     -       384       (100 )%
Total non-operating income (expense)     (237 )     (230 )     3 %     (282 )     (731 )     61 %
Net loss   $ (5,675 )   $ (6,841 )     (17 )%   $ (17,305 )   $ (20,395 )     (15 )%

 

3

 

 

Revenues

 

The Company’s revenues consist of (in thousands):

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2024     2023     % Change     2024     2023     % Change  
Products   $ -     $ -       -     $ 27     $ -       NM  
Services     101       50       102 %     284       283       - %
Total   $ 101     $ 50       102 %   $ 311     $ 283       10 %

 

Revenues for the three months ended September 30, 2024 were $101 thousand compared to $50 thousand for the comparable prior year period, an increase of $51 thousand or 102%. Revenues for the nine months ended September 30, 2024 were $311 thousand compared to $283 thousand for the comparable prior year period, an increase of $28 thousand or 10%. The respective increases in revenues are primarily due to changes in the number of, size of and level of effort performed on active customer proof-of-concept and research and development services and custom hardware contracts.

 

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 $92 thousand for the three months ended September 30, 2024, compared to $24 thousand for the comparable prior year period, an increase of $68 thousand or 283%. Cost of revenues for the nine months ended September 30, 2024 was $233 thousand compared to $131 thousand for the comparable prior year period, an increase of $102 thousand or 78%. The respective increases are both primarily due to the increases in direct labor expenses and other direct costs required to perform on the contracts during the 2024 periods compared to the prior year periods. 

 

Gross Margin

 

Gross margin for the three months ended September 30, 2024 was $9 thousand and 9% compared to $26 thousand and 52% for the comparable prior year period, a decrease of $17 thousand and 43%, respectively. Gross margin for the nine months ended September 30, 2024 was $78 thousand and 25% compared to $152 thousand and 54%, a decrease of $74 thousand and 29%, respectively, compared to the comparable period of 2023. The respective changes were nearly entirely the result of a new custom hardware contract that has 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

 

Information about our operating expenses for the three and nine months ended September 30, 2024 and 2023 is set forth in the below tables (in thousands, except percentages). Operating expenses for the three and nine months ended September 30, 2024 decreased by $1.2 million and $2.7 million, respectively, in each case primarily as a result of lower general and administrative expenses of approximately $900 thousand and selling and marketing expenses of approximately $200 thousand.

 

    Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    2024     2023     % Change     2024     2023     % Change  
Research and development   $ 2,244     $ 2,328       (4 )%   $ 6,560     $ 6,977       (6 )%

 

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

 

4

 

 

Research and development expenses for the three and nine months ended September 30, 2024 decreased compared to the comparable prior year periods primarily due to a reduction in employee-related expenses, primarily as a result of decreased bonus expenses. These decreases were partially offset by net increases in stock-based compensation as the Company sought to create long-term incentives to retain key technical, sales and administrative employees. See Note 12, Stock-based Compensation, in the accompanying notes to our unaudited condensed consolidated financial statements for additional information.

 

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2024   2023   % Change   2024   2023   % Change 
Sales and marketing  $363   $584    (38)%  $1,243   $1,397    (11)%

 

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.

 

Selling and marketing expenses for the three and nine months ended September 30, 2024 decreased primarily due to lower employee and related compensation, reduction in the use of consultant services and decreased marketing program costs as management continued to refine the Company’s approach to product and services sales.

 

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2024   2023   % Change   2024   2023   % Change 
General and administrative  $2,840   $3,725    (24)%  $9,298   $11,442    (19)%

 

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 for the three and nine months ended September 30, 2024 decreased compared to the comparable prior year period 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 costs 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 and such firm’s re-audit of the Company’s financial statements for the years ending December 31, 2023 and 2022.

 

Non-operating Income (Expense)

 

The following table summarizes our non-operating income (expense) for the three and nine months ended September 30, 2024 and 2023 (in thousands, except percentages).

 

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2024   2023   % Change   2024   2023   % Change 
Interest and other income  $70   $126    (44)%  $180   $219    (18)%
Interest expense, net   (307)   (369)   (17)%   (462)   (1,334)   (65)%
Change in value of derivative and warrant liabilities   -    13    (100)%   -    384    (100)%
Other income (expense)  $(237)  $(230)   3%  $(282)  $(731)   61%

 

Net other expense for the three months ended September 30, 2024 compared to the comparable prior year period is virtually unchanged, with the approximate $62 thousand decrease in net interest expense offsetting the approximate $56 thousand decrease in interest income. The $449 thousand decrease in other expense for the nine months ended September 30, 2024 compared to the comparable prior year period is the result of the $872 thousand decrease in interest expense for the Company’s financial liabilities offset by a $384 thousand reduction in gains in the fair value of the QPhoton Warrant liability.

 

Interest and other income consists of earned interest on loans receivable and cash and cash equivalents. See Note 2, Significant Accounting Policies – Cash and Cash Equivalents, in the accompanying notes to our unaudited condensed consolidated financial statements for additional information on where the Company maintains its cash balances. The decreases for the three and nine months ended September 30, 2024 compared to the comparable prior year periods is primarily due to the Company maintaining lower cash balances in mutual funds and deposit and money market accounts during the 2024 periods compared to the 2023 periods.

 

5

 

 

Interest expense, net consists of interest on financial liabilities, amortization of debt issuance costs, and accretion of derivative interest. The decrease in interest expense in 2024 compared to 2023 was attributable to decreased borrowings outstanding under the Streeterville Unsecured Note which was paid-in-full as of March 1, 2024, partially offset by new borrowings under the Streeterville Convertible Note that we issued in August 2024. See Note 8, Financial Liabilities, in the accompanying notes to our unaudited condensed consolidated financial statements for additional information.

 

The gain on change in value of warrant liability is comprised of mark-to-market adjustments for the QPhoton Warrants, which have no carrying value as of September 30, 2024 and December 31, 2023. Future mark-to-market adjustments may result in losses if the Company’s stock price increases above the exercise price of the Underlying Options, as defined below. See Note 11, Capital Stock - Warrants, in the accompanying notes to our unaudited condensed consolidated financial statements for additional information on the QPhoton Warrants. There was no mark-to-market for the Streeterville Derivative Liability as of September 30, 2024.

 

Liquidity and Capital Resources

 

We have incurred net losses and experienced negative cash flows from operations since inception. Through September 30, 2024, the Company has raised $68.3 million through private and public placements of equity and $12.6 million through private placements of convertible promissory notes and other debt for a total of $80.9 million. The Company has no lines of credit or short-term debt obligations outstanding when excluding the remaining debt issuance costs. 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, 2024, the Company had cash and cash equivalents of $3.1 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 AZ Chips Facility and 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 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, 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. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the date of the issuance of the accompanying unaudited condensed consolidated financial statements. There can be no assurances that the Company will be able to secure additional equity investments or achieve an adequate sales level.

 

The following table summarizes total consolidated current assets, liabilities and working capital at September 30, 2024, compared to December 31, 2023 (in thousands):

 

   September 30,
2024		   December 31,
2023		   Change 
Current Assets  $3,912   $2,656   $1,256 
Current Liabilities  $2,431   $4,812   $(2,381)
Working Capital (Deficit)  $1,481   $(2,156)  $3,637 

 

At September 30, 2024, we had working capital of $1.5 million as compared to a working capital deficit of $2.2 million at December 31, 2023, an increase of $3.7 million. The increase in working capital is primarily attributable to an increase in cash proceeds from our issuance of shares of common stock using the Company’s ATM Facility and our issuance of the Streeterville Convertible Note, offset by the use of cash to pay for operating expenses and capital investments in property and equipment.

 

6

 

 

Cash Flows

 

The following table summarizes our cash flow for the nine months ended September 30, 2024 and 2023 (in thousands).

 

   Nine Months Ended
September 30,		 
   2024   2023 
Net cash used in operating activities  $(12,439)  $(13,348)
Net cash used in investing activities   (3,170)   (2,665)
Net cash provided by financing activities   16,614    18,084 
Net increase in cash, cash equivalents, and restricted cash  $1,005   $(4,315)

 

Net cash used in operating activities for the nine months ended September 30, 2024 and 2023 was $12.4 million and $13.3 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 nine months ended September 30, 2024 and 2023 was $3.2 million and $2.7 million, respectively, and was attributable to our purchase of computer hardware, laboratory and TFLN Chips manufacturing equipment. The increase in investment in the 2024 period is primarily due to the purchase of additional equipment in connection with establishing the Company’s AZ Chip Facility.

 

Net cash provided by financing activities was $16.6 million and $18.1 million, respectively, for the nine months ended September 30, 2024 and 2023. Cash flows provided by financing activities during the nine months ended September 30, 2024 were attributable to 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 and redemptions of shares of Series A Preferred Stock. Cash flows provided by financing activities during the period ended September 30, 2023 were attributable to proceeds from our sale of shares of common stock pursuant to the ATM Facility, partially offset by repayments on the Streeterville Unsecured Note.

 

On a long-term basis, our liquidity is dependent on the continuation and expansion of operations and receipt of revenues. Demand for our 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 most of our revenues will be from the sales of our products and services, our business operations may be adversely affected by the actions of our competitors and 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 and Derivatives

 

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.

 

Another area of critical accounting estimates involves 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.

 

Another area of critical accounting estimates involves determining the fair value of 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.

 

7

 

 

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 merger with QPhoton 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 September 30, 2024, we had federal and state net operating loss (“NOL”) carryforwards of approximately $60.1 million, or $15.6 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 September 30, 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 unaudited condensed consolidated financial statements.

 

8

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

(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, 2024, 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.

 

(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.

 

9

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Except as listed below, there is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or our subsidiaries, threatened against or affecting the Company, our common stock, our subsidiaries, or the Company’s or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect on the Company. 

 

BV Advisory v. QCi Appraisal Action

 

BV Advisory was purportedly a shareholder of QPhoton, Inc., the predecessor in interest to QPhoton, LLC, a wholly owned subsidiary of the Company (both referred to as “QPhoton” in this Legal Proceedings discussion). On October 13, 2022, BV Advisory filed a petition in the DE Chancery Court seeking appraisal rights (the “Appraisal Petition”) on the shares of common stock of QPhoton it allegedly owns (which shares represented 10% of the shares of common stock of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton) pursuant to Section 262 of the General Corporation Law of the State of Delaware. The parties agreed to suspend discovery pending resolution of outstanding motions in two related cases. On July 24, 2024, the DE Chancery Court granted a petition by BV Advisory’s legal counsel to withdraw from the case. As of November 4, 2024, BV Advisory has not retained new counsel to represent it on the Appraisal Petition, and the Company does not have sufficient information to assess the potential impact of the appraisal demand at this time.

 

BV Advisory v. QCi Breach Lawsuit

 

On March 1, 2021, QPhoton entered into a Note Purchase Agreement with BV Advisory. Under the Note Purchase Agreement, on March 1, 2021, March 23, 2021 and July 9, 2021, QPhoton and BV Advisory entered into convertible promissory notes for $200,592, $150,000, and $150,000, respectively, for a total of $500,592 (the “BV Notes”). The BV Notes all bore interest at a rate of 6% per annum and matured two years from the issuance date. On June 16, 2022, the effective date of our acquisition of QPhoton, QPhoton tendered a cashier’s check to BV Advisory in the amount of $535,684.24, representing the full principal balance of the BV Notes and accrued interest through June 16, 2022. On July 14, 2022, BV Advisory returned the cashier’s check and disputed the calculation of the amount paid to settle the BV Notes.

 

On August 16, 2022, BV Advisory filed a complaint in the DE Chancery Court naming the Company and certain of its directors and officers (among others) as defendants (the “Breach Lawsuit”). BV Advisory Partners, LLC v. Quantum Computing Inc., et al., C.A. No. 2022-0719-VCG (Del. Ch.). BV Advisory is seeking, among other relief, monetary damages for an alleged breach of the Note Purchase Agreement between BV Advisory and QPhoton, as well as monetary damages for alleged breach of an alleged binding letter of intent among Barksdale Global Holdings, LLC (“BGH”), Inference Ventures, LLC (“Inference Ventures”) and QPhoton. BV Advisory and its affiliates claim that pursuant to the letter of intent they had the right to acquire additional shares in QPhoton by investing $2.5 million in QPhoton. BV Advisory claims QPhoton refused to allow BV Advisory to purchase the equity. However, BV Advisory never made the additional investment in QPhoton. The Company believes that BV Advisory’s claims have no merit and intends to defend itself vigorously. The Company filed a motion to dismiss most of the Breach Lawsuit, and on May 28, 2024, the DE Chancery Court dismissed eight of the 10 counts in the BV Advisory complaint. On July 24, 2024, the DE Chancery Court entered an Order dismissing those eight counts with prejudice. On October 17, 2024, the DE Chancery Court granted a Stipulation and Order dismissing the two remaining counts of the BV Advisory complaint, subject to BV Advisory’s right to elect to transfer the BV Note claim to DE Superior Court. On October 23, 2024, BV Advisory filed an initial notice of election to transfer its BV Note claim to DE Superior Court

 

As of November 4, 2024, the parties are anticipating a conference with the DE Chancery Court to discuss a schedule for the Appraisal Petition, pending BV Advisory retaining counsel in that action.

 

QCi v. BV Advisory Defamation Lawsuit

 

On December 30, 2022 the Company, QPhoton and Robert Liscouski (the “Quantum Plaintiffs”) filed suit in the Superior Court of New Jersey (the “NJ Court”) against Keith Barksdale, Michael Kotlarz, BV Advisory, BGH, Power Analytics Global Corporation (“PAG”), and Inference Ventures (and together with Barksdale, Kotlarz, BV Advisory, BGH, and PAG the “BV Defendants”), alleging fraud, aiding and abetting fraud, defamation, and conspiracy to defraud, seeking monetary and injunctive relief (the “Defamation Lawsuit”). The Company claims that the BV Defendants have made numerous public statements defaming the Company and its management in furtherance of a plan to manipulate the trading prices of the Company’s common stock, and that the BV Defendants misrepresented their ownership in QPhoton and conspired to acquire additional shares of QPhoton at the Company’s expense. The BV Defendants filed a motion to dismiss the complaint on March 24, 2023, and on June 5, 2023, the NJ Court largely denied the BV Defendants’ motion. On January 31, 2024, the BV Defendants filed a motion for reconsideration of their motion to dismiss. On March 7, 2024, the NJ Court issued an order, granting the BV Defendant’s motion dismissing the Company’s case on procedural grounds because, according to the NJ Court, the Company can assert its claims against Defendants in the Delaware courts. The Company filed a motion for reconsideration of the order dismissing the case, which was argued on April 30, 2024. On May 1, 2024 the NJ Court affirmed its initial order dismissing the case and directed the Company to file its claims against the BV Defendants in Delaware. The Company is currently evaluating whether it should file the claims in Delaware and does not have sufficient information at this time to assess the potential impact of the action against the BV Defendants.

 

10

 

 

BV Advisory Receivership Petition

 

On July 27, 2023, BV Advisory and its managing member, Keith Barksdale, as alleged stockholders of and claimants against the Company, filed a petition in the DE Chancery Court to appoint a receiver for the Company based on allegations that the Company is insolvent due to purported poor corporate governance and cash management. The petition also objects to the Company’s approach to raising capital. In a related motion, the petitioners also sought expedited treatment of the petition on July 28, 2023, alleging that they face a threat of irreparable harm. The Company strongly disagrees with the allegations in the petition. On August 23, 2023, the Company filed a motion to dismiss the petition. The Company’s motion to dismiss and BV Advisory’s motion for expedited treatment were argued before the DE Chancery Court on October 11, 2023. The DE Chancery Court denied BV Advisory’s motion to expedite and on May 28, 2024 the DE Chancery Court granted the Company’s motion to dismiss the petition without prejudice.

 

Item 1A. Risk Factors.

 

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, 2023, filed with the SEC on April 1, 2024.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no unregistered sales of or Company repurchases of the Company’s equity securities during the three months ended September 30, 2024.

 

Item 3. Defaults upon Senior Securities.

 

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.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

None

 

11

 

 

Item 6. Exhibits.

 

        Incorporated by    
Exhibit       Reference   Filed or Furnished
Number   Exhibit Description   Form   Exhibit   Filing Date   Herewith
4.1   Secured Promissory Note issued to Streeterville Capital, LLC, dated as of August 6, 2024   8-K   4.1   08/12/24    
10.1   Securities Purchase Agreement between Quantum Computing Inc. and Streeterville Capital, LLC, dated as of August 6, 2024   8-K   10.1   08/12/24    
10.2   Security Agreement between Quantum Computing Inc. and Streeterville Capital, LLC, dated as of August 6, 2024   8-K   10.2   08/12/24    
10.3   IP Security Agreement between Quantum Computing Inc. and Streeterville Capital, LLC, dated as of August 6, 2024   8-K   10.3   08/12/24    
10.4   Guaranty by QPhoton, LLC, Qubittech International, Inc., Qubittech, Inc., and QI Solutions, Inc., dated August 6, 2024   8-K   10.4   08/12/24    
10.5   Amendment to Employment Agreement by and between Quantum Computing Inc. and Yuping Huang, dated as of September 1, 2024               X
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.               X
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.               X
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350.               X
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350.               X
101.INS   Inline XBRL Instance Document               X
101.SCH   Inline XBRL Taxonomy Extension Schema Linkbase Document.               X
101.CAL   Inline XBRL Taxonomy Calculation Linkbase Document.               X
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.               X
101.LAB   Inline XBRL Taxonomy Label Linkbase Document.               X
101.PRE   Inline XBRL Taxonomy Presentation Linkbase Document.               X
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).                

 

**Indicates a management contract or compensatory plan or arrangement.

 

12

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  QUANTUM COMPUTING INC.
     
Dated: November 6, 2024 By: /s/ Dr. William McGann
    Dr. William McGann
    Chief Executive Officer and President
     
  By: /s/ Christopher Boehmler
    Christopher Boehmler
    Chief Financial Officer

 

 

13

 

As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023. As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. 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Exhibit 10.5

 

AMENDMENT 1 TO EMPLOYMENT AGREEMENT

 

Between

 

QUANTUM COMPUTING INC. and YUPING HUANG

 

This First Amendment to Employment Agreement (this “First Amendment”) is made as of the 1st day of September 2024, between Yuping Huang (the “Executive”) and Quantum Computing Inc. (the “Company”), and amends in certain respects that certain Employment Agreement dated as of June 16, 2022, between the Executive and the Company (the “Original Employment Agreement”).

 

1. Amendment to Section 3.1. Section 3.1 of the Original Agreement is hereby deleted and replaced in its entirety with the following:

 

Salary. Effective September 1, 2024 the Company shall pay Executive hourly rate of One Hundred Ninety-Two Dollars and Thirty One Cents ($192.31) payable in twice monthly installments in accordance with the Company’s customary payroll cycle (the “Base Rate”). The Base Rate thereafter shall be subject to annual review and adjustment, as determined by the Board (or the Compensation Committee of the Board) in its sole discretion, provided, however, that the Base Rate may not be decreased without the Executive’s consent unless the compensation payable to all executives of the Company is also similarly reduced. Gross Wages, defined as hours worked times the Base Rate, shall be used in lieu of Base Salary, for the purpose of calculating bonus awards. The Executive shall be treated as hourly, exempt under the FLSA and will receive a W-2 at year end. Executive agrees that this change from salary to hourly payment does not trigger the Termination for Good Reason provision in Section 5.5. The Company and Executive further agree that this change does not affect the vesting of any stock option grants.

 

2. Amendment to Section 5.2. Section 5.2 of the Original Agreement is hereby deleted and replaced in its entirety with the following:

 

Voluntary Termination by the Company, or for Good Reason. In the event that Executive’s employment is terminated during the term of this Agreement without Cause, or by Executive’s resignation for Good Reason, and Executive executes a release in favor of the Company substantially in the form annexed hereto as Exhibit C, not later than 30 days after Executive’s employment terminates, and the period in which Executive is entitled to revoke such release has expired without any such revocation, then the Company shall continue to pay to Executive the Base Rate in effect immediately prior to such termination for the one-month period following Executive’s last day of employment, times the average weekly hours worked in the eight weeks prior to such termination. In addition, the Company shall continue Executive’s coverage under and its contributions towards Executive’s health care, dental, and life insurance benefits on the same basis as immediately prior to the date of termination, except as provided below, for the six-month period following Executive’s last day of employment. Notwithstanding the foregoing, subject to any overriding laws, the Company shall not be required to provide any health care, dental, or life insurance benefit otherwise receivable by Executive if Executive is actually covered or becomes covered by an equivalent benefit (at the same cost to Executive, if any) from another source. Any such benefit made available to Executive shall be reported to the Company.

 

3. No Other Amendments. The Original Employment Agreement remains in full force and effect and is unamended except as explicitly set forth in this First Amendment.

 

4. Counterparts. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

[Remainder of page intentionally left blank; signature page follows]

 

 

 

 

IN WITNESS WHEREOF, each of the Executive and the Company has executed this First Amendment as of the date first above written.

 

YUPING HUANG   Quantum Computing Inc.
       
Signature: /s/ Yuping Huang   Signature: /s/ Chris Boehmler
Typed Name:  Yuping Huang   Typed Name:  Chris Boehmler
Title: Chief Quantum Officer   Title: Chief Financial Officer
     
Date: 9/6/2024   Date: 9/6/2024

 

 

 

 

 

Exhibit 31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

I, Dr. William McGann, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Quantum Computing Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: November 6, 2024    
    /s/ Dr. William McGann
  By: Dr. William McGann
    Principal Executive Officer

 

Exhibit 31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

I, Christopher Boehmler, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Quantum Computing Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: November 6, 2024    
    /s/ Christopher Boehmler
  By: Christopher Boehmler
    Principal Financial Officer and
Principal Accounting Officer

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Quantum Computing Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Dr. William McGann, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: November 6, 2024    
    /s/ Dr. William McGann
  By: Dr. William McGann
    Principal Executive Officer

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Quantum Computing Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Christopher Boehmler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: November 6, 2024    
    /s/ Christopher Boehmler
  By: Christopher Boehmler
    Principal Financial Officer and
Principal Accounting Officer

 

v3.24.3
Cover - shares
 9 Months Ended
Sep. 30, 2024
Nov. 04, 2024
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Entity Interactive Data Current Yes  
Amendment Flag false  
Document Period End Date Sep. 30, 2024  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q3  
Entity Information [Line Items]    
Entity Registrant Name QUANTUM COMPUTING INC.  
Entity Central Index Key 0001758009  
Entity File Number 001-40615  
Entity Tax Identification Number 82-4533053  
Entity Incorporation, State or Country Code DE  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Incorporation, Date of Incorporation Jul. 20, 2018  
Entity Contact Personnel [Line Items]    
Entity Address, Address Line One 5 Marine View Plaza  
Entity Address, Address Line Two Suite 214  
Entity Address, City or Town Hoboken  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 07030  
Entity Phone Fax Numbers [Line Items]    
City Area Code (703)  
Local Phone Number 436-2121  
Entity Listings [Line Items]    
Title of 12(b) Security Common Stock, par value $.0001 QUBT The Nasdaq Stock Market LLC  
Trading Symbol QUBT  
Security Exchange Name NASDAQ  
Entity Common Stock, Shares Outstanding   99,086,476
v3.24.3
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Current assets:    
Cash and cash equivalents $ 3,064 $ 2,059
Accounts receivable, net 63 65
Inventory 241 73
Loans receivable, net 306 279
Prepaid expenses and other current assets 238 180
Total current assets 3,912 2,656
Property and equipment, net 5,826 2,870
Operating lease right-of-use assets 1,622 1,051
Intangible assets, net 9,748 12,076
Goodwill 55,573 55,573
Other non-current assets 129 129
Total assets 76,810 74,355
Current liabilities:    
Accounts payable 923 1,462
Accrued expenses 539 639
Financial liabilities, net of issuance costs 1,925
Deferred revenue 48
Other current liabilities 921 786
Total current liabilities 2,431 4,812
Financial liabilities, net of issuance costs 6,514
Derivative liability 666
Operating lease liabilities 1,297 840
Total liabilities 10,908 5,652
Contingencies (see Note 10)
Mezzanine equity 5,463
Stockholders’ equity:    
Preferred stock, $0.0001 par value, 1,550 shares Series A Preferred authorized; 993 thousand and 1,490 thousand shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively; 3,080 thousand shares of Series B Preferred Stock authorized; no shares issued and outstanding as of September 30, 2024 and December 31, 2023
Common stock, $0.0001 par value, 250,000 thousand shares authorized; 94,416 thousand and 77,451 thousand shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 9 8
Additional paid-in capital 209,675 200,635
Accumulated deficit (149,245) (131,940)
Total stockholders’ equity 60,439 68,703
Total liabilities and mezzanine and stockholders’ equity $ 76,810 $ 74,355
v3.24.3
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares
Sep. 30, 2024
Dec. 31, 2023
Common stock, par value (in Dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 94,416,000 77,451,000
Common stock, shares outstanding 94,416,000 77,451,000
Series A Preferred Stock    
Preferred stock par value (in Dollars per share) $ 0.0001 $ 0.0001
Preferred stock, shares authorized 1,550,000 1,550,000
Preferred stock, shares issued 993,000 1,490,000
Preferred stock, shares outstanding 993,000 1,490,000
Series B Preferred Stock    
Preferred stock, shares authorized 3,080,000 3,080,000
Preferred stock, shares issued
Preferred stock, shares outstanding
v3.24.3
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
 [1]
Sep. 30, 2024
Sep. 30, 2023
 [1]
Income Statement [Abstract]        
Total revenue $ 101 $ 50 $ 311 $ 283
Cost of revenue 92 24 233 131
Gross profit 9 26 78 152
Operating expenses        
Research and development 2,244 2,328 6,560 6,977
Sales and marketing 363 584 1,243 1,397
General and administrative 2,840 3,725 9,298 11,442
Total operating expenses 5,447 6,637 17,101 19,816
Loss from operations (5,438) (6,611) (17,023) (19,664)
Non-operating income (expense)        
Interest and other income 70 126 180 219
Interest expense, net (307) (369) (462) (1,334)
Change in value of warrant liabilities 13 384 [2]
Loss before income tax provision (5,675) (6,841) (17,305) (20,395)
Income tax provision
Net loss (5,675) (6,841) (17,305) (20,395) [2]
Less: Series A convertible preferred stock dividends (215) (646)
Net loss attributable to common stockholders $ (5,675) $ (7,056) $ (17,305) $ (21,041)
Loss per share – basic (in Dollars per share) $ (0.06) $ (0.1) $ (0.19) $ (0.33)
Loss per share – diluted (in Dollars per share) $ (0.06) $ (0.1) $ (0.19) $ (0.33)
Weighted average shares used in computing net loss per common share – basic (in Shares) 93,048 71,588 89,063 64,246
Weighted average shares used in computing net loss per common share – dilutive (in Shares) 93,048 71,588 89,063 64,246
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
[2] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
v3.24.3
Condensed Consolidated Statements of Mezzanine and Stockholders’ Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Mezzanine Equity
Series A Preferred Stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Total
Balance at Dec. 31, 2022 [1]   $ 6 $ 169,175 $ (104,057) $ 65,124
Balance (in Shares) at Dec. 31, 2022 [1]   1,500 55,963      
Issuance of shares for cash   $ 2 22,762 22,764
Issuance of shares for cash (in Shares)     15,291      
Conversion of preferred stock   1 1
Conversion of preferred stock (in Shares)   (10) 11      
Preferred stock dividends   (646) (646)
Stock-based compensation   2,904 2,904
Stock-based compensation (in Shares)     2,330      
Stock-based compensation for services   2,407 2,407
Stock-based compensation for services (in Shares)     1,500      
Net loss   (20,395) (20,395) [2],[3]
Balance at Sep. 30, 2023 [1]   $ 8 197,249 (125,098) 72,159
Balance (in Shares) at Sep. 30, 2023 [1]   1,490 75,095      
Balance at Jun. 30, 2023 [1]   $ 7 187,751 (118,042) 69,716
Balance (in Shares) at Jun. 30, 2023 [1]   1,490 67,215      
Issuance of shares for cash   $ 1 8,536 8,537
Issuance of shares for cash (in Shares)     6,380      
Conversion of preferred stock  
Preferred stock dividends   (215) (215)
Stock-based compensation   984 984
Stock-based compensation (in Shares)     1,500      
Stock-based compensation for services   (22) (22)
Net loss   (6,841) (6,841) [3]
Balance at Sep. 30, 2023 [1]   $ 8 197,249 (125,098) 72,159
Balance (in Shares) at Sep. 30, 2023 [1]   1,490 75,095      
Balance at Dec. 31, 2023 $ 8 200,635 (131,940) 68,703
Balance (in Shares) at Dec. 31, 2023   1,490 77,451      
Issuance of shares for cash $ 1 14,628 14,629
Issuance of shares for cash (in Shares)     16,605      
Reclassification of Series A preferred stock to mezzanine equity 8,195 (8,195) (8,195)
Repurchase of redeemable shares (2,732)
Repurchase of redeemable shares (in Shares)   (497)        
Stock-based compensation 2,473 2,473
Stock-based compensation (in Shares)     218      
Stock-based compensation for services 134 134
Stock-based compensation for services (in Shares)     142      
Net loss (17,305) (17,305)
Balance at Sep. 30, 2024 5,463 $ 9 209,675 (149,245) 60,439
Balance (in Shares) at Sep. 30, 2024   993 94,416      
Balance at Jun. 30, 2024 6,829 $ 9 209,086 (143,570) 65,525
Balance (in Shares) at Jun. 30, 2024   1,241 94,416      
Issuance of shares for cash
Repurchase of redeemable shares (1,366)
Repurchase of redeemable shares (in Shares)   (248)        
Stock-based compensation 587 587
Stock-based compensation for services 2 2
Net loss (5,675) (5,675)
Balance at Sep. 30, 2024 $ 5,463 $ 9 $ 209,675 $ (149,245) $ 60,439
Balance (in Shares) at Sep. 30, 2024   993 94,416      
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023.
[2] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
[3] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
v3.24.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
 [1]
Cash flows from operating activities:    
Net loss $ (17,305) $ (20,395) [2]
Adjustments to reconcile net loss to net cash used in operations    
Depreciation and intangibles amortization 2,542 2,509
Amortization of issuance costs 323 730
Change in fair value of warrant liability (384) [2]
Other recognized losses (gains) 31
Stock-based compensation expense 2,680 3,110
Stock-based compensation expense for services 21 282
Changes in operating assets and liabilities    
Accounts receivable 2 11
Inventories (168)
Prepaid expenses and other current assets (115) (110)
Other non-current assets (571) 89
Accounts payable (539) 259
Deferred revenue 48 12
Accrued expenses and other current liabilities 155 939
Other long-term liabilities 457 (400)
Net cash used in operating activities (12,439) (13,348)
Cash flows from investing activities:    
Purchase of property and equipment (3,170) (2,165)
Loans receivable (500)
Net cash used in investing activities (3,170) (2,665)
Cash flows from financing activities:    
Proceeds raised from financial liabilities, net of issuance costs 6,995
Payments of financial liabilities, net of interest (2,063) (4,030)
Series A Preferred stock dividend payments (215) (650)
Repurchase of Series A preferred stock (2,732)
Proceeds from stock issuance related to ATM facility 14,629 22,764
Net cash provided by financing activities 16,614 18,084
Net increase in cash 1,005 2,071
Cash and cash equivalents, beginning of period 2,059 5,308
Cash and cash equivalents, end of period 3,064 7,379
Supplemental disclosures of cash flow information:    
Cash paid for interest 31 720
Non-cash investing and financing activities:    
Reclassification of Series A preferred stock to mezzanine equity 8,195
Valuation of derivative associated with convertible financial liability $ 666
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
[2] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
v3.24.3
Nature of the Organization and Business
 9 Months Ended
Sep. 30, 2024
Nature of the Organization and Business [Abstract]  
Nature of the Organization and Business

Note 1. Nature of the Organization and Business

 

Corporate History

 

Quantum Computing Inc. (“QCi” or the “Company”) was formed in the State of Nevada on July 25, 2001, under its original name, Ticketcart, Inc., which was changed to Innovative Beverage Group Holdings, Inc. in 2009. The Company redomiciled to Delaware on February 22, 2018 and changed its name to Quantum Computing Inc. Effective July 20, 2018, the trading symbol for the Company’s common stock, par value $0.0001, on the OTC Market changed from “IBGH” to “QUBT”. On July 15, 2021 the Company uplisted to The Nasdaq Stock Market LLC. On June 16, 2022, the Company merged with QPhoton, Inc. (“QPhoton”), a developer of quantum photonic systems and related technologies and applications.

 

Nature of Business

 

QCi is an American company utilizing integrated photonics and non-linear quantum optics to deliver quantum and ancillary products for high-performance computing applications based on patented and proprietary photonics technology. QCi’s products are designed to operate at room temperature and at very low power levels beyond the capabilities of other systems in the market. Our core photonics technology enables the execution of a go-to-market strategy which emphasizes accessibility and affordability. Our quantum machines enable subject matter experts (SMEs) and end users to deliver critical business solutions today in working with highly complex optimization problems.

 

The Company initially focused on providing software tools and applications for several commercially available quantum computers. However, following the June 2022 merger with QPhoton and its associated intellectual property and engineering team, the Company now offers integrated high-performance quantum systems, ancillary products and services.

 

The core of our quantum offerings today is our Entropy Quantum Computing (“EQC”) technology. We have built room-temperature, photonic quantum information processing systems underpinned by a series of patented and patent pending technologies. Our technology, supported by professional services through our “Quantum Solutions” offering, enables our clients to solve complex optimization problems. In addition, our engineering teams are using our leading-edge photonics technology to continue to enhance and further develop quantum LIDAR sensing and imaging systems, quantum-secured network solutions, and photonic chips.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, the realization of assets, and the satisfaction of liabilities in the normal course of business. Cash and cash equivalents on hand were $3.1 million as of September 30, 2024. The Company has historically incurred losses and negative cash flows from operations. As of September 30, 2024, the Company also had an accumulated deficit of $149.2 million and working capital of $1.5 million. Furthermore, we have not achieved a level of sales adequate to support the Company’s cost structure and may need to raise additional funds in the next 12 months by selling additional equity or incurring debt. It is management’s opinion that these conditions raise substantial doubt about our ability to continue as a going concern.
v3.24.3
Significant Accounting Policies
 9 Months Ended
Sep. 30, 2024
Significant Accounting Policies [Abstract]  
Significant Accounting Policies

Note 2. Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation:

 

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (the “FASB”), including Accounting Standards Codification (“ASC”) 810, Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year end is December 31.

 

Reclassifications

 

Certain reclassifications have been made to the fiscal year 2023 audited consolidated financial statements to conform to the presentation in the three and nine months ended September 30, 2024. The reclassifications had no impact on consolidated net loss, total consolidated assets, total consolidated liabilities, or consolidated stockholders’ equity.

 

Risk and Uncertainties

 

The Company is subject to certain risks and uncertainties and believes changes in any of the following areas could have a material adverse effect on the Company’s future consolidated financial position or consolidated results of operations or cash flows: new product development, including market receptivity; litigation or claims against the Company based on intellectual property, patent, product regulation or other factors; competition from other products; general economic conditions; the ability to attract and retain qualified employees; and, ultimately, to sustain profitable operations.

 

Use of Estimates

 

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include the valuation of goodwill and intangible assets, deferred tax assets, equity-based transactions and liquidity assessment. Actual results may differ from these estimates.

 

Cash and Cash Equivalents

 

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. The Company maintains its cash in mutual funds and deposit and money market accounts with high quality financial institutions which, at times, may exceed federally insured limits. As of September 30, 2024 and December 31, 2023, the Company had $2.3 million and $2.1 million, respectively, in cash equivalents invested in mutual funds. The Company has not experienced any losses on these deposits and believes it is not exposed to significant credit risk on cash. 

  

Revenue

 

The Company recognizes revenue in accordance with ASC 606 – Revenue from Contracts with Customers, by analyzing contracts with its customers using a five-step approach:

 

  1. Identify the contract
     
  2. Identify the performance obligations
     
  3. Determine the transaction price
     
  4. Allocate the transaction price to the performance obligations
     
  5. Recognize revenue when performance obligations are satisfied

 

The revenue the Company has recognized in the nine months ended September 30, 2024 and 2023 were primarily derived from contracts to perform professional services. Revenue from time and materials-based contracts is recognized 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 units-based contracts is recognized as the number of units delivered or performed during the period times the contractual unit price. 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-plus type contracts at this time.

 

The Company includes depreciation and amortization expenses in manufacturing overhead, which is a component of cost of revenue. However, at the present time manufacturing overhead, including depreciation and amortization expense related to production equipment, is not material and the primary components of cost of revenue are direct labor and direct materials, with a small amount of shipping expenses.

 

Accounts Receivable

 

Accounts receivable consists of amounts due from customers for work performed on contracts. The Company records accounts receivable at their net realizable value. Periodically the Company evaluates its accounts receivable to establish a provision for credit losses, when deemed necessary, based on the history of past write-offs, collections and current credit conditions. The customer accounts receivable as of September 30, 2024 are considered not fully collectible and thus the Company has recorded a provision for credit losses of $3.5 thousand; the customer accounts receivable as of December 31, 2023 are considered fully collectible.

 

Provision for Credit Losses

 

The Company estimates losses on loans and other financial instruments in accordance with Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces the current expected credit losses (“CECL”) methodology for estimating allowances for credit losses. The CECL framework requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supporting forecasts. Under CECL, the allowance for credit losses is measured as the difference between the financial asset’s cost basis and the net amount expected to be collected on the financial asset. CECL allows us to use information about past events including historical loan loss experience, current conditions, and reasonable and supportable forecasts to assess the collectability of the financial assets. The receivables for financial assets as of September 30, 2024 and December 31, 2023 are not considered fully collectible and thus management has recorded a provision for credit losses. See Note 9, Loan Receivable, for additional information.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis which approximates actual cost on a first in-first out method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory and are charged to cost of revenue. Once the cost of the inventory is reduced, a new lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Factors influencing these adjustments include changes in demand, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from our estimates.

 

Operating Leases

 

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets, net on the consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities and noncurrent operating lease liabilities, respectively, on the consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, and the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. All of our operating leases are comprised of office space leases, and as of September 30, 2024 and December 31, 2023, we had no finance leases.

 

Business Combinations and Valuation of Goodwill

 

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded withing general and administrative expenses.

 

The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an annual impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to assess impairment, its common stock price is an important component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment in future periods. The Company performs its annual impairment test during the fourth quarter of each fiscal year. As of September 30, 2024, we had not identified any factors that indicated there was an impairment of our goodwill and determined that no additional impairment analysis was then required.

 

Property and Equipment

 

Property and equipment are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Maintenance and repairs are charged against expense as incurred.

 

Impairment of Long-Lived Assets

 

The Company has long-lived assets such as tangible property and equipment, identified intangible assets consisting of acquired patents and core technology. When events or changes in circumstances occur that could indicate the carrying value of long-lived assets may not be recoverable, the Company assesses recoverability by determining whether the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If the undiscounted cash flow is less, an impairment charge is recognized for the excess of the carrying amounts of these assets over the fair values. Fair values are determined by discounted future cash flows, appraisals or other methods.

 

During the three and nine months ended September 30, 2024 and 2023, the Company did not record any impairment from long-lived assets.

 

Fair Value of Financial Instruments

 

The carrying amount of certain financial instruments held by the Company, such as cash equivalents, accounts receivable, contract assets and liabilities, accounts payable, and accrued and other current liabilities, approximate fair value due to their short maturities. The carrying amount of the liabilities for the convertible preferred stock warrants represent their fair value. The carrying amounts of the Company’s borrowings and lease liabilities approximate fair value due to the market interest rates that these obligations bear and interest rates currently available to the Company.

 

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

 

  Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;

 

  Level 2 Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

  Level 3 Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

 

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As of September 30, 2024 and December 31, 2023, the Company had $2.3 million of the $3.1 million cash and cash equivalents and $793 thousand of the $2.1 million cash and cash equivalents, respectively, in Level 1 assets, comprised of U.S. Government mutual funds, and $666 thousand and no carrying value, respectively, for Level 3 liabilities, which are comprised of derivative and warrant liabilities. See Note 11, Capital Stock – Warrants, for a full discussion of the warrant liability. 

 

Research and Development Costs

 

Research and development costs include costs directly attributable to the conduct of research and development programs, including the cost of services provided by outside contractors, acquiring work-in-progress intellectual property, development, and mandatory compliance fees and contractual obligations. All costs associated with research and development are expensed as incurred.

 

Software Development Costs

 

Software development costs incurred subsequent to the establishment of technological feasibility for software intended to be sold, licensed or otherwise marketed to customers will be capitalized, but development costs not meeting the criteria for capitalization are expensed as incurred. With respect to internal use software, the Company will capitalize such development costs incurred during the application development stage, but development costs incurred prior to that stage will be expensed as incurred. No amortization expense will be recorded until the software is ready for its intended use. To date the Company has not incurred any material capitalizable software development costs.

 

Stock-based 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 pre-vesting 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.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets where, based upon the available evidence, management concludes that it is more-likely-than-not that the deferred tax assets will not be realized. Realization of deferred tax assets is also dependent upon future earnings, if any, the timing and amount of which are uncertain.

 

The Company records a liability for the uncertain tax positions taken or expected to be taken on the Company’s tax return when it is more-likely-than-not that the tax position might be challenged despite the Company’s belief that the tax return positions are fully supportable, and additional taxes will be due as a result. To the extent that the assessment of such tax positions changes, for example, based on the outcome of a tax audit, the change in estimate is recorded in the period in which the determination is made. The provision for income taxes includes the impact of provisions for uncertain tax positions.

 

Loss Per Share

 

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the number of additional common shares that would have been outstanding if the common share equivalents had been issued (computed using the “If-Converted” method), unless the effect of such issuances would have been anti-dilutive.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. The Company has evaluated the recently implemented accounting standards and concluded that none currently apply to the Company.
v3.24.3
Net Loss per Common Share
 9 Months Ended
Sep. 30, 2024
Net Loss per Common Share [Abstract]  
Net Loss per Common Share

Note 3. Net Loss per Common Share

 

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):

 

   

Three Months Ended

September 30,

    

Nine Months Ended

September 30,

  
    2024     2023     2024     2023  
Numerator:                        
Net loss   $ (5,675 )   $ (6,841 )   $ (17,305 )   $ (20,395 )
Less: Series A convertible preferred stock dividends     -       (215 )     -       (646 )
Net loss attributable to common stockholders – basic and diluted   $ (5,675 )   $ (7,056 )   $ (17,305 )   $ (21,041 )
Denominator:                                
Weighted average shares used in computing net loss per common share – basic and diluted     93,048       71,588       89,063       64,246  
Net loss per common share – basic and diluted   $ (0.06 )   $ (0.10 )   $ (0.19 )   $ (0.33 )

  

Net loss per share is based on the weighted average number of the Company’s common shares and common share equivalents outstanding during the period.

 

In periods with a reported net loss, the effect of anti-dilutive stock options, unvested restricted common stock and warrants are excluded and diluted loss per share is equal to basic loss per share. Due to a net loss in the three and nine months ended September 30, 2024 and 2023, there were therefore no dilutive securities and hence basic and diluted loss per share were the same. The following is a summary of the weighted average common stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Warrants   2,212    5,973    2,538    6,092 
Options   12,407    13,069    12,882    11,410 
Unvested restricted common stock   2,997    1,783    2,997    771 
Total potentially dilutive shares   17,616    20,825    18,417    18,273 

 

As all potentially dilutive securities are anti-dilutive as of September 30, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each period.
v3.24.3
Income Taxes
 9 Months Ended
Sep. 30, 2024
Income Taxes [Abstract]  
Income Taxes

Note 4. Income Taxes

 

Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax loss from continuing operations as a result of both temporary and permanent differences in the U.S. GAAP vs tax treatment of certain types of expenses, including stock-based compensation, depreciation and amortization, research and development and meals and entertainment. Additionally, the Company's policy is to account for interest and penalties as income tax expense. As of September 30, 2024 and December 31, 2023, the Company had no interest related to unrecognized tax benefits, and no amounts for penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within 12 months of this reporting date.

 

As of September 30, 2024, in addition to the $15.6 million in tax-effected NOL carryforwards, at an assumed tax rate of 26%, the significant components of the Company’s net deferred tax assets included stock-based compensation of $11.7 million, capitalized research and development expenditures of approximately $2.5 million and an intangible asset basis difference of approximately $1.1 million. The Company believes that it is more likely than not that the benefit from the net deferred tax assets will not be realized. Accordingly, it has provided a full valuation allowance on any potential deferred tax assets. The valuation allowance increased by approximately $4.0 million for the period ended September 30, 2024, as compared to the year ended December 31, 2023. The provision for income taxes is not material in the years presented due to there being no taxable income.

 

The Company has federal R&D credit carryforwards of approximately $623 thousand for the period ended September 30, 2024, which will be applied against payroll taxes, not against income taxes. The Company has no state R&D credit carryforwards.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, with varying statutes of limitations. The tax years from inception through 2024 remain open to examination due to the carryover of unused net operating losses that are being carried forward for tax purposes.
v3.24.3
Intangible Assets and Goodwill
 9 Months Ended
Sep. 30, 2024
Intangible Assets and Goodwill [Abstract]  
Intangible Assets and Goodwill

Note 5. Intangible Assets and Goodwill

 

As a result of the merger with QPhoton in June 2022 (the “QPhoton Merger”), the Company has the following amounts related to intangible assets (in thousands):

 

   September 30, 2024   December 31, 2023 
   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Non-compete agreement with founder  $3,251   $(2,528)  $723   $3,251   $(1,715)  $1,536 
Website domain name and trademark   1,009    (471)   538    1,009    (320)   689 
Technology and licensed patents   12,731    (4,244)   8,487    12,731    (2,880)   9,851 
Total  $16,991   $(7,243)  $9,748   $16,991   $(4,915)  $12,076 

 

The amortization expense of the Company’s intangible assets for the three and nine months ended September 30, 2024 and 2023 was approximately $780 thousand and $2.3 million, respectively. The Company expects future amortization expense to be the following (in thousands):

 

   Amortization 
2024 (remaining three months)  $776 
2025   2,472 
2026   2,021 
2027   1,903 
2028   1,819 
Thereafter   757 
Total  $9,748 

 

The Company recorded goodwill resulting from the QPhoton Merger, calculated as the difference between the total purchase price and the value of tangible and intangible assets acquired less the liabilities assumed. The Company recorded goodwill of $55.6 million resulting from the QPhoton Merger.

 

The Company considered the intangible assets and goodwill for indicators of impairment as of September 30, 2024 and concluded there were no indicators of impairment at that time.
v3.24.3
Property and Equipment
 9 Months Ended
Sep. 30, 2024
Property and Equipment [Abstract]  
Property and Equipment

Note 6. Property and Equipment

 

The Company’s property and equipment are primarily located at the Company’s leased facilities in Hoboken, NJ and Tempe, AZ and consist of (in thousands):

 

   September 30,
2024		   December 31,
2023		 
Computer and lab equipment  $5,899   $2,999 
Network equipment   29    29 
Furniture and fixtures   32    32 
Software   77    49 
Leasehold improvements   275    33 
Total cost of property and equipment   6,312    3,142 
Accumulated depreciation   (486)   (272)
Property and equipment, net  $5,826   $2,870 

 

The Company recorded depreciation expense of $75 thousand and $76 thousand during the three months ended September 30, 2024 and 2023, respectively, and $214 thousand and $203 thousand during the nine months ended September 30, 2024 and 2023, respectively, using useful lives of the Company’s long-lived assets as follows:

 

   Estimated
Useful Life
(Years)
Computer and laboratory equipment  5
Network equipment  4
Furniture and fixtures  7
Software  3
Leasehold improvements  Lessor of lease term or 5

 

Maintenance and repairs are charged to operations when incurred. When property and equipment are sold or otherwise disposed, the asset account and related accumulated depreciation and amortization accounts are relieved, and any gain or loss is included in other income or expense.
v3.24.3
Operating Leases
 9 Months Ended
Sep. 30, 2024
Operating Leases [Abstract]  
Operating Leases

Note 7. Operating Leases

 

As of September 30, 2024, the Company has use of space in three different locations, Hoboken, NJ, Tempe, AZ, and Arlington, VA, under lease or membership agreements, which expire at various dates through November 30, 2028. The Company’s leases do not provide an implicit rate, and the rates implicit in our leases are not readily determinable. Therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease assets and liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company’s leases all contain options to extend or renew the lease or membership term.

 

The table below reconciles the undiscounted future minimum lease payments under these operating leases to the total operating lease liabilities recognized on the consolidated balance sheet as of September 30, 2024 (in thousands):

 

Year  Lease Payments
Due		 
2024 (remaining three months)  $88 
2025   437 
2026   591 
2027   515 
2028   212 
Total minimum payments   1,843 
Less: imputed interest   (161)
Present value of operating lease liabilities   1,682 
Less: current portion included in other current liabilities   (385)
Long-term operating lease liabilities  $1,297 

 

Other information related to operating lease liabilities consists of the following (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Cash paid for operating lease liabilities (in thousands)  $117   $92   $274   $214 
Weighted average remaining lease term in years   3.5    3.9    3.5    3.9 
Weighted average discount rate   10%   10%   10%   10%
v3.24.3
Financial Liabilities
 9 Months Ended
Sep. 30, 2024
Financial Liabilities [Abstract]  
Financial Liabilities

Note 8. Financial Liabilities

 

The Company has the following amounts related to financial and derivative liabilities at the dates indicated (in thousands):

 

   September 30,
2024		   December 31,
2023		 
Remaining loan balances  $8,250   $2,063 
Remaining unamortized debt issuance costs   (1,736)   (138)
Financial liabilities, net of issuance costs  $6,514   $1,925 
           
Derivative liability  $666   $
-
 

 

Additionally, the Company has accrued interest payable of $122 thousand and $14 thousand as of September 30, 2024 and December 31, 2023, respectively, which was included in accrued expenses.

 

Secured Promissory Note

 

On August 6, 2024, the Company entered into a Securities Purchase Agreement (the “Secured SPA”) with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued and sold to Streeterville a Secured Convertible Promissory Note (the “Streeterville Convertible Note”) in the original principal amount of $8.25 million. The principal amount includes an original issue discount of $750 thousand. Streeterville paid $7.5 million in cash for the Streeterville Convertible Note. The Streeterville Convertible Note accrues interest at a rate of 10% per annum and has a maturity date of February 6, 2026, unless earlier prepaid, redeemed or accelerated in accordance with its terms prior to such date. The Company intends to use the net proceeds from the sale of the Streeterville Convertible Note primarily for general working capital purposes, including for (i) operations as the Company increases its sales and marketing efforts; (ii) capital expenditures in outfitting its chip fabrication facility in Tempe, AZ; and (iii) for any other planned or unplanned expenditures that might arise in support of the Company’s business plan. Ascendiant Capital Markets, LLC served as the placement agent on the transaction and received a fee of $450 thousand, and the Company recognized $55 thousand in other issuance costs, primarily for legal services.

 

The Streeterville Convertible Note is secured by all of the Company’s tangible and intangible assets, including intellectual property, pursuant to that certain Security Agreement (the “Security Agreement”) and IP Security Agreement (the “IP Security Agreement”), each entered into with Streeterville on August 6, 2024. In addition, the Company’s wholly-owned subsidiaries, QPhoton, LLC, a Delaware limited liability company, Qubittech International, Inc., a Delaware corporation, Qubittech, Inc., a Delaware corporation, and QI Solutions, Inc., a Delaware corporation (collectively, the “Guarantors”), provided a guarantee (the “Guaranty”), dated as of August 6, 2024, of the Company’s obligations to Streeterville under the Streeterville Convertible Note and the other transaction documents.

 

Beginning on February 6, 2025, Streeterville has the right to redeem up to $750,000 of the Streeterville Convertible Note per calendar month. The Company may pay such redemption amounts in cash, by converting such applicable redemption amount into shares of common stock at the applicable Conversion Price (as defined below) at such time, or in any combination of cash and shares of common stock, provided that the Company is required to pay any redemption amounts in cash under certain circumstances set forth in the Streeterville Convertible Note and that the payment of any redemption amount or portion thereof in cash is subject to an 10% premium.

 

Beginning on the earlier of: (a) February 6, 2025, and (b) the effectiveness of a registration statement registering the Conversion Shares (as defined below), Streeterville may convert all or any portion of the outstanding balance of the Streeterville Convertible Note into shares (“Conversion Shares”) of the Company’s common stock on any trading day (and the following trading day) on which any intraday trading bid price of the Company’s common stock is 8% greater than the closing trade price on the previous trading day or at any time following an event of default, at a conversion price equal to 92% of the average of the two lowest daily volume weighted average prices of the Company’s common stock during the eight trading day period prior to the respective conversion date (the “Conversion Price”), subject to anti-dilution adjustments and provided that Streeterville may not request any conversion of the Streeterville Convertible Note to the extent that such conversion would cause Streeterville (together with its affiliates) to beneficially own shares of Common Stock exceeding 4.99% (or 9.99% if the Market Capitalization, as defined below, is less than $10 million) of the number of shares of Common Stock outstanding on such date. For the ownership limitation, “Market Capitalization” means a number equal to (a) the average volume weighted average price of the Company’s common stock for the immediately preceding 15 trading days, multiplied by (b) the aggregate number of outstanding shares of common stock as reported on Company’s most recently filed Form 10-Q or Form 10-K or as reported to Nasdaq in a subsequent shares outstanding change form. Absent an uncured event of default, as set forth in the Streeterville Convertible Note, Streeterville agreed to limit its aggregate sales of Conversion Shares on the open market in any given calendar week to 10% of the weekly trading volume of the Company’s common stock on our principal trading market (Nasdaq) for such week. Upon evaluation, the Company determined that the conversion features inherent in the Streeterville Convertible Note meet the definition of a derivative liability (the “Streeterville Derivative Liability”) covered under the ASC topic 815, Derivatives and Hedging. Applying ASC 820, Fair Value Measurement, the initial fair value of the Streeterville Derivative Liability is $666 thousand, which will be mark-to-market adjusted on a quarterly basis and accreted as interest expense using the effective interest rate method while the Streeterville Convertible Note is outstanding.

 

In addition to the beneficial ownership limitations provided in the Streeterville Convertible Note, the sum of the number of shares of the Company’s common stock that the Company may issue to Streeterville under the Secured SPA, the Streeterville Convertible Note and any related documents without stockholder approval may not exceed the number of shares it could so issue pursuant to Nasdaq Listing Rule 5635(d) (the “Share Cap”), unless shareholder approval (the “Approval”) to exceed such limitation is obtained by the Company. The Company is required, under the Secured SPA to obtain the Approval by February 2, 2025. If the Company does not obtain the Approval by such date, it must continue seeking the Approval every 90 days until the Approval is obtained. If the total cumulative number of Conversion Shares that the Company issues to Streeterville equals the Share Cap and the Company has not obtained the Approval, any remaining outstanding balance of the Streeterville Convertible Note must be repaid in cash.

 

The Streeterville Convertible Note provides for customary events of default (each as defined in the Streeterville Convertible Note, an “Event of Default”), including, among other things, the event of nonpayment of principal, interest, fees or other amounts, a representation or warranty proving to have been incorrect when made, failure to perform or observe covenants within a specified cure period, a cross-default to certain other indebtedness and material agreements of the Company, and the occurrence of a bankruptcy, insolvency or similar event affecting the Company. Upon the occurrence of an Event of Default that is deemed a “Major Trigger Event” as defined in the Streeterville Convertible Note, Streeterville may increase the outstanding balance of the Streeterville Convertible Note by 10%, and upon the occurrence of an Event of Default that is deemed a “Minor Trigger Event” as defined in the Streeterville Convertible Note, Streeterville may increase the outstanding balance of the Streeterville Convertible Note by 5%. Streeterville can exercise its right to increase the outstanding balance upon a Major or Minor Trigger Event three times each. Upon the occurrence of an Event of Default, Streeterville may declare all amounts owed under the Streeterville Convertible Note immediately due and payable. In addition, upon the occurrence of an Event of Default, upon the election of Streeterville, interest shall begin accruing on the outstanding balance of the Streeterville Convertible Note from the date of the Event of Default equal to the lesser of 15% per annum and the maximum rate allowable under law.

 

Unsecured Promissory Note

 

On September 23, 2022, the Company entered into a Note Purchase Agreement (the “Streeterville Unsecured NPA”) with Streeterville, pursuant to which Streeterville purchased an unsecured promissory note (the “Streeterville Unsecured Note”) in the initial principal amount of $8.25 million. The Note bore interest at 10% per annum, had a maturity date of 18 months from the date of its issuance and carried an original issue discount of $750 thousand, which is included in the principal balance of the Streeterville Unsecured Note.

 

Beginning on March 23, 2023, Streeterville had the right to redeem up to $750 thousand of the outstanding balance of the Streeterville Unsecured Note per month (“Redemption Amount”) by providing written notice to the Company (“Redemption Notice”). The Company paid the applicable Redemption Amount in cash to Streeterville within three trading days of the Company’s receipt of any such Redemption Notice. As of September 30, 2024, Streeterville has redeemed the full principal amount of the Streeterville Unsecured Note. There was an outstanding balance of $1.9 million as of December 31, 2023. As of September 30, 2024, there was no outstanding balance and the Company has no further obligations with respect to the Streeterville Unsecured NPA or Streeterville Unsecured Note.

 

For a full discussion of the terms and conditions of the Streeterville Unsecured Note, see the Company’s Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2023.
v3.24.3
Loan Receivable
 9 Months Ended
Sep. 30, 2024
Loan Receivable [Abstract]  
Loan Receivable

Note 9. Loan Receivable

 

On May 16, 2023, the Company entered into a Summary of Proposed Terms (the “Letter of Intent”) with millionways, Inc. (“millionways”) to provide bridge loans to millionways and enter into due diligence to acquire up to 100% of the AI firm. On June 6, 2023, the Company entered into a Note Purchase Agreement (the “MW Agreement”) with millionways, pursuant to which the Company agreed to purchase from millionways up to three unsecured promissory notes (each, a “MW Note”), in an aggregate principal amount of up to $2.0 million, subject to the terms and conditions of the MW Agreement. Also on June 6, 2023, pursuant to the terms of the MW Agreement, the Company purchased the MW Notes from millionways and loaned an aggregate principal amount of $500 thousand to millionways.

 

The MW Agreement contains customary representations and warranties by millionways and the Company, as well as a “most favored nations” provision for the benefit of the Company. The MW Notes issued under the MW Agreement, including the MW Notes issued on June 6, 2023, provide that the indebtedness evidenced by the applicable MW Note bears simple interest at the rate of 10% per annum (or 15% per annum during the occurrence of an event of default, as defined in the MW Notes), and becomes due and payable in full on the earlier of (i) May 16, 2024, (ii) a change of control (as defined in the MW Notes) of millionways, (iii) dollar-for-dollar prepayment for additional capital received through any vehicle from a third party or (iv) an event of default. 

 

The Company reserved approximately $306 thousand of the outstanding $613 thousand receivable as uncollectible based on credit risk in the unaudited condensed consolidated financial statements as of September 30, 2024, and $279 thousand of the outstanding $558 thousand receivable as of December 31, 2023.
v3.24.3
Contingencies
 9 Months Ended
Sep. 30, 2024
Contingencies [Abstract]  
Contingencies

Note 10. Contingencies 

 

Indemnification Arrangements

 

We enter into standard indemnification arrangements in our ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties (generally our business partners or customers) in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to our products. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these agreements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal.

  

We have entered into indemnification agreements with our directors and officers that may require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature. These agreements also require us to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified and to make good faith determination whether or not it is practicable for us to obtain directors and officers insurance. We currently have directors and officers liability insurance.

 

Legal Proceedings

 

From time to time, we may be involved in legal proceedings arising in the ordinary course of business. In general, management believes that ordinary course of business matters will not have a material adverse effect on our consolidated financial position or results of operations and are adequately covered by our liability insurance. However, it is possible that condensed consolidated cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one of more of these contingencies or because of the diversion of management’s attention and the incurrence of significant expenses.

 

See Part II, Item 1, Legal Proceedings, in this Form 10-Q for additional details on the status of motions on the following proceedings.

 

BV Advisory v. QCi Breach Lawsuit

 

At the time of the QPhoton Merger in June 2022, QPhoton had an outstanding balance of principal and interest due to BV Advisory Partners, LLC (“BV Advisory”) based on a Note Purchase Agreement that QPhoton had entered into with BV Advisory on March 1, 2021. Accordingly, the Company has recorded an estimated payable (the “BV Advisory Payable”), recognized as other current liabilities on the unaudited condensed consolidated financial statements, based on best available information in the amount of $536 thousand as of September 30, 2024 and December 31, 2023.

 

On August 16, 2022, BV Advisory filed a complaint in the Court of Chancery of the State of Delaware (the “DE Chancery Court”) naming the Company and certain of its directors and officers (among others) as defendants seeking, among other relief, monetary damages. The Company believes that BV Advisory’s claims have no merit and intends to defend itself vigorously. BV Advisory’s claims are not covered by the Company’s liability insurance, nor does the Company believe it is necessary to accrue an amount in addition to the BV Advisory Payable at this time.

 

BV Advisory v. QCi Appraisal Action

 

BV Advisory was purportedly a shareholder of QPhoton, Inc., the predecessor in interest to QPhoton, LLC, a wholly owned subsidiary of the Company (both referred to as “QPhoton” in this Legal Proceedings discussion). BV Advisory rejected the Merger Consideration (as defined below) and on October 13, 2022, commenced litigation by filing a petition in the DE Chancery Court seeking appraisal rights on the shares of QPhoton it allegedly owned (which shares represented 10% of the shares of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton). The Company included BV Advisory’s purported ownership of QPhoton in the purchase price accounting for the QPhoton Merger.

 

The Company’s total purchase price of QPhoton was approximately $71.0 million, or $69.9 million net of cash acquired, consisting of Company common stock, Series B Preferred Stock and QPhoton Warrants (as defined below). While the total shares of the Company’s common stock on an as-converted basis offered in the QPhoton Merger was 36,600,823 (the “Merger Consideration”), the fair market valuation contemplated 31,299,417 of the shares, which assumed full conversion of the 2,377,028 shares of Series B Preferred Stock to common stock at the 10:1 ratio, and that only 1,726,931 of the warrants to purchase up to 7,028,337 shares of the Company’s common stock (the “QPhoton Warrants”) would eventually be exercised (specifically only the QPhoton Warrants for which the associated Company options and/or warrants had an exercise price at or below $2.27 at the time of the QPhoton Merger).

 

Accordingly, as of September 30, 2024 and 2023, the Company has neither issued 2,957,251 shares of the Company’s common stock on an as converted basis (the “Unissued QPhoton Shares”) nor 702,834 warrants to purchase shares of the Company’s common stock (the “Unissued QPhoton Warrants”) that were included in the Merger Consideration. The Unissued QPhoton Shares are included in the statement of stockholder’s equity as additional paid in capital as of as of September 30, 2024 and 2023, and the Unissued QPhoton Warrants have no carrying value as a liability on the Company’s condensed consolidated balance sheet as of September 30, 2024.
v3.24.3
Capital Stock
 9 Months Ended
Sep. 30, 2024
Capital Stock [Abstract]  
Capital Stock

Note 11. Capital Stock

 

Authorized Classes of Stock

 

As of September 30, 2024, the Company’s Board of Directors has authorized two classes of preferred stock. The Board has authorized 1,550,000 shares of preferred stock as Series A preferred stock, par value $0.0001 per share, of which 993,306 and 1,490,004 shares, respectively, are issued and outstanding at September 30, 2024 and December 31, 2023. The Board has also authorized 3,079,864 shares of preferred stock as Series B preferred stock, par value $0.0001 per share, none of which are issued and outstanding as of September 30, 2024 and December 31, 2023.

 

Series A Convertible Preferred Offering

 

From November 10, 2021 through November 17, 2021, the Company conducted a private placement offering (the “Private Placement”) pursuant to securities purchase agreements with 7 accredited investors (the “Series A Investors”), whereby the Series A Investors purchased from the Company an aggregate of 1,545,459 shares of the Company’s newly created Series A convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”) and warrants to purchase 1,545,459 shares of the Company’s common stock (the “Preferred Warrants”) for an aggregate purchase price of $8.5 million. The Private Placement was completed and closed to further investment on November 17, 2021.

 

The Series A Preferred Stock ranks senior to common stock with respect to the payment of dividends and liquidation rights. Each holder of Series A Preferred Stock is entitled to receive, with respect to each share of Series A Preferred Stock then outstanding and held by such holder, dividends at the rate of ten percent (10%) per annum (the “Preferred Dividends.”) The Company is obligated to pay the Preferred Dividends quarterly, in arrears, within fifteen (15) days of the end of each quarter. The Company has the option to pay the Preferred Dividends in cash or in common stock, at a price per share of common stock equal to the average of the closing sale price of the common stock for the five (5) trading days preceding the applicable dividend payment date. The Preferred Dividends are accrued monthly, but not compounded, and are recorded as interest expense, because the Preferred Dividends are mandatory and not declared at the discretion of the Board of Directors.

 

The number of shares of the Company’s common stock issuable upon conversion of any share of Series A Preferred Stock shall be determined by dividing (x) the Conversion Amount of such share of Series A Preferred Stock by (y) the Conversion Price. “Conversion Amount” means, with respect to each share of Series A Preferred Stock, as of the applicable date of determination, the sum of (1) the stated value thereof plus (2) any accrued dividends. “Conversion Price” means, with respect to each share of Series A Preferred Stock, as of any optional conversion date, Mandatory Conversion Date or other date of determination, $5.50, subject to adjustment for stock splits, dividends, recapitalizations and similar corporate events.

 

The Preferred Warrants were two-year warrants to purchase shares of the Company’s common stock at an exercise price of $7.00 per share, subject to adjustment, were exercisable at any time on or after the date that was six months following the issuance date, and provided for cashless exercise in the event the underlying shares of the Company’s common stock are not registered. As of December 31, 2023, all of the Preferred Warrants had expired unexercised.

 

In connection with the Purchase Agreement, the Company and the Series A Investors entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement to register the shares of the Company’s common stock underlying the Series A Preferred Stock and warrants within 180 days. Pursuant to the Registration Rights Agreement, the Series A Investors received certain rights, including but not limited to piggyback registration rights, providing that the holder be given notice of any proposed registration of securities by the Company, and requiring that the Company register all or any portion of the registrable securities that the holders request to be registered, in each case, subject to the terms and conditions of the Registration Rights Agreement. On April 27, 2022 the Company filed a Resale Form S-3 as required by the Registration Rights Agreement. The Resale Form S-3 went effective on June 2, 2022.

 

On June 13, 2022, one of the Series A Investors, Falcon Capital Partners, converted 45,455 shares of Series A Preferred Stock into 47,728 shares of the Company’s common stock.

 

On February 9, 2023, one of the Series A Investors, Greenfield Children, LLC, converted 10,000 shares of Series A Preferred Stock plus accrued dividends into 11,096 shares of the Company’s common stock.

 

On March 19, 2024, the Company entered into a Redemption and Waiver Agreement (the “Series A Redemption Agreement”) with the current holders (the “Series A Holders”) of its Series A Preferred Stock. Accordingly, $8.125 million of additional paid in capital was reclassified from shareholders’ equity to mezzanine equity (the “Mezzanine Equity”) on the Company’s condensed consolidated balance sheet as of September 30, 2024, in accordance with Accounting Series Release No. 268, Presentation in Financial Statements of “Redeemable Preferred Stocks”. The Mezzanine Equity is valued at the date of the Private Placement issuance. Pursuant to the Series A Redemption Agreement, the Company agreed to redeem all outstanding shares of the Series A Preferred Stock for an aggregate cash purchase price of $8,195,000, or $5.50 per share, at its sole discretion, in 18 monthly payments (each a “Monthly Redemption Threshold” payment), which may be accelerated at the Company’s sole discretion. In addition, the Series A Holders agreed to waive (the “Waivers”), on a month-by-month basis following each monthly payment, certain rights granted to them in (i) the Preferred Stock Certificate of Designation (the “Preferred Stock COD”), including for the accrual and payment of accrued and future dividends; and (ii) the Preferred Stock Securities Purchase Agreement (the “Preferred Stock SPA”). In the event the Company opts to not make a Monthly Redemption Threshold payment, the Waivers are forfeited and the terms revert to those detailed in the Preferred Stock COD and Preferred Stock SPA. During the three and nine months ended September 30, 2024, the Company redeemed 248,349 and 496,698 shares of Series A Preferred Stock, respectively, for approximately $1.4 million and $2.7 million, in cash paid to the Series A Holders, respectively. As of September 30, 2024 and December 31, 2023, there were 993,306 and 1,490,004 shares of Series A Preferred Stock, respectively, issued and outstanding.

 

At-the-Market-Facility

 

On October 28, 2022, the Company filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, which was declared effective on November 8, 2022 (the “2022 shelf”). Under the 2022 Shelf at the time of effectiveness, the Company had the ability to raise up to $100 million by selling common stock, preferred stock, debt securities, warrants and units. On December 5, 2022, the Company entered into an At-the-Market Issuance Sales Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”) whereby the Company may, but is not obligated to, offer and sell, from time to time, shares of its common stock (the “ATM Facility”), and incorporated the ATM Agreement into the 2022 Shelf by amendment that was declared effective January 10, 2023. On August 17, 2023, the Company and Ascendiant entered into an amendment (the “ATM Amendment”) to the ATM Agreement, increasing the amount of common stock that the Company may offer and sell via the ATM Facility from $25 million to $50 million (the “ATM Upsize”). Following the ATM Upsize, the Company filed a prospectus supplement, dated August 18, 2023, with the Securities and Exchange Commission and became able to offer and sell shares of the Company’s common stock having an aggregate offering price of up to $27,362,717 via the ATM Facility.

 

The Company intends to use any net proceeds from the sale of securities under the ATM Facility for operations and for other general corporate purposes, including, but not limited to, capital expenditures, including our AZ Chips Facility, as defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, payments under the Series A Redemption Agreement and general working capital. The Company did not sell any shares through the ATM Facility for the three months ended September 30, 2024, and for the nine months ended September 30, 2024, the Company sold 16,604,770 shares of the Company’s common stock through the ATM Facility at an average price of $0.88, from which the Company received net proceeds of $14.6 million.

 

Warrants

 

The table below summarizes the warrants outstanding at September 30, 2024 (in thousands, except exercise price data):

 

Issuance Date  Expiration Date  Exercise Price   Issued   Exercised   Forfeited /
Canceled		   Warrants
Outstanding		 
August 18, 2020  August 18, 2025  $2.00    171    (150)   
-
    21 
November 15, 2021  November 15, 2023  $7.00    1,545         (1,545)   
-
 
June 16, 2022  May 9, 2027  $0.0001    6,325    
-
    (4,148)   2,177 

 

In connection with a restricted stock units offering in June 2020, the Company issued warrants in August 2020 to purchase 171,000 shares of the Company’s common stock, at an exercise price of $2.00. Those warrants are exercisable for five years from the date of issuance.

 

In connection with the offering of Series A Preferred Stock in November 2021, the Company issued warrants to purchase 1,545,459 shares of the Company’s common stock at an exercise price of $7.00. Those warrants were exercisable for two years from the date of issuance and have now expired.

 

In connection with the QPhoton Merger on June 16, 2022, the Company issued 6.3 million warrants to purchase shares of the Company’s common stock at an exercise price of $0.0001. Those warrants are exercisable when and if stock options and warrants issued by the Company and outstanding as of June 15, 2022 (the “Underlying Options”) are exercised. As of September 30, 2024, none of the QPhoton Warrants linked to the outstanding Underlying Options are expected to be exercised as the exercise prices of the Underlying Options are above the closing stock price as of September 30, 2024. The 6.3 million issued warrants represent a portion of the 7.0 million warrants included in the Merger Consideration, having been received by two QPhoton shareholders. A third alleged shareholder rejected the Merger Consideration and commenced litigation, and to date that litigation has not been resolved and the 702,834 warrants have not been issued. See Part II, Item 1, Legal Proceedings, for additional information on the status of the litigation.

 

Accordingly, as of September 30, 2024, of the 6.3 million QPhoton Warrants issued, approximately 66% have been forfeited because the corresponding Underlying Options had expired or been forfeited. Further, as discussed in Note 2, Significant Accounting Policies – Fair Value of Financial Instruments, the QPhoton Warrants issued on June 16, 2022, are considered Level 3 liabilities for fair value measurement on the valuation hierarchy. Accordingly, the Company recognized mark-to-market gains of $13 thousand and $384 thousand during the three and nine months ended September 30, 2023, respectively, with an ending balance of $144 thousand as of September 30, 2023. As of September 30, 2024 and December 31, 2023, the QPhoton Warrants have no carrying value as a liability on the Company’s condensed consolidated balance sheet and there was no mark-to-market adjustment recognized during the nine months ended September 30, 2024.
v3.24.3
Stock-Based Compensation
 9 Months Ended
Sep. 30, 2024
Stock-Based Compensation [Abstract]  
Stock-based Compensation

Note 12. Stock-based Compensation

 

Incentive Plans

 

The Company’s 2019 Equity and Incentive Plan, as amended in 2021 (the “2019 Plan”) enabled the Company to grant incentive stock options or nonqualified stock options and other equity awards to employees, directors and consultants of the Company up to a total of 3 million shares of the Company’s common stock. All 3 million shares available for issue under the 2019 Plan have been issued.

 

On July 5, 2022, the Board of Directors adopted the Company’s 2022 Equity and Incentive Plan (the “2022 Plan”) which provides for the issuance of up to 16 million shares of the Company’s common stock. The 2022 Plan was approved by a majority of the shareholders in September 2022. Per the 2022 Plan, the 2022 Plan reserves increased automatically by 1 million shares on January 1, 2023 and January 1, 2024, providing for a total issuance of up to 18 million shares of the Company’s common stock. As of September 30, 2024, a total of 12.4 million shares and options were issued and outstanding.

 

Options

 

The following table summarizes the Company’s option activity for the nine months ended September 30, 2024 (in thousands, except exercise price and contractual life data):

 

   Number
Outstanding		   Weighted
Average
Exercise
Price per
Share		   Weighted
Average
Remaining
Contractual
Life (Years)		 
Balance as of January 1, 2024   13,843   $2.64    3.7 
Granted   250    1.01    5.0 
Exercised   
-
    
-
    
-
 
Forfeited   (1,724)   4.11    
-
 
Balance as of September 30, 2024   12,369   $2.41    3.1 
Vested and exercisable as of September 30, 2024   8,375   $2.87    2.8 

 

The following table presents the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the three and nine months ended September 30, 2024 and 2023:

 

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2024   2023   2024   2023 
Exercise price  $1.00 – 1.12   $1.35 – 1.35   $1.00 – 1.12   $1.35 – 1.84 
Risk-free interest rate   5.2 – 5.2%   4.8 – 4.8%   5.2 – 5.2%   4.7 – 4.8%
Expected volatility   93.2 – 104.6%   134.5 – 134.5%   93.2 – 104.6%   122.2 – 136.9%
Expected dividend yield   0%   0%   0%   0%
Expected life of options (in years)   5.0    5.0    5.0    5.0 

 

The following table summarizes the exercise price range as of September 30, 2024 (in thousands, except exercise price data):

 

Exercise Price   Outstanding Options   Exercisable Options 
$0.00 – 1.00    105    10 
$1.00 – 2.00    5,348    1,794 
$2.00 – 3.00    5,845    5,500 
$3.00 – 6.00    38    38 
$6.00 – 8.00    683    683 
$8.00 – 12.00    350    350 
      12,369    8,375 

 

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2024 and 2023 was $1.01 and $1.42 per share, respectively. As of September 30, 2024, total unrecognized compensation cost related to common stock options was $3.5 million, which is expected to be recognized over a period of 3.3 years.

 

Stock-based Compensation

 

The Company recognized stock-based compensation expense related to common stock options and restricted shares of common stock in the following expense categories of its consolidated statements of operations (in thousands):

 

    Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    2024     2023     2024     2023  
Research and development   $ 562     $ 408     $ 1,761     $ 1,358  
Selling and marketing     12       85       123       (351 )
General and administrative     189       499       796       2,103  
Total stock-based compensation   $ 763     $ 992     $ 2,680     $ 3,110  

 

For the nine months ended September 30, 2024 and 2023, stock-based compensation on the statements of stockholders’ equity was lower by $207 thousand and lower by $206 thousand, respectively, as compared to the expense recorded due to timing differences between award dates and the realization of stock-based compensation expense. The net expense of $2.7 million for the nine months ended September 30, 2024 is primarily attributable to vesting expense recognition, offset by insignificant pre-vesting forfeitures of common stock options for separated employees.

 

In terms of new issuances, the Company issued 218 thousand shares of common stock to former executives in the nine months ended September 30, 2024 per their respective employment and separation agreements (the “Separation Agreement Shares”). In conjunction with the Separation Agreement Shares, the Company recognized $197 thousand of stock-based compensation expense during the nine months ended September 30, 2024, and does not expect future expense related to these offerings as they are fully vested. During the nine months ended September 30, 2023, the Company issued 2.4 million shares of common stock to employees as performance and incentive awards (the “2023 Incentive Shares”). The 2023 Incentive Shares included 854 thousand shares of common stock issued to 35 employees as payment in lieu of cash for 2022 performance bonuses (the “Bonus Incentive Shares”) and 1.5 million shares of common stock as long-term incentive bonuses to five employees identified as key technical staff (the “Retention Incentive Shares”). The Bonus Incentive Shares are restricted and subject to the following vesting schedule: one-half vested on December 31, 2023 and one-half vesting on December 31, 2024. As of December 31, 2023, the Company canceled 23,600 of the issued shares that were forfeited by employees no longer with the Company. The Retention Incentive Shares are restricted and subject to annual vesting in equal amounts over a five-year period as follows: 20% will vest on each of December 31, 2023, December 31, 2024¸ December 31, 2025, December 31, 2026, and December 31, 2027, subject to the grantee continuing to perform services for the Company in the capacity in which the grant was received on each applicable vesting date.

 

Stock-based Compensation for Services

 

The Company recognized stock-based compensation expense for services in lieu of cash payments to certain consultants, including expenses for both shares issued and stock option awards granted, in the following expense categories of its consolidated statements of operations (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Selling and marketing  $
-
   $(107)  $
-
   $(174)
General and administrative   2    107    21    456 
Total stock-based compensation  $2   $
-
   $21   $282 

 

For the nine months ended September 30, 2024 and 2023, stock-based compensation for services on the statements of stockholders’ equity was higher by $113 thousand and $2.1 million, respectively, as compared to the expense recorded due to timing differences between award dates and the realization of stock-based compensation expense.

 

In terms of new issuances, the Company issued 142 thousand and 1.5 million shares of common stock, respectively, for services in the nine months ended September 30, 2024 and 2023.
v3.24.3
Related Party Transactions
 9 Months Ended
Sep. 30, 2024
Related Party Transactions [Abstract]  
Related Party Transactions

Note 13. Related Party Transactions

 

There were no related party transactions during the nine months ended September 30, 2024 and 2023. 
v3.24.3
License Agreement – Stevens Institute of Technology
 9 Months Ended
Sep. 30, 2024
License Agreement – Stevens Institute of Technology [Abstract]  
License Agreement – Stevens Institute of Technology

Note 14. License Agreement – Stevens Institute of Technology

 

Effective December 17, 2020, QPhoton signed a License Agreement with the Stevens Institute (the “Stevens License Agreement”). The Stevens License Agreement enables the Company to commercially use technology such as licensed patents, licensed patent applications and licensed “Know-How” and is also able to issue sublicenses for the technology under the agreement. The agreement is effective until the later of: (i) the 30-year anniversary of the effective date, or (ii) the expiration of the licensed patent or licensed patent application that is last to expire. As part of the merger of the Company and QPhoton, the Stevens License Agreement was assigned to the Company.

 

During the term of the Stevens License Agreement and prior to any commercialization or sublicensing of the technology by the Company, the Company is required to submit annual reports to the Stevens Institute reporting on all research, development, and efforts toward commercialization and/or sublicensing made during the year. Once any commercialization and/or sublicensing has been initiated, the Company will deliver quarterly reports to the Stevens Institute reporting on the revenue received by the Company, all sublicenses derived from the sale of licensed products, and the net sales price associated with each transaction. The Company will be responsible for reimbursing Stevens for any costs associated with the prosecution and maintenance of the licensed patents and licensed patent applications moving forward.

 

Consideration for the Agreement

 

As consideration for the license and other rights granted under the agreement, QPhoton agreed to pay the following: (i) $35 thousand within 30 days of execution of the agreement, (ii) $28 thousand within 30 days of each annual anniversary of the effective date, (iii) equity in the Company equivalent to nine percent of the outstanding equity of the Company within 30 days of the execution of the agreement, and (iv) royalties of 3.5% of the net sales price of each licensed product sold or licensed by the company during the quarter then-ended, for which it also received payment, concurrent with the delivery of the relevant quarterly report.

 

As of September 30, 2024, the Company has begun to commercialize some of the licensed technology, though has not recognized any related revenue and hence has not incurred any royalty expenses payable to the Stevens Institute.
v3.24.3
Restatement of Previously Issued Financial Statements
 9 Months Ended
Sep. 30, 2024
Restatement of Previously Issued Financial Statements [Abstract]  
Restatement of Previously Issued Financial Statements

Note 15. Restatement of Previously Issued Financial Statements

 

Subsequent to the issuance of our Annual Report on Form 10-K for the year ended December 31, 2023, and our subsequent retention of BPM LLP to replace BF Borgers CPA PC as our independent registered public accounting firm, management became aware of various adjustments to be recorded to our consolidated financial statements. Accordingly, on September 11, 2024, we filed Amendment 1 to our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Amendment”), amending our consolidated balance sheets as of December 31, 2023 and 2022, and amending our consolidated statements of operations, our consolidated statements of stockholders’ equity, and our consolidated statements of cash flows for the years ended December 31, 2023 and 2022, primarily with regard to the purchase accounting of the QPhoton Merger, stock-based compensation accounting, financing costs, and other matters. The restated consolidated financial statements in the 2023 Amendment also reflect the correction of certain previously-identified errors and out-of-period adjustments that were deemed immaterial to the annual or interim period in which they were recorded and have been restated in the 2023 Amendment to properly reflect the corrections in the appropriate periods.

 

In this Quarterly Report on Form 10-Q for the nine months ended September 30, 2024, we amended our consolidated statements of operations, our consolidated statements of stockholders’ equity, and our consolidated statements of cash flows for the nine months ended September 30, 2023, which restate and revise items in line with the disclosures and reclassifications discussed in the 2023 Amendment. The aggregate impact of these errors on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023, is a decrease in net loss of approximately $1.4 million and $1.0 million, respectively. The estimated aggregate impact of these errors on the Company’s condensed consolidated balance sheet for the nine months ended September 30, 2023, is (i) decreased intangible and goodwill assets of $8.6 million; (ii) materially unchanged and increased liabilities of approximately $500 thousand; and (iii) decreased stockholder’s equity of approximately $9.1 million. 
v3.24.3
Subsequent Events
 9 Months Ended
Sep. 30, 2024
Subsequent Events [Abstract]  
Subsequent Events

Note 16. Subsequent Events

 

In October and November 2024, the Company redeemed 165,566 shares of Series A Preferred Stock for $910 thousand. As of November 4, 2024, the Company has redeemed 662,264 shares of Series A Preferred Stock for a cumulative redemption amount of $3.6 million in cash paid to the Series A Holders; there are 827,740 shares of Series A Preferred Stock issued and outstanding. 

 

In October 2024, the Company resumed use of its ATM Facility and sold approximately 3.9 million  shares of common stock as of November 4, 2024. The Company intends to use the net proceeds for our operations and for other general corporate purposes, including, but not limited to, capital expenditures, including our AZ Chips Facility, as defined in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, payments under the Series A Redemption Agreement and general working capital. As of November 4, 2023, the Company has approximately $55 million available under the 2022 Shelf and $5 million available under the ATM Agreement, as amended.

 

There are no other events of a subsequent nature that in management’s opinion are reportable.
v3.24.3
Pay vs Performance Disclosure - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Pay vs Performance Disclosure        
Net Income (Loss) $ (5,675) $ (6,841) [1] $ (17,305) $ (20,395) [1],[2]
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
[2] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
v3.24.3
Insider Trading Arrangements
 3 Months Ended
Sep. 30, 2024
Trading Arrangements, by Individual  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
v3.24.3
Accounting Policies, by Policy (Policies)
 9 Months Ended
Sep. 30, 2024
Significant Accounting Policies [Abstract]  
Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation:

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (the “FASB”), including Accounting Standards Codification (“ASC”) 810, Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year end is December 31.
Reclassifications

Reclassifications

Certain reclassifications have been made to the fiscal year 2023 audited consolidated financial statements to conform to the presentation in the three and nine months ended September 30, 2024. The reclassifications had no impact on consolidated net loss, total consolidated assets, total consolidated liabilities, or consolidated stockholders’ equity.
Risk and Uncertainties

Risk and Uncertainties

The Company is subject to certain risks and uncertainties and believes changes in any of the following areas could have a material adverse effect on the Company’s future consolidated financial position or consolidated results of operations or cash flows: new product development, including market receptivity; litigation or claims against the Company based on intellectual property, patent, product regulation or other factors; competition from other products; general economic conditions; the ability to attract and retain qualified employees; and, ultimately, to sustain profitable operations.
Use of Estimates

Use of Estimates

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates required to be made by management include the valuation of goodwill and intangible assets, deferred tax assets, equity-based transactions and liquidity assessment. Actual results may differ from these estimates.
Cash and Cash Equivalents

Cash and Cash Equivalents

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. The Company maintains its cash in mutual funds and deposit and money market accounts with high quality financial institutions which, at times, may exceed federally insured limits. As of September 30, 2024 and December 31, 2023, the Company had $2.3 million and $2.1 million, respectively, in cash equivalents invested in mutual funds. The Company has not experienced any losses on these deposits and believes it is not exposed to significant credit risk on cash. 
Revenue

Revenue

The Company recognizes revenue in accordance with ASC 606 – Revenue from Contracts with Customers, by analyzing contracts with its customers using a five-step approach:

  1. Identify the contract
     
  2. Identify the performance obligations
     
  3. Determine the transaction price
     
  4. Allocate the transaction price to the performance obligations
     
  5. Recognize revenue when performance obligations are satisfied

 

The revenue the Company has recognized in the nine months ended September 30, 2024 and 2023 were primarily derived from contracts to perform professional services. Revenue from time and materials-based contracts is recognized 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 units-based contracts is recognized as the number of units delivered or performed during the period times the contractual unit price. 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-plus type contracts at this time.

The Company includes depreciation and amortization expenses in manufacturing overhead, which is a component of cost of revenue. However, at the present time manufacturing overhead, including depreciation and amortization expense related to production equipment, is not material and the primary components of cost of revenue are direct labor and direct materials, with a small amount of shipping expenses.
Accounts Receivable

Accounts Receivable

Accounts receivable consists of amounts due from customers for work performed on contracts. The Company records accounts receivable at their net realizable value. Periodically the Company evaluates its accounts receivable to establish a provision for credit losses, when deemed necessary, based on the history of past write-offs, collections and current credit conditions. The customer accounts receivable as of September 30, 2024 are considered not fully collectible and thus the Company has recorded a provision for credit losses of $3.5 thousand; the customer accounts receivable as of December 31, 2023 are considered fully collectible.
Provision for Credit Losses

Provision for Credit Losses

The Company estimates losses on loans and other financial instruments in accordance with Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces the current expected credit losses (“CECL”) methodology for estimating allowances for credit losses. The CECL framework requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supporting forecasts. Under CECL, the allowance for credit losses is measured as the difference between the financial asset’s cost basis and the net amount expected to be collected on the financial asset. CECL allows us to use information about past events including historical loan loss experience, current conditions, and reasonable and supportable forecasts to assess the collectability of the financial assets. The receivables for financial assets as of September 30, 2024 and December 31, 2023 are not considered fully collectible and thus management has recorded a provision for credit losses. See Note 9, Loan Receivable, for additional information.
Inventory

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis which approximates actual cost on a first in-first out method. Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired inventory and are charged to cost of revenue. Once the cost of the inventory is reduced, a new lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Factors influencing these adjustments include changes in demand, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. Revisions to these adjustments would be required if these factors differ from our estimates.
Operating Leases

Operating Leases

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets, net on the consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the current operating lease liabilities and noncurrent operating lease liabilities, respectively, on the consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, and the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. All of our operating leases are comprised of office space leases, and as of September 30, 2024 and December 31, 2023, we had no finance leases.
Business Combinations and Valuation of Goodwill

Business Combinations and Valuation of Goodwill

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded withing general and administrative expenses.

The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs an annual impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to assess impairment, its common stock price is an important component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit and can lead to potential impairment in future periods. The Company performs its annual impairment test during the fourth quarter of each fiscal year. As of September 30, 2024, we had not identified any factors that indicated there was an impairment of our goodwill and determined that no additional impairment analysis was then required.
Property and Equipment

Property and Equipment

Property and equipment are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Maintenance and repairs are charged against expense as incurred.
Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company has long-lived assets such as tangible property and equipment, identified intangible assets consisting of acquired patents and core technology. When events or changes in circumstances occur that could indicate the carrying value of long-lived assets may not be recoverable, the Company assesses recoverability by determining whether the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If the undiscounted cash flow is less, an impairment charge is recognized for the excess of the carrying amounts of these assets over the fair values. Fair values are determined by discounted future cash flows, appraisals or other methods.

During the three and nine months ended September 30, 2024 and 2023, the Company did not record any impairment from long-lived assets.
Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amount of certain financial instruments held by the Company, such as cash equivalents, accounts receivable, contract assets and liabilities, accounts payable, and accrued and other current liabilities, approximate fair value due to their short maturities. The carrying amount of the liabilities for the convertible preferred stock warrants represent their fair value. The carrying amounts of the Company’s borrowings and lease liabilities approximate fair value due to the market interest rates that these obligations bear and interest rates currently available to the Company.

 

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

  Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
  Level 2 Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
  Level 3 Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As of September 30, 2024 and December 31, 2023, the Company had $2.3 million of the $3.1 million cash and cash equivalents and $793 thousand of the $2.1 million cash and cash equivalents, respectively, in Level 1 assets, comprised of U.S. Government mutual funds, and $666 thousand and no carrying value, respectively, for Level 3 liabilities, which are comprised of derivative and warrant liabilities. See Note 11, Capital Stock – Warrants, for a full discussion of the warrant liability. 
Research and Development Costs

Research and Development Costs

Research and development costs include costs directly attributable to the conduct of research and development programs, including the cost of services provided by outside contractors, acquiring work-in-progress intellectual property, development, and mandatory compliance fees and contractual obligations. All costs associated with research and development are expensed as incurred.
Software Development Costs

Software Development Costs

Software development costs incurred subsequent to the establishment of technological feasibility for software intended to be sold, licensed or otherwise marketed to customers will be capitalized, but development costs not meeting the criteria for capitalization are expensed as incurred. With respect to internal use software, the Company will capitalize such development costs incurred during the application development stage, but development costs incurred prior to that stage will be expensed as incurred. No amortization expense will be recorded until the software is ready for its intended use. To date the Company has not incurred any material capitalizable software development costs.
Stock-Based Compensation

Stock-based 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 pre-vesting 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.
Income Taxes

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets where, based upon the available evidence, management concludes that it is more-likely-than-not that the deferred tax assets will not be realized. Realization of deferred tax assets is also dependent upon future earnings, if any, the timing and amount of which are uncertain.

 

The Company records a liability for the uncertain tax positions taken or expected to be taken on the Company’s tax return when it is more-likely-than-not that the tax position might be challenged despite the Company’s belief that the tax return positions are fully supportable, and additional taxes will be due as a result. To the extent that the assessment of such tax positions changes, for example, based on the outcome of a tax audit, the change in estimate is recorded in the period in which the determination is made. The provision for income taxes includes the impact of provisions for uncertain tax positions.
Loss Per Share

Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding, plus the number of additional common shares that would have been outstanding if the common share equivalents had been issued (computed using the “If-Converted” method), unless the effect of such issuances would have been anti-dilutive.
Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. The Company has evaluated the recently implemented accounting standards and concluded that none currently apply to the Company.
v3.24.3
Net Loss per Common Share (Tables)
 9 Months Ended
Sep. 30, 2024
Net Loss per Common Share [Abstract]  
Schedule of Computation of Basic and Diluted Loss Per Share The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data):
   

Three Months Ended

September 30,

    

Nine Months Ended

September 30,

  
    2024     2023     2024     2023  
Numerator:                        
Net loss   $ (5,675 )   $ (6,841 )   $ (17,305 )   $ (20,395 )
Less: Series A convertible preferred stock dividends     -       (215 )     -       (646 )
Net loss attributable to common stockholders – basic and diluted   $ (5,675 )   $ (7,056 )   $ (17,305 )   $ (21,041 )
Denominator:                                
Weighted average shares used in computing net loss per common share – basic and diluted     93,048       71,588       89,063       64,246  
Net loss per common share – basic and diluted   $ (0.06 )   $ (0.10 )   $ (0.19 )   $ (0.33 )
Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive The following is a summary of the weighted average common stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive (in thousands):
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Warrants   2,212    5,973    2,538    6,092 
Options   12,407    13,069    12,882    11,410 
Unvested restricted common stock   2,997    1,783    2,997    771 
Total potentially dilutive shares   17,616    20,825    18,417    18,273 
v3.24.3
Intangible Assets and Goodwill (Tables)
 9 Months Ended
Sep. 30, 2024
Intangible Assets and Goodwill [Abstract]  
Schedule of Amounts Related to Intangible Assets As a result of the merger with QPhoton in June 2022 (the “QPhoton Merger”), the Company has the following amounts related to intangible assets (in thousands):
   September 30, 2024   December 31, 2023 
   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount 
Non-compete agreement with founder  $3,251   $(2,528)  $723   $3,251   $(1,715)  $1,536 
Website domain name and trademark   1,009    (471)   538    1,009    (320)   689 
Technology and licensed patents   12,731    (4,244)   8,487    12,731    (2,880)   9,851 
Total  $16,991   $(7,243)  $9,748   $16,991   $(4,915)  $12,076 

 
Schedule of Future Amortization Expense The amortization expense of the Company’s intangible assets for the three and nine months ended September 30, 2024 and 2023 was approximately $780 thousand and $2.3 million, respectively. The Company expects future amortization expense to be the following (in thousands):
   Amortization 
2024 (remaining three months)  $776 
2025   2,472 
2026   2,021 
2027   1,903 
2028   1,819 
Thereafter   757 
Total  $9,748 
v3.24.3
Property and Equipment (Tables)
 9 Months Ended
Sep. 30, 2024
Property and Equipment [Abstract]  
Schedule of Property and Equipment The Company’s property and equipment are primarily located at the Company’s leased facilities in Hoboken, NJ and Tempe, AZ and consist of (in thousands):
   September 30,
2024		   December 31,
2023		 
Computer and lab equipment  $5,899   $2,999 
Network equipment   29    29 
Furniture and fixtures   32    32 
Software   77    49 
Leasehold improvements   275    33 
Total cost of property and equipment   6,312    3,142 
Accumulated depreciation   (486)   (272)
Property and equipment, net  $5,826   $2,870 
The Company recorded depreciation expense of $75 thousand and $76 thousand during the three months ended September 30, 2024 and 2023, respectively, and $214 thousand and $203 thousand during the nine months ended September 30, 2024 and 2023, respectively, using useful lives of the Company’s long-lived assets as follows:
   Estimated
Useful Life
(Years)
Computer and laboratory equipment  5
Network equipment  4
Furniture and fixtures  7
Software  3
Leasehold improvements  Lessor of lease term or 5
v3.24.3
Operating Leases (Tables)
 9 Months Ended
Sep. 30, 2024
Operating Leases [Abstract]  
Schedule of Undiscounted Future Minimum Lease Payments Under Operating Leases The table below reconciles the undiscounted future minimum lease payments under these operating leases to the total operating lease liabilities recognized on the consolidated balance sheet as of September 30, 2024 (in thousands):
Year  Lease Payments
Due		 
2024 (remaining three months)  $88 
2025   437 
2026   591 
2027   515 
2028   212 
Total minimum payments   1,843 
Less: imputed interest   (161)
Present value of operating lease liabilities   1,682 
Less: current portion included in other current liabilities   (385)
Long-term operating lease liabilities  $1,297 
Schedule of Other Information Related to Operating Lease Liabilities Other information related to operating lease liabilities consists of the following (in thousands):
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Cash paid for operating lease liabilities (in thousands)  $117   $92   $274   $214 
Weighted average remaining lease term in years   3.5    3.9    3.5    3.9 
Weighted average discount rate   10%   10%   10%   10%
v3.24.3
Financial Liabilities (Tables)
 9 Months Ended
Sep. 30, 2024
Financial Liabilities [Abstract]  
Schedule of Outstanding Promissory Notes Payable to Financial Liabilities The Company has the following amounts related to financial and derivative liabilities at the dates indicated (in thousands):
   September 30,
2024		   December 31,
2023		 
Remaining loan balances  $8,250   $2,063 
Remaining unamortized debt issuance costs   (1,736)   (138)
Financial liabilities, net of issuance costs  $6,514   $1,925 
           
Derivative liability  $666   $
-
 
v3.24.3
Capital Stock (Tables)
 9 Months Ended
Sep. 30, 2024
Capital Stock [Abstract]  
Schedule of Warrants Outstanding The table below summarizes the warrants outstanding at September 30, 2024 (in thousands, except exercise price data):
Issuance Date  Expiration Date  Exercise Price   Issued   Exercised   Forfeited /
Canceled		   Warrants
Outstanding		 
August 18, 2020  August 18, 2025  $2.00    171    (150)   
-
    21 
November 15, 2021  November 15, 2023  $7.00    1,545         (1,545)   
-
 
June 16, 2022  May 9, 2027  $0.0001    6,325    
-
    (4,148)   2,177 
v3.24.3
Stock-Based Compensation (Tables)
 9 Months Ended
Sep. 30, 2024
Stock-Based Compensation [Abstract]  
Schedule of Option Activity The following table summarizes the Company’s option activity for the nine months ended September 30, 2024 (in thousands, except exercise price and contractual life data):
   Number
Outstanding		   Weighted
Average
Exercise
Price per
Share		   Weighted
Average
Remaining
Contractual
Life (Years)		 
Balance as of January 1, 2024   13,843   $2.64    3.7 
Granted   250    1.01    5.0 
Exercised   
-
    
-
    
-
 
Forfeited   (1,724)   4.11    
-
 
Balance as of September 30, 2024   12,369   $2.41    3.1 
Vested and exercisable as of September 30, 2024   8,375   $2.87    2.8 

 
Schedule of Grant-Date Fair Value of Stock Options Granted The following table presents the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the three and nine months ended September 30, 2024 and 2023:
   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2024   2023   2024   2023 
Exercise price  $1.00 – 1.12   $1.35 – 1.35   $1.00 – 1.12   $1.35 – 1.84 
Risk-free interest rate   5.2 – 5.2%   4.8 – 4.8%   5.2 – 5.2%   4.7 – 4.8%
Expected volatility   93.2 – 104.6%   134.5 – 134.5%   93.2 – 104.6%   122.2 – 136.9%
Expected dividend yield   0%   0%   0%   0%
Expected life of options (in years)   5.0    5.0    5.0    5.0 
Schedule of Exercise Price Range The following table summarizes the exercise price range as of September 30, 2024 (in thousands, except exercise price data):
Exercise Price   Outstanding Options   Exercisable Options 
$0.00 – 1.00    105    10 
$1.00 – 2.00    5,348    1,794 
$2.00 – 3.00    5,845    5,500 
$3.00 – 6.00    38    38 
$6.00 – 8.00    683    683 
$8.00 – 12.00    350    350 
      12,369    8,375 
Schedule of Stock-Based Compensation Expense Related to Common Stock Options and Restricted Shares of Common Stock The Company recognized stock-based compensation expense related to common stock options and restricted shares of common stock in the following expense categories of its consolidated statements of operations (in thousands):
    Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    2024     2023     2024     2023  
Research and development   $ 562     $ 408     $ 1,761     $ 1,358  
Selling and marketing     12       85       123       (351 )
General and administrative     189       499       796       2,103  
Total stock-based compensation   $ 763     $ 992     $ 2,680     $ 3,110  
Schedule of Stock-Based Compensation Expense for Services Expenses for Both Shares Issued and Stock Option Awards Granted The Company recognized stock-based compensation expense for services in lieu of cash payments to certain consultants, including expenses for both shares issued and stock option awards granted, in the following expense categories of its consolidated statements of operations (in thousands):
  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2024   2023   2024   2023 
Selling and marketing  $
-
   $(107)  $
-
   $(174)
General and administrative   2    107    21    456 
Total stock-based compensation  $2   $
-
   $21   $282 
v3.24.3
Nature of the Organization and Business (Details) - USD ($)
$ / shares in Units, $ in Thousands
 9 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Jul. 20, 2018
Nature of the Organization and Business [Line Items]      
Incorporation date Jul. 20, 2018    
Common stock, par value (in Dollars per share) $ 0.0001 $ 0.0001  
Cash and cash equivalents $ 3,064 $ 2,059  
Accumulated deficit (149,245) $ (131,940)  
Working capital $ 1,500    
Corporate History [Member]      
Nature of the Organization and Business [Line Items]      
Common stock, par value (in Dollars per share)     $ 0.0001
v3.24.3
Significant Accounting Policies (Details) - USD ($)
 9 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Significant Accounting Policies [Line Items]    
Cash equivalents invested in mutual funds $ 2,300,000 $ 2,100,000
Value of assets 2,300,000 3,100,000
Cash and cash equivalent 793,000 2,100,000
Derivative liability 666,000
Customer [Member]    
Significant Accounting Policies [Line Items]    
Provision for credit losses $ 3,500  
v3.24.3
Net Loss per Common Share (Details) - Schedule of Computation of Basic and Diluted Loss Per Share - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Numerator:        
Net loss $ (5,675) $ (6,841) [1] $ (17,305) $ (20,395) [1],[2]
Less: Series A convertible preferred stock dividends (215) [1] (646) [1]
Net loss attributable to common stockholders – basic (5,675) (7,056) [1] (17,305) (21,041) [1]
Net loss available to common stockholders – diluted $ (5,675) $ (7,056) $ (17,305) $ (21,041)
Denominator:        
Weighted average shares used in computing net loss per common share – basic (in Shares) 93,048 71,588 [1] 89,063 64,246 [1]
Weighted average shares used in computing net loss per common share – diluted (in Shares) 93,048 71,588 [1] 89,063 64,246 [1]
Net loss per common share – basic (in Dollars per share) $ (0.06) $ (0.1) [1] $ (0.19) $ (0.33) [1]
Net loss per common share - diluted (in Dollars per share) $ (0.06) $ (0.1) [1] $ (0.19) $ (0.33) [1]
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
[2] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
v3.24.3
Net Loss per Common Share (Details) - Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive - shares
shares in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items]        
Total potentially dilutive shares 17,616 20,825 18,417 18,273
Warrants [Member]        
Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items]        
Total potentially dilutive shares 2,212 5,973 2,538 6,092
Options [Member]        
Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items]        
Total potentially dilutive shares 12,407 13,069 12,882 11,410
Unvested restricted common stock [Member]        
Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items]        
Total potentially dilutive shares 2,997 1,783 2,997 771
v3.24.3
Income Taxes (Details)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
USD ($)
Income Taxes [Abstract]  
Federal income tax rate 21.00%
Tax-effected carryforwards $ 15,600
Carryforwards assumed tax rate 26.00%
Net deferred tax assets $ 11,700
Capitalized research and development expenditures 2,500
Intangible asset 1,100
Valuation allowance increased 4,000
Federal R&D credit carryforwards $ 623
v3.24.3
Intangible Assets and Goodwill (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Intangible Assets and Goodwill [Abstract]          
Amortization expense of intangible assets $ 780 $ 780 $ 2,300 $ 2,300  
Goodwill $ 55,573   $ 55,573   $ 55,573
v3.24.3
Intangible Assets and Goodwill (Details) - Schedule of Amounts Related to Intangible Assets - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Schedule of Amounts Related to Intangible Assets [Line Items]    
Gross Carrying Amount $ 16,991 $ 16,991
Accumulated Amortization (7,243) (4,915)
Net Carrying Amount 9,748 12,076
Non-compete agreement with founder [Member]    
Schedule of Amounts Related to Intangible Assets [Line Items]    
Gross Carrying Amount 3,251 3,251
Accumulated Amortization (2,528) (1,715)
Net Carrying Amount 723 1,536
Website domain name and trademark [Member]    
Schedule of Amounts Related to Intangible Assets [Line Items]    
Gross Carrying Amount 1,009 1,009
Accumulated Amortization (471) (320)
Net Carrying Amount 538 689
Technology and licensed patents [Member]    
Schedule of Amounts Related to Intangible Assets [Line Items]    
Gross Carrying Amount 12,731 12,731
Accumulated Amortization (4,244) (2,880)
Net Carrying Amount $ 8,487 $ 9,851
v3.24.3
Intangible Assets and Goodwill (Details) - Schedule of Future Amortization Expense - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Schedule of Future Amortization Expense [Abstract]    
2024 (remaining three months) $ 776  
2025 2,472  
2026 2,021  
2027 1,903  
2028 1,819  
Thereafter 757  
Total $ 9,748 $ 12,076
v3.24.3
Property and Equipment (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Property and Equipment [Abstract]        
Depreciation expense $ 75 $ 76 $ 214 $ 203
v3.24.3
Property and Equipment (Details) - Schedule of Property and Equipment - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Property Plant and Equipment [Line Items]    
Total cost of property and equipment $ 6,312 $ 3,142
Accumulated depreciation (486) (272)
Property and equipment, net 5,826 2,870
Computer and lab equipment [Member]    
Property Plant and Equipment [Line Items]    
Total cost of property and equipment $ 5,899 2,999
Estimated Useful Life 5 years  
Network Equipment [Member]    
Property Plant and Equipment [Line Items]    
Total cost of property and equipment $ 29 29
Estimated Useful Life 4 years  
Furniture and Fixtures [Member]    
Property Plant and Equipment [Line Items]    
Total cost of property and equipment $ 32 32
Estimated Useful Life 7 years  
Software [Member]    
Property Plant and Equipment [Line Items]    
Total cost of property and equipment $ 77 49
Estimated Useful Life 3 years  
Leasehold Improvements [Member]    
Property Plant and Equipment [Line Items]    
Total cost of property and equipment $ 275 $ 33
Estimated Useful Life Lessor of lease term or 5  
v3.24.3
Operating Leases (Details) - Schedule of Undiscounted Future Minimum Lease Payments Under Operating Leases - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Schedule of Undiscounted Future Minimum Lease Payments Under Operating Leases [Abstract]    
2024 (remaining three months) $ 88  
2025 437  
2026 591  
2027 515  
2028 212  
Total minimum payments 1,843  
Less: imputed interest (161)  
Present value of operating lease liabilities 1,682  
Less: current portion included in other current liabilities (385)  
Long-term operating lease liabilities $ 1,297 $ 840
v3.24.3
Operating Leases (Details) - Schedule of Other Information Related to Operating Lease Liabilities - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Schedule of Other Information Related Operating Lease Liabilities [Abstract]        
Cash paid for operating lease liabilities $ 117 $ 92 $ 274 $ 214
Weighted average remaining lease term in years 3 years 6 months 3 years 10 months 24 days 3 years 6 months 3 years 10 months 24 days
Weighted average discount rate 10.00% 10.00% 10.00% 10.00%
v3.24.3
Financial Liabilities (Details) - USD ($)
 9 Months Ended 12 Months Ended
Feb. 06, 2025
Aug. 06, 2024
Sep. 23, 2022
Sep. 30, 2024
Dec. 31, 2023
Mar. 23, 2023
Financial Liabilities [Line Items]            
Accrued interest payable       $ 122,000 $ 14,000  
Received fee   $ 450,000        
Other issuance costs   55,000        
Redeem of streeterville convertible note           $ 750,000
Derivative Liability       666,000  
Outstanding balance          
Unsecured Promissory Note [Member]            
Financial Liabilities [Line Items]            
Initial principal amount   8,250,000        
Original issue discount   750,000        
Cash for streeterville convertible note   $ 7,500,000        
Streeterville [Member]            
Financial Liabilities [Line Items]            
Interest percentage   10.00%        
Streeterville Unsecured Note [Member]            
Financial Liabilities [Line Items]            
Initial principal amount     $ 8,250,000      
Interest percentage     10.00%      
Maturity date     18 months      
Original issue discount     $ 750,000      
Streeterville Capital, LLC [Member]            
Financial Liabilities [Line Items]            
Outstanding balance         $ 1,900,000  
Forecast [Member]            
Financial Liabilities [Line Items]            
Closing trade percentage 8.00%          
Conversion price equal rate 92.00%          
Common Stock exceeding percentage 4.99%          
Minimum market capitalization value $ 10,000,000          
Aggregate sales of Conversion percentage 10.00%          
Derivative Liability $ 666,000          
Accruing outstanding balance percentage 15.00%          
Forecast [Member] | Unsecured Promissory Note [Member]            
Financial Liabilities [Line Items]            
Redeem of streeterville convertible note $ 750,000          
Forecast [Member] | Streeterville [Member]            
Financial Liabilities [Line Items]            
Redemption amount 10.00%          
Forecast [Member] | Minimum [Member]            
Financial Liabilities [Line Items]            
Market capitalization percentage 9.99%          
Outstanding balance percentage 5.00%          
Forecast [Member] | Maximum [Member]            
Financial Liabilities [Line Items]            
Outstanding balance percentage 10.00%          
v3.24.3
Financial Liabilities (Details) - Schedule of Outstanding Promissory Notes Payable to Financial Liabilities - USD ($)
$ in Thousands
 9 Months Ended 12 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Financial Liabilities (Details) - Schedule of Outstanding Promissory Notes Payable to Financial Liabilities [Line Items]    
Financial liabilities, net of issuance costs $ 6,514 $ 1,925
Derivative liability 666
Loans Payable [Member]    
Financial Liabilities (Details) - Schedule of Outstanding Promissory Notes Payable to Financial Liabilities [Line Items]    
Remaining loan balances 8,250 2,063
Debt Issuance Costs [Member]    
Financial Liabilities (Details) - Schedule of Outstanding Promissory Notes Payable to Financial Liabilities [Line Items]    
Remaining unamortized debt issuance costs $ (1,736) $ (138)
v3.24.3
Loan Receivable (Details) - USD ($)
$ in Thousands
Jun. 06, 2023
Sep. 30, 2024
Dec. 31, 2023
May 16, 2023
Loan Receivable [Line Items]        
Outstanding receivable   $ 306 $ 279  
Millionways [Member]        
Loan Receivable [Line Items]        
Acquire, percentage of AI firm       100.00%
Outstanding receivable   $ 613 $ 558  
Unsecured Promissory Notes [Member]        
Loan Receivable [Line Items]        
Aggregate principal amount $ 2,000      
MW Agreement [Member]        
Loan Receivable [Line Items]        
Aggregate principal amount $ 500      
MW Note [Member]        
Loan Receivable [Line Items]        
Bears simple interest 10.00%      
Annual interest rate 15.00%      
v3.24.3
Contingencies (Details) - USD ($)
$ / shares in Units, $ in Thousands
 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Dec. 31, 2023
Oct. 13, 2022
Contingencies [Line Items]          
Other current liabilities (in Dollars) $ 921   $ 921 $ 786  
Fair market valuation contemplated shares     31,299,417    
Conversion shares     2,377,028    
Warrants [Member]          
Contingencies [Line Items]          
Exercise price per share (in Dollars per share) $ 2.27   $ 2.27    
Unissued QPhoton Warrants [Member]          
Contingencies [Line Items]          
Warrants to purchase shares 702,834   702,834    
Minimum [Member]          
Contingencies [Line Items]          
Warrants to purchase shares 1,726,931   1,726,931    
Maximum [Member]          
Contingencies [Line Items]          
Warrants to purchase shares 7,028,337   7,028,337    
Common Stock [Member]          
Contingencies [Line Items]          
Total purchase price (in Dollars)     $ 71,000    
Converted shares     36,600,823    
BV Advisory [Member]          
Contingencies [Line Items]          
Other current liabilities (in Dollars) $ 536   $ 536 $ 536  
BV Advisory Partners, LLC [Member]          
Contingencies [Line Items]          
Purchase price percentage         10.00%
Series B Preferred Stock [Member]          
Contingencies [Line Items]          
Total purchase price (in Dollars)     $ 69,900    
Unissued QPhoton Shares [Member]          
Contingencies [Line Items]          
Converted shares 2,957,251 2,957,251      
v3.24.3
Capital Stock (Details) - USD ($)
 3 Months Ended 9 Months Ended
Mar. 19, 2024
Aug. 17, 2023
Feb. 09, 2023
Oct. 28, 2022
Jun. 16, 2022
Jun. 13, 2022
Nov. 17, 2021
Sep. 30, 2024
Sep. 30, 2023
 [1]
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Nov. 30, 2021
Aug. 31, 2020
Capital Stock [Line Items]                            
Conversion price per share (in Dollars per share)               $ 5.5   $ 5.5        
Warrants term               2 years   2 years        
Reclassification of Series A preferred stock to mezzanine equity (in Dollars)                   $ (8,195,000)        
Sales of equity (in Dollars)       $ 100,000,000                    
Aggregate offering price (in Dollars)                     $ 27,362,717,000      
Net proceeds (in Dollars)                   14,600,000        
Issued warrants shares         6,300,000                  
Exercise price per share (in Dollars per share)         $ 0.0001                  
Issued warrants price (in Dollars)                   6,300,000        
Warrants (in Dollars)                   $ 7,000,000        
Forfeited percentage                   66.00%        
Recognized mark-to-market gains (in Dollars)               $ (13,000) (384,000) [1],[2]      
QPhoton Warrants [Member]                            
Capital Stock [Line Items]                            
Issued warrants price (in Dollars)                   $ 6,300,000        
Warrant [Member]                            
Capital Stock [Line Items]                            
Exercise price (in Dollars per share)               $ 2.27   $ 2.27        
Recognized mark-to-market gains (in Dollars)                     $ 144,000      
Minimum [Member]                            
Capital Stock [Line Items]                            
Purchase of warrants               1,726,931   1,726,931        
Sales of equity (in Dollars)   $ 25,000,000                        
Maximum [Member]                            
Capital Stock [Line Items]                            
Purchase of warrants               7,028,337   7,028,337        
Sales of equity (in Dollars)   $ 50,000,000                        
Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Reclassification of Series A preferred stock to mezzanine equity (in Dollars)                          
Redeemed, shares               248,000   497,000        
Restricted Stock Units (RSUs) [Member]                            
Capital Stock [Line Items]                            
Purchase of warrants                           171,000
Warrants term                           5 years
Exercise price (in Dollars per share)                           $ 2
QPhoton Merger [Member]                            
Capital Stock [Line Items]                            
Issuance of warrant               702,834   702,834        
Series A Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Preferred stock, share authorized               1,550,000   1,550,000   1,550,000    
Preferred stock, par value (in Dollars per share)             $ 0.0001 $ 0.0001   $ 0.0001   $ 0.0001    
Preferred stock, shares issued               993,000   993,000   1,490,000    
Preferred stock, shares outstanding               993,000   993,000   1,490,000    
Purchased shares             1,545,459              
Purchase of warrants                         1,545,459  
Aggregate purchase price (in Dollars)             $ 8,500,000              
Preferred dividends percentage                   10.00%        
Warrants term                         2 years  
Exercise price (in Dollars per share)                         $ 7  
Additional paid in capital (in Dollars) $ 8,125,000                          
Reclassification of Series A preferred stock to mezzanine equity (in Dollars) $ 8,195,000                          
Price of per share (in Dollars per share) $ 5.5                          
Redeemed, shares               248,349   496,698        
Cash Paid (in Dollars)               $ 1,400,000   $ 2,700,000        
Series A Preferred Stock [Member] | Preferred Warrants [Member]                            
Capital Stock [Line Items]                            
Purchase of warrants             1,545,459              
Series A Preferred Stock [Member] | Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Preferred stock, shares issued               993,306   993,306   1,490,004    
Preferred stock, shares outstanding               993,306   993,306   1,490,004    
Series A Preferred Stock [Member] | Falcon Capital Partners [Member]                            
Capital Stock [Line Items]                            
Shares converted           45,455                
Series A Preferred Stock [Member] | Greenfield Children, LLC, [Member]                            
Capital Stock [Line Items]                            
Shares converted     10,000                      
Accrued dividend shares     11,096                      
Series B Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Preferred stock, share authorized               3,080,000   3,080,000   3,080,000    
Preferred stock, shares issued                      
Preferred stock, shares outstanding                      
Series B Preferred Stock [Member] | Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Preferred stock, share authorized               3,079,864   3,079,864   3,079,864    
Preferred stock, par value (in Dollars per share)               $ 0.0001   $ 0.0001   $ 0.0001    
Preferred stock, shares issued                      
Preferred stock, shares outstanding                      
Series A Convertible Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Exercise price (in Dollars per share)               $ 7   $ 7        
Series A Convertible Preferred Stock [Member] | Falcon Capital Partners [Member]                            
Capital Stock [Line Items]                            
Shares converted           47,728                
Capital Stock [Member] | Series A Preferred Stock [Member]                            
Capital Stock [Line Items]                            
Preferred stock, shares issued               993,306   993,306   1,490,004    
Preferred stock, shares outstanding               993,306   993,306        
Other Offerings [Member]                            
Capital Stock [Line Items]                            
Sale of stock units                   16,604,770        
Average price (in Dollars per share)               $ 0.88   $ 0.88        
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
[2] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
v3.24.3
Capital Stock (Details) - Schedule of Warrants Outstanding - Warrant [Member]
shares in Thousands
 9 Months Ended
Sep. 30, 2024
$ / shares
shares
August 18, 2020 [Member]  
Schedule of Warrants Outstanding [Line Items]  
Expiration Date Aug. 18, 2025
Exercise Price (in Dollars per share) | $ / shares $ 2
Issued 171
Exercised (150)
Forfeited / Canceled
Warrants Outstanding 21
November 15, 2021 [Member]  
Schedule of Warrants Outstanding [Line Items]  
Expiration Date Nov. 15, 2023
Exercise Price (in Dollars per share) | $ / shares $ 7
Issued 1,545
Forfeited / Canceled (1,545)
Warrants Outstanding
June 16, 2022 [Member]  
Schedule of Warrants Outstanding [Line Items]  
Expiration Date May 09, 2027
Exercise Price (in Dollars per share) | $ / shares $ 0.0001
Issued 6,325
Exercised
Forfeited / Canceled (4,148)
Warrants Outstanding 2,177
v3.24.3
Stock-Based Compensation (Details) - USD ($)
$ / shares in Units, $ in Thousands
 9 Months Ended
Jul. 05, 2022
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2027
Dec. 31, 2026
Dec. 31, 2025
Dec. 31, 2024
Jan. 01, 2024
Dec. 31, 2023
Jan. 01, 2023
Stock-based Compensation [Line Items]                    
Reserves increased shares               1,000,000   1,000,000
Common stock shares outstanding   94,416,000             77,451,000  
Common stock shares issued   94,416,000             77,451,000  
Weighted average grant-date fair value of stock options granted (in Dollars per share)   $ 1.01                
Expected to be recognized over a period   3 years 3 months 18 days                
Stock-based compensation (in Dollars)   $ 207 $ 206              
Net expense (in Dollars)   $ 2,700                
Issued shares forfeited   23,600                
Vesting percentage                 20.00%  
Realization of stock-based compensation expense (in Dollars)   $ 113 $ 2,100              
Equity Option [Member]                    
Stock-based Compensation [Line Items]                    
Weighted average grant-date fair value of stock options granted (in Dollars per share)     $ 1.42              
Total unrecognized compensation cost (in Dollars)   $ 3,500                
2019 Equity and Incentive Plan [Member]                    
Stock-based Compensation [Line Items]                    
Grant incentive stock options   3,000,000                
Number of shares available for issue   3,000,000                
2022 Equity and Incentive Plan [Member]                    
Stock-based Compensation [Line Items]                    
Number of shares available for issue 16,000,000                  
Shares issued   18,000,000                
Common stock shares outstanding   12,400,000                
Common stock shares issued   12,400,000                
2023 Incentive Shares [Member]                    
Stock-based Compensation [Line Items]                    
Shares issued     2,400,000              
Common stock shares issued   854,000                
Retention Incentive Shares [Member]                    
Stock-based Compensation [Line Items]                    
Shares issued     1,500,000              
Separation Agreement Shares [Member]                    
Stock-based Compensation [Line Items]                    
Shares issued   218,000                
Stock-based compensation expense (in Dollars)   $ 197                
Common Stock [Member]                    
Stock-based Compensation [Line Items]                    
Number of shares issued for services   142,000 1,500,000              
Forecast [Member]                    
Stock-based Compensation [Line Items]                    
Vesting percentage       20.00% 20.00% 20.00% 20.00%      
v3.24.3
Stock-Based Compensation (Details) - Schedule of Option Activity - $ / shares
shares in Thousands
 9 Months Ended 12 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Schedule of Option Activity [Abstract]    
Number Outstanding, Outstanding balance 12,369 13,843
Weighted Average Exercise Price per Share, Outstanding balance $ 2.41 $ 2.64
Weighted Average Remaining Contractual Life (Years), Outstanding balance 3 years 1 month 6 days 3 years 8 months 12 days
Number Outstanding, Vested and exercisable 8,375  
Weighted Average Exercise Price per Share, Vested and exercisable $ 2.87  
Weighted Average Remaining Contractual Life (Years), Vested and exercisable 2 years 9 months 18 days  
Number Outstanding, Granted 250  
Weighted Average Exercise Price per Share, Granted $ 1.01  
Weighted Average Remaining Contractual Life (Years), Granted 5 years  
Number Outstanding, Exercised  
Weighted Average Exercise Price per Share, Exercised  
Weighted Average Remaining Contractual Life (Years), Exercised  
Number Outstanding, Forfeited (1,724)  
Weighted Average Exercise Price per Share, Forfeited $ 4.11  
Weighted Average Remaining Contractual Life (Years), Forfeited  
v3.24.3
Stock-Based Compensation (Details) - Schedule of Grant-Date Fair Value of Stock Options Granted - $ / shares
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]        
Exercise price (in Dollars per share)   $ 1.35   $ 1.35
Risk-free interest rate   4.80%    
Expected volatility   134.50%    
Expected dividend yield 0.00% 0.00% 0.00% 0.00%
Expected life of options (in years) 5 years 5 years 5 years 5 years
Minimum [Member]        
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]        
Exercise price (in Dollars per share) $ 1 $ 1.35 $ 1 $ 1.35
Risk-free interest rate 5.20%   5.20% 4.70%
Expected volatility 93.20%   93.20% 122.20%
Maximum [Member]        
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]        
Exercise price (in Dollars per share) $ 1.12 $ 1.84 $ 1.12 $ 1.84
Risk-free interest rate 5.20%   5.20% 4.80%
Expected volatility 104.60%   104.60% 136.90%
v3.24.3
Stock-Based Compensation (Details) - Schedule of Exercise Price Range
shares in Thousands
 9 Months Ended
Sep. 30, 2024
$ / shares
shares
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 12,369
Exercisable Options 8,375
0.00 – 1.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 105
Exercisable Options 10
1.00 – 2.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 5,348
Exercisable Options 1,794
2.00 – 3.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 5,845
Exercisable Options 5,500
3.00 – 6.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 38
Exercisable Options 38
6.00 – 8.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 683
Exercisable Options 683
8.00 – 12.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Outstanding Options 350
Exercisable Options 350
Minimum [Member] | 0.00 – 1.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares $ 0
Minimum [Member] | 1.00 – 2.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 1
Minimum [Member] | 2.00 – 3.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 2
Minimum [Member] | 3.00 – 6.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 3
Minimum [Member] | 6.00 – 8.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 6
Minimum [Member] | 8.00 – 12.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 8
Maximum [Member] | 0.00 – 1.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 1
Maximum [Member] | 1.00 – 2.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 2
Maximum [Member] | 2.00 – 3.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 3
Maximum [Member] | 3.00 – 6.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 6
Maximum [Member] | 6.00 – 8.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares 8
Maximum [Member] | 8.00 – 12.00 [Member]  
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]  
Exercise Price (in Dollars per share) | $ / shares $ 12
v3.24.3
Stock-Based Compensation (Details) - Schedule of Stock-Based Compensation Expense Related to Common Stock Options and Restricted Shares of Common Stock - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Schedule of Stock-Based Compensation Expense Related to Common Stock Options and Restricted Shares of Common Stock [Line Items]        
Total stock-based compensation $ 763 $ 992 $ 2,680 $ 3,110 [1]
Research and development [Member]        
Schedule of Stock-Based Compensation Expense Related to Common Stock Options and Restricted Shares of Common Stock [Line Items]        
Total stock-based compensation 562 408 1,761 1,358
Selling and marketing [Member]        
Schedule of Stock-Based Compensation Expense Related to Common Stock Options and Restricted Shares of Common Stock [Line Items]        
Total stock-based compensation 12 85 123 (351)
General and administrative [Member]        
Schedule of Stock-Based Compensation Expense Related to Common Stock Options and Restricted Shares of Common Stock [Line Items]        
Total stock-based compensation $ 189 $ 499 $ 796 $ 2,103
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
v3.24.3
Stock-Based Compensation (Details) - Schedule of Stock-Based Compensation Expense for Services Expenses for Both Shares Issued and Stock Option Awards Granted - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Schedule of Stock-Based Compensation Expense for Services Expenses for Both Shares Issued and Stock Option Awards Granted [Line Items]        
Total stock-based compensation $ 2 $ 21 $ 282 [1]
Selling and marketing [Member]        
Schedule of Stock-Based Compensation Expense for Services Expenses for Both Shares Issued and Stock Option Awards Granted [Line Items]        
Total stock-based compensation (107) (174)
General and administrative [Member]        
Schedule of Stock-Based Compensation Expense for Services Expenses for Both Shares Issued and Stock Option Awards Granted [Line Items]        
Total stock-based compensation $ 2 $ 107 $ 21 $ 456
[1] As described in Note 15 to these unaudited condensed consolidated financial statements, we have restated the condensed consolidated statement of cash flows for the nine months ended September 30, 2023.
v3.24.3
License Agreement – Stevens Institute of Technology (Details)
 9 Months Ended
Sep. 30, 2024
License Agreement – Stevens Institute of Technology [Abstract]  
Consideration agreement, description As consideration for the license and other rights granted under the agreement, QPhoton agreed to pay the following: (i) $35 thousand within 30 days of execution of the agreement, (ii) $28 thousand within 30 days of each annual anniversary of the effective date, (iii) equity in the Company equivalent to nine percent of the outstanding equity of the Company within 30 days of the execution of the agreement, and (iv) royalties of 3.5% of the net sales price of each licensed product sold or licensed by the company during the quarter then-ended, for which it also received payment, concurrent with the delivery of the relevant quarterly report.
v3.24.3
Restatement of Previously Issued Financial Statements (Details) - Previously Reported [Member]
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
USD ($)
Sep. 30, 2023
USD ($)
Error Corrections and Prior Period Adjustments Restatement [Line Items]    
Net loss $ 1,400 $ 1,000
Intangible and goodwill assets 8,600 8,600
Liabilities 500 500
Equity, attributable to parent $ 9,100 $ 9,100
v3.24.3
Subsequent Events (Details) - USD ($)
$ in Thousands
 1 Months Ended 3 Months Ended 9 Months Ended
Nov. 04, 2024
Oct. 31, 2024
Sep. 30, 2024
Sep. 30, 2024
Nov. 30, 2024
Dec. 31, 2023
Nov. 04, 2023
Subsequent Events [Line Items]              
Agreement amount (in Dollars)             $ 55,000
ATM Agreement [Member]              
Subsequent Events [Line Items]              
Agreement amount (in Dollars)             $ 5,000
Series A Convertible Preferred [Member] | Subsequent Event [Member]              
Subsequent Events [Line Items]              
Redeemed, shares   165,566          
Cumulative redemption amount (in Dollars)         $ 910    
Preferred stock shares issued 3.9            
Series A Preferred Stock [Member]              
Subsequent Events [Line Items]              
Redeemed, shares     248,349 496,698      
Preferred stock shares issued     993,000 993,000   1,490,000  
Preferred stock shares outstanding     993,000 993,000   1,490,000  
Series A Preferred Stock [Member] | Subsequent Event [Member]              
Subsequent Events [Line Items]              
Redeemed, shares 662,264            
Cumulative redemption amount (in Dollars) $ 3,600            
Preferred Class A [Member] | Subsequent Event [Member]              
Subsequent Events [Line Items]              
Preferred stock shares issued 827,740            
Preferred stock shares outstanding 827,740            
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