UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended:
or
For the Transition Period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including
area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
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.
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).
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 | ☐ |
| ☒ | 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 October 1, 2024, there were
QUANTUM COMPUTING INC.
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
QUANTUM COMPUTING INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except par value date)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Loans receivable, net of provision for credit losses of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Financial liabilities, net of issuance costs | ||||||||
| Deferred revenue | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Contingencies (see Note 10) | ||||||||
| Mezzanine equity | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
Total liabilities and mezzanine and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
QUANTUM COMPUTING INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
| Three
Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| (Restated) (1) | ||||||||
| Total revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Non-operating income (expense) | ||||||||
| Interest and other income | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Change in value of warrant liability | ||||||||
| Loss before income tax provision | ( | ) | ( | ) | ||||
| Income tax provision | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Less: Series A convertible preferred stock dividends | ( | ) | ||||||
| Net loss available to common stockholders | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| (1) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
QUANTUM COMPUTING INC.
Condensed Consolidated Statements of Mezzanine and Stockholders’ Equity
(Unaudited, in thousands)
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Series A | Additional | Total | ||||||||||||||||||||||||||||||
| Mezzanine | Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Equity | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||
| Balances, January 1, 2024 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Issuance of shares for cash | ||||||||||||||||||||||||||||||||
| Reclassification
of Series A preferred stock to mezzanine equity |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Repurchase of redeemable shares | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||||||||||
| Stock-based compensation for services | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balances, March 31, 2024 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Three Months Ended March 31, 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) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of shares for cash | ||||||||||||||||||||||||||||
| Conversion of preferred stock | ( | ) | ||||||||||||||||||||||||||
| Preferred stock dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Stock-based compensation for services | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances, March 31, 2023 (Restated) (1) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| (1) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
QUANTUM COMPUTING INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| (Restated) (1) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Depreciation and intangibles amortization | ||||||||
| Amortization of issuance costs | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Provision for credit losses | ||||||||
| Stock-based compensation expense | ||||||||
| Stock-based compensation expense for services | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other non-current assets | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Other long-term liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of financial liabilities, net of interest | ( | ) | ||||||
| Series A preferred stock dividend payments | ( | ) | ( | ) | ||||
| Repurchase of Series A preferred stock | ( | ) | ||||||
| Proceeds from stock issuance related to ATM facility | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Reclassification of Series A preferred stock to mezzanine equity | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
QUANTUM COMPUTING INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 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
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
$
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.
5
Reclassifications
Certain reclassifications have been made to the fiscal year 2023 audited consolidated financial statements to conform to the presentation in the three months ended March 31, 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 March 31, 2024 and December 31 2023, the Company
had $
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 three months ended March 31, 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.
6
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 March 31, 2024 and December 31, 2023 are considered fully collectible and thus management has not recorded a 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 March 31, 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 March 31, 2024 and December 31, 2023, we had no finance leases.
7
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 March 31, 2024 and 2023, 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 months ended March 31, 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.
8
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 March 31, 2024
and December 31, 2023, the Company had $
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.
9
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
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Series A convertible preferred stock dividends | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||
| Denominator: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
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 months ended March 31, 2024 and 2023, there were therefore no dilutive securities and hence basic and diluted
loss per share were the same.
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Unvested restricted common stock | ||||||||
| Total potentially dilutive shares | ||||||||
As all potentially dilutive securities are anti-dilutive as of March 31, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each period.
10
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
As of March 31, 2024, in addition to the $
The Company has federal R&D credit carryforwards of approximately $
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
| March 31, 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 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Website domain name and trademark | ( | ) | ( | ) | ||||||||||||||||||||
| Technology and licensed patents | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
11
The amortization expense of the Company’s
intangible assets for the three months ended March 31, 2024 and 2023 was $
| Amortization | ||||
| 2024 (remaining nine months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
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 $
The Company tested the intangible assets and goodwill for impairment as of March 31, 2024 and concluded there was no impairment of intangible assets or goodwill at that time.
Note 6. Property and Equipment
| March 31, 2024 | December 31, 2023 | |||||||
| Computer and lab equipment | $ | $ | ||||||
| Network equipment | ||||||||
| Furniture and fixtures | ||||||||
| Software | ||||||||
| Leasehold improvements | ||||||||
| Total cost of property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| Estimated Useful Life (Years) | ||||
| Computer and laboratory equipment | ||||
| Network equipment | ||||
| Furniture and fixtures | ||||
| Software | ||||
| Leasehold improvements | ||||
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.
12
Note 7. Operating Leases
As of March 31, 2024, the Company has use of space in four different locations, Hoboken, NJ, Tempe, AZ, Arlington, VA, and Minneapolis, MN, under lease or membership agreements, which expire at various dates through October 31, 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.
| Year | Lease Payments Due | |||
| 2024 (remaining nine months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total minimum payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | ||||
| Less: current portion included in other current liabilities | ( | ) | ||
| Long-term operating lease liabilities | $ | |||
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| Three Months Ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Cash paid for operating lease liabilities (in thousands) | $ | $ | | |||||
| Weighted average remaining lease term in years | ||||||||
| Weighted average discount rate | % | % | ||||||
Note 8. Financial Liabilities
| March 31, 2024 | December 31, 2023 | |||||||
| Remaining loan balances | $ | $ | ||||||
| Remaining unamortized debt issuance costs | ( | ) | ||||||
| Financial liabilities, net of issuance costs | $ | $ | ||||||
Additionally, the Company has no accrued interest and $
Unsecured Promissory Note
On September 23, 2022, the Company entered into a note purchase agreement
(the “Unsecured NPA”) with Streeterville Capital, LLC (“Streeterville”), pursuant to which Streeterville purchased
an unsecured promissory note (the “Note” or the “Streeterville Unsecured Note”) in the initial principal amount
of $
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Beginning on the date that is six months after the issuance date of the
Note, Streeterville had the right to redeem up to $
For a full discussion of the terms and conditions of the 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
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
The Company reserved $
15
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 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
As part of our business combination with
QPhoton in June 2022, we acquired a payable to BV Advisory based on a Note Purchase Agreement that QPhoton had entered into with BV
Advisory on March 1, 2021. 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 $
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 Partners, LLC (“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 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
16
The Company’s total purchase price of QPhoton
was approximately $
Accordingly, as of March 31, 2024 and 2023, the
Company has neither issued
Note 11. Capital Stock
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
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
(
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, $
The Preferred Warrants were -year warrants to purchase shares of
the Company’s common stock at an exercise price of $
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.
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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
On February 9, 2023, one of the Series A Investors,
Greenfield Children, LLC, converted
On March 19, 2024, the Company entered into a
Redemption and Waiver Agreement (the “Redemption Agreement”) with the current holders (the “Series A Holders”)
of its Series A Preferred Stock. Accordingly, $
Authorized Classes of Stock
As of March 31, 2024, the Board has authorized
two classes of preferred stock. The Board has authorized
At-the-Market-Facility
For the period ended March 31, 2024, the Company sold
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Warrants
| Issuance Date | Expiration Date | Exercise Price | Issued | Exercised | Forfeited / Canceled | Warrants Outstanding | ||||||||||||||||
| August 18, 2020 | $ | ( | ) | |||||||||||||||||||
| November 15, 2021 | $ | ( | ) | |||||||||||||||||||
| June 16, 2022 | $ | ( | ) | |||||||||||||||||||
In connection with a restricted stock units offering
in June 2020, the Company issued warrants in August 2020 to purchase
In connection with the offering of Series A Preferred
Stock in November 2021, the Company issued warrants to purchase
In connection with the QPhoton Merger on June
16, 2022, the Company issued
Accordingly, as of March 31, 2024 and 2023, we
had only issued
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
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
19
Options
| Number Outstanding | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (Years) | ||||||||||
| Balance as of January 1, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Balance as of March 31, 2024 | $ | |||||||||||
| Vested and exercisable as of March 31, 2024 | $ | |||||||||||
The Company did not grant any options during the three months ended
March 31, 2024.
| Three Months Ended | ||||
| March 31, | ||||
| 2023 | ||||
| Exercise price | $ | |||
| Risk-free interest rate | % | |||
| Expected volatility | % | |||
| Expected dividend yield | % | |||
| Expected life of options (in years) | ||||
| Exercise Price | Outstanding Options | Exercisable Options | ||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
The weighted average grant-date fair value of
stock options granted during the three months ended March 31, 2023 was $
20
Stock-based Compensation
| Three Months Ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Research and development | $ | $ | ||||||
| Selling and marketing | ( | ) | ||||||
| General and administrative | ||||||||
| Total stock-based compensation | $ | $ | ||||||
For the three months ended March 31, 2024 and 2023, the statement of
stockholders’ equity was lower by $
In terms of new issuances, the Company issued
Stock-based Compensation for Services
| Three Months Ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| General and administrative | $ | | $ | |||||
| Total stock-based compensation for services | $ | $ | ||||||
The difference in stock-based compensation for services on the statement
of stockholders’ equity as compared to the statement of cash flows for the years ended March 31, 2024 and 2023 of $
In terms of new issuances, the Company issued
Note 13. Related Party Transactions
There were no related party transactions during the three months ended March 31, 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.
21
Consideration for the Agreement
As of March 31, 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.
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
three months ended March 31, 2024, we amended our consolidated statements of operations, our consolidated statements of stockholders’
equity, and our consolidated statements of cash flows for the three months ended March 31, 2023 (the “Previously Issued Financial
Statements”). The Previously Issued Financial Statements 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 statement of operations for the three
months ended March 31, 2023, is a decrease in net loss of $
Note 16. Subsequent Events
In April, May, July and August 2024, the Company
redeemed
On August 6, 2024, the Company entered into a
Securities Purchase Agreement with Streeterville, pursuant to which the Company issued and sold to Streeterville a Secured Convertible
Promissory Note (the “Streeterville Secured Convertible Note”) in the original principal amount of $
There are no other events of a subsequent nature that in management’s opinion are reportable.
22
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 the 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.
23
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 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 (the “CHIPS Act”), 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 | |
| ● | 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) |
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| 3. | Remote Sensing |
| 4. | Imaging |
| 5. | Cybersecurity |
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 months ended March 31, 2024 and 2023 is as follows (in thousands, except percentages):
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | % Change | ||||||||||
| Revenue: | ||||||||||||
| Total revenue | $ | 27 | $ | 121 | (78 | )% | ||||||
| Gross profit | 11 | 65 | (83 | )% | ||||||||
| Gross profit margin | 41 | % | 54 | % | (24 | )% | ||||||
| Operating expenses: | ||||||||||||
| Research and development | 2,220 | 2,184 | 2 | % | ||||||||
| Sales and marketing | 451 | 428 | 5 | % | ||||||||
| General and administrative | 3,659 | 3,548 | 3 | % | ||||||||
| Total operating expenses | 6,330 | 6,160 | 3 | % | ||||||||
| Loss from operations | (6,319 | ) | (6,095 | ) | 4 | % | ||||||
| Non-operating income and (expense): | ||||||||||||
| Interest and other income | 38 | 32 | 19 | |||||||||
| Interest expense, net | (155 | ) | (427 | ) | (64 | )% | ||||||
| Change in value of warrant liability | - | 353 | (100 | )% | ||||||||
| Total non-operating income (expense) | (117 | ) | (42 | ) | 179 | % | ||||||
| Net loss | $ | (6,436 | ) | $ | (6,137 | ) | 5 | % | ||||
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Revenues
The Company’s revenues consist of (in thousands):
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| Products | $ | - | $ | - | - | % | ||||||
| Services | 27 | 121 | (78 | )% | ||||||||
| Total | $ | 27 | $ | 121 | (78 | )% | ||||||
Revenues for the three months ended March 31, 2024 were $27 thousand compared to $121 thousand for the comparable prior year period, a decrease of $94 thousand or 78%. The decrease in revenues is 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 contracts during the three months ended March 31, 2024. Revenue in the current reporting period is derived from professional services provided to multiple government and commercial customers under multi-month contracts.
Cost of Revenues
Cost of revenues, which consists of direct labor expenses, primarily salary expense for engineering and solutions staff delivering services, was $16 thousand for the three months ended March 31, 2024 compared to $56 thousand for the comparable prior year period, a decrease of $40 thousand or 71%. The decrease is primarily due to the decrease in direct labor expense required to perform on the contracts in the current quarter compared to the prior year period.
Gross Margin
Gross margin for the three months ended March 31, 2024 was $11 thousand and 41%, respectively, compared to $65 thousand and 54%, respectively, for the comparable prior year period, a decrease of $54 thousand and 83%, respectively. The change was nearly entirely the result of a reduction in contractual service revenue where the cost of goods sold was defined under the terms of our general professional services obligation. 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 months ended March 31, 2024 and 2023 is set forth in the below tables (in thousands, except percentages).
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | % Change | ||||||||||
| Research and development | $ | 2,220 | $ | 2,184 | 2 | % | ||||||
Research and development expenses consist primarily of employee compensation for employees that primarily engage in research and development efforts and fees for the development of hardware products and supporting software. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.
Research and development expenses for the three months ended March 31, 2024 did not significantly change with increases in stock-based compensation offset by decreases in bonus as the Company sought to create long-term incentives to retain key technical employees. See Note 12, Stock-based Compensation, in the accompanying notes to our unaudited condensed consolidated financial statements for additional information.
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| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | % Change | ||||||||||
| Sales and marketing | $ | 451 | $ | 428 | 5 | % | ||||||
Selling and marketing expenses, which consist primarily of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs, also contributed to the decrease in selling and administrative expenses. Selling and marketing expenses for the three months ended March 31, 2024 did not significantly change.
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | % Change | ||||||||||
| General and administrative | $ | 3,659 | $ | 3,548 | 3 | % | ||||||
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 months ended March 31, 2024 did not significantly change, with changes primarily attributable to increases in severance expense and stock-based compensation expense for the Separation Agreement Shares, offset by pre-vesting forfeitures for certain consultants that separated during the three months ended March 31, 2024.
Non-operating Income (Expense)
The following table summarizes our non-operating income (expense) for the three months ended March 31, 2024 and 2023 (in thousands, except percentages).
| Three Months Ended March 31, | ||||||||||||
| 2024 | 2023 | % Change | ||||||||||
| Interest and other income | $ | 38 | $ | 32 | 19 | % | ||||||
| Interest expense, net | (155 | ) | (427 | ) | 64 | % | ||||||
| Change in value of warrant liability | - | 353 | (100 | )% | ||||||||
| Other income (expense) | $ | (117 | ) | $ | (42 | ) | (179 | )% | ||||
The increase in other expense for the three months ended March 31, 2024 compared to the comparable prior year period is primarily the result of no gain in value of the warrant liability recognized during the three months ended March 31, 2024, offset by decreased interest expense, net.
Interest expense, net consists of interest on financial liabilities and amortization of debt issuance costs. The decrease in interest expense in 2024 compared to 2023 was attributable to borrowings outstanding under the Streeterville Unsecured Note which was paid-in-full as of March 1, 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 primarily comprised of mark-to-market adjustments for the QPhoton Warrants, which have had no carrying value as of March 31, 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.
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Liquidity and Capital Resources
We have incurred net losses and experienced negative cash flows from operations since inception. Through March 31, 2024, the Company has raised $65.8 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 $78.4 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 March 31, 2024, the Company had cash and cash equivalents of $6.1 million.
Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures to fund business operations and continue to invest in 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, banking collapses, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our 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 March 31, 2024, compared to December 31, 2023 (in thousands):
| March 31, 2024 | December 31, 2023 | Change | ||||||||||
| Current Assets | $ | 6,827 | $ | 2,656 | $ | 4,171 | ||||||
| Current Liabilities | $ | 3,081 | $ | 4,812 | $ | (1,731 | ) | |||||
| Working Capital (Deficit) | $ | 3,746 | $ | (2,156 | ) | $ | 5,902 | |||||
At March 31, 2024, we had working capital of $3.7 million as compared to a working capital deficit of $2.2 million at December 31, 2023, an increase of $5.9 million. The increase in working capital is primarily attributable to an increase in cash proceeds from issuance of the common stock using the Company’s ATM facility, offset by the use of cash to pay for operating expenses and capital investments in property and equipment.
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Cash Flows
The following table summarizes our cash flow for the three months ended March 31, 2024 and 2023 (in thousands).
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (3,848 | ) | $ | (4,298 | ) | ||
| Net cash used in investing activities | (1,579 | ) | (379 | ) | ||||
| Net cash provided by financing activities | 9,469 | 6,134 | ||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | 4,042 | $ | 1,457 | ||||
Net cash used in operating activities for the three months ended March 31, 2024 and 2023 was $3.8 million and $4.3 million, respectively, in each case primarily as a result of our net loss in each period offset by noncash adjustments for stock-based compensation and depreciation and amortization; the prior year comparable period also included adjustments for a mark-to-market gain on the QPhoton Warrant liability.
Net cash used in investing activities for the three months ended March 31, 2024 and 2023 was $1.6 million and approximately $400 thousand, respectively, and was attributable to our purchase of computer hardware, laboratory and TFLN Chip manufacturing equipment. The increase in investment in the current period is primarily due to the purchase of additional equipment in establishing the Company’s TFLN Chip manufacturing facility in a leased space within Arizona State University’s Research Park in Tempe, Arizona.
Net cash provided by financing activities was $9.5 million and $6.1 million for the three months ended March 31, 2024 and 2023, respectively. Cash flows provided by financing activities during the three months ended March 31, 2024 were attributable to use of the ATM facility to sell shares of our common stock, offset by repayments on the Streeterville Unsecured Note and redemptions of Series A Preferred shares. Cash flows provided by financing activities during the period ended March 31, 2023 were attributable to the use of the ATM facility to sell shares of our common stock.
On a long-term basis, our liquidity is dependent on the continuation and expansion of operations and receipt of revenues. Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. 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 unaudited condensed consolidated financial statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our unaudited condensed 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.
29
Another area of critical accounting estimates involves determining the fair market value of the QPhoton Warrants, as defined below. 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.
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 March 31, 2024, we had federal and state net operating loss (“NOL”) carryforwards of approximately $55 million, or $14.3 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 March 31, 2024, will be accounted for as a reduction of income tax expense.
The calculation of our tax liabilities involves evaluating uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASC 740, Income Taxes, states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including the resolution of any related appeals or litigation processes, on the basis of the technical merits.
We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a tax payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is made available.
We believe that none of the unrecognized tax benefits may be recognized by the end of 2024.
30
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.
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 March 31, 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. Specifically, the Company does not have sufficient accounting staff to enable proper segregation of duties.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 Partners, LLC (“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. As of October 1, 2024, BV Advisory does not have counsel retained 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 grant 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 ten counts in the BV Advisory complaint. On July 24, 2024 the DE Chancery Court entered an Order dismissing those eight counts with prejudice.
As of October 1, 2024, the parties are preparing for a conference with the DE Chancery Court to be held in October to discuss a schedule for resolving other pending motions in the Breach Lawsuit, as well as the Appraisal Petition, pending BV Advisory retaining counsel in the latter action.
32
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.
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 the Company’s equity securities during the three months ended March 31, 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.
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Item 6. Exhibits.
| ** | Indicates a management contract or compensatory plan or arrangement. |
34
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: October 2, 2024 | By: | /s/ Dr. William McGann |
| Dr. William McGann | ||
| Principal Executive Officer | ||
| By: | /s/ Christopher Boehmler | |
| Christopher Boehmler | ||
| Principal Financial Officer and Principal Accounting Officer | ||
35
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: October 2, 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: October 2, 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 March 31, 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: October 2, 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 March 31, 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: October 2, 2024 | ||
| /s/ Christopher Boehmler | ||
| By: | Christopher Boehmler | |
| Principal Financial Officer and Principal Accounting Officer |
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Net of provision for credit losses (in Dollars) | $ 286 | $ 279 |
| 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 | 91,345,000 | 77,451,000 |
| Common stock, shares outstanding | 91,345,000 | 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 | 1,407,221 | 1,490,000 |
| Preferred stock, shares outstanding | 1,407,000 | 1,490,004 |
| Series B Preferred Stock | ||
| Preferred stock, shares authorized | 3,080,000 | 3,080,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
[1] | |||||
| Income Statement [Abstract] | |||||||
| Total revenue | $ 27 | $ 121 | |||||
| Cost of revenue | 16 | 56 | |||||
| Gross profit | 11 | 65 | |||||
| Research and development | 2,220 | 2,184 | |||||
| Sales and marketing | 451 | 428 | |||||
| General and administrative | 3,659 | 3,548 | |||||
| Operating expenses | 6,330 | 6,160 | |||||
| Loss from operations | (6,319) | (6,095) | |||||
| Non-operating income (expense) | |||||||
| Interest and other income | 38 | 32 | |||||
| Interest expense, net | (155) | (427) | |||||
| Change in value of warrant liability | 353 | [2] | |||||
| Loss before income tax provision | (6,436) | (6,137) | |||||
| Income tax provision | |||||||
| Net loss | (6,436) | (6,137) | [2] | ||||
| Less: Series A convertible preferred stock dividends | (216) | ||||||
| Net loss available to common stockholders | $ (6,436) | $ (6,353) | |||||
| Loss per share – basic (in Dollars per share) | $ (0.08) | $ (0.11) | |||||
| Weighted average shares used in computing net loss per common share – basic (in Shares) | 81,934 | 58,948 | |||||
| |||||||
Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - $ / shares shares in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
[1] | |||
| Income Statement [Abstract] | |||||
| Loss per share – diluted | $ (0.08) | $ (0.11) | |||
| Weighted average shares used in computing net loss per common share – dilutive | 81,934 | 58,948 | |||
| |||||
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 | 6,354 | 6,354 | |||||||||||
| Issuance of shares for cash (in Shares) | 3,022 | ||||||||||||
| Conversion of preferred stock | 1 | 1 | |||||||||||
| Conversion of preferred stock (in Shares) | (10) | 11 | |||||||||||
| Preferred stock dividends | (216) | (216) | |||||||||||
| Stock-based compensation | 643 | 643 | |||||||||||
| Stock-based compensation for services | 2,343 | 2,343 | |||||||||||
| Stock-based compensation for services (in Shares) | 1,500 | ||||||||||||
| Net loss | (6,137) | (6,137) | [2],[3] | ||||||||||
| Balance at Mar. 31, 2023 | [1] | $ 6 | 178,516 | (110,390) | 68,132 | ||||||||
| Balance (in Shares) at Mar. 31, 2023 | [1] | 1,490 | 60,496 | ||||||||||
| 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 | 12,201 | 12,202 | ||||||||||
| Issuance of shares for cash (in Shares) | 13,603 | ||||||||||||
| Reclassification of Series A preferred stock to mezzanine equity | 8,195 | (8,195) | (8,195) | ||||||||||
| Repurchase of redeemable shares | (455) | ||||||||||||
| Repurchase of redeemable shares (in Shares) | (83) | ||||||||||||
| Stock-based compensation | 1,212 | 1,212 | |||||||||||
| Stock-based compensation (in Shares) | 218 | ||||||||||||
| Stock-based compensation for services | 114 | 114 | |||||||||||
| Stock-based compensation for services (in Shares) | 73 | ||||||||||||
| Net loss | (6,436) | (6,436) | |||||||||||
| Balance at Mar. 31, 2024 | $ 7,740 | $ 9 | $ 205,967 | $ (138,376) | $ 67,600 | ||||||||
| Balance (in Shares) at Mar. 31, 2024 | 1,407 | 91,345 | |||||||||||
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Nature of the Organization and Business |
3 Months Ended |
|---|---|
Mar. 31, 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 prior name, Ticketcart, Inc. 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 $6.1 million as of March 31, 2024. The Company has historically incurred losses and negative cash flows from operations. As of March 31, 2024, the Company also had an accumulated deficit of $138.4 million and working capital of $3.7 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 twelve 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. |
Significant Accounting Policies |
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| 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 months ended March 31, 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 March 31, 2024 and December 31 2023, the Company had $4.3 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:
The revenue the Company has recognized in the three months ended March 31, 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 March 31, 2024 and December 31, 2023 are considered fully collectible and thus management has not recorded a 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 March 31, 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 March 31, 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 March 31, 2024 and 2023, 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 months ended March 31, 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:
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 March 31, 2024 and December 31, 2023, the Company had $4.3 million and $793 thousand, respectively, in Level 1 assets, comprised of U.S. Government mutual funds, and no carrying value for Level 3 liabilities, comprised of 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. |
Net Loss per Common Share |
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| 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):
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 months ended March 31, 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):
As all potentially dilutive securities are anti-dilutive as of March 31, 2024 and 2023, diluted net loss per share is the same as basic net loss per share for each period. |
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Income Taxes |
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Mar. 31, 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 March 31, 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 twelve months of this reporting date.
As of March 31, 2024, in addition to the $14.3 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 $11.2 million, capitalized research and development expenditures of approximately $1.8 million and an intangible asset basis difference of approximately $700 thousand. 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 $1.7 million for the period ended March 31, 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 $250,000 for the period ended March 31, 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. |
Intangible Assets and Goodwill |
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| 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):
The amortization expense of the Company’s intangible assets for the three months ended March 31, 2024 and 2023 was $776 thousand. The Company expects future amortization expense to be the following (in thousands):
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 tested the intangible assets and goodwill for impairment as of March 31, 2024 and concluded there was no impairment of intangible assets or goodwill at that time. |
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Property and Equipment |
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| 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):
The Company recorded depreciation expense of $68 thousand and $203 thousand during the three months ended March 31, 2024 and 2023, respectively, using useful lives of the Company’s long-lived assets as follows:
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. |
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Operating Leases |
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| Operating Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Leases | Note 7. Operating Leases
As of March 31, 2024, the Company has use of space in four different locations, Hoboken, NJ, Tempe, AZ, Arlington, VA, and Minneapolis, MN, under lease or membership agreements, which expire at various dates through October 31, 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 March 31, 2024 (in thousands):
Other information related to operating lease liabilities consists of the following (in thousands):
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Financial Liabilities |
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| Financial Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||
| Financial Liabilities | Note 8. Financial Liabilities
The Company has the following amounts related to financial liabilities (in thousands):
Additionally, the Company has no accrued interest and $14 thousand as of March 31, 2024 and December 31, 2023, respectively, which was included in other current liabilities.
Unsecured Promissory Note
On September 23, 2022, the Company entered into a note purchase agreement (the “Unsecured NPA”) with Streeterville Capital, LLC (“Streeterville”), pursuant to which Streeterville purchased an unsecured promissory note (the “Note” or the “Streeterville Unsecured Note”) in the initial principal amount of $8.25 million (the “Streeterville Unsecured Note Principal Amount”). 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 Note.
Beginning on the date that is six months after the issuance date of the Note, Streeterville had the right to redeem up to $750 thousand of the outstanding balance of the Note per month (“Redemption Amount”) by providing written notice to the Company (“Redemption Notice”). Upon receipt of any Redemption Notice, the Company paid the applicable Redemption Amount in cash to Streeterville within three trading days of the Company’s receipt of such Redemption Notice. As of March 31, 2024, Streeterville has redeemed the full Streeterville Unsecured Note Principal Amount. There was an outstanding balance of $1.9 million as of December 31, 2023. As of March 31, 2024, there was outstanding balance and the Company has no further obligations with respect to the Unsecured NPA or Note.
For a full discussion of the terms and conditions of the Note, see the Company’s Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2023. |
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Loan Receivable |
3 Months Ended |
|---|---|
Mar. 31, 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 $286 thousand of the outstanding $572 thousand receivable as uncollectible based on credit risk in the unaudited condensed consolidated financial statements as of March 31, 2024, and $279 thousand of the outstanding $558 thousand receivable as of December 31, 2023. |
Contingencies |
3 Months Ended |
|---|---|
Mar. 31, 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 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
As part of our business combination with QPhoton in June 2022, we acquired a payable to BV Advisory based on a Note Purchase Agreement that QPhoton had entered into with BV Advisory on March 1, 2021. 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 March 31, 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 Partners, LLC (“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 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. 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 Transaction).
Accordingly, as of March 31, 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 March 31, 2024 and 2023, and the Unissued QPhoton Warrants have no carrying value as a liability on the Company’s consolidated balance sheet as of March 31, 2024. |
Capital Stock |
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| Capital Stock | Note 11. Capital Stock
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 -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 Convertible 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 Convertible 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 “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 March 31, 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 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. As of March 31, 2024, the Company had redeemed 82,783 shares of Series A Preferred Stock for a cumulative redemption amount of $455 thousand in cash paid to the Series A Holders. As of March 31, 2024 and December 31, 2023, there were 1,407,221 and 1,490,004 shares of Series A Preferred Stock, respectively, issued and outstanding.
Authorized Classes of Stock
As of March 31, 2024, the Board has authorized two classes of preferred stock. The Board has authorized 1,550,000 shares of preferred stock as the Series A Preferred stock, par value $0.0001 per share, of which 1,407,221 and 1,490,004 shares are issued and outstanding at March 31, 2024 and December 31, 2023, respectively. The Board has also authorized 3,079,864 shares of preferred stock as the Series B Preferred Stock, par value $0.0001 per share, of which are issued and outstanding as of March 31, 2024 and December 31, 2023.
At-the-Market-Facility
For the period ended March 31, 2024, the Company sold 13,602,940 shares of the Company’s common stock through its At-The-Market (“ATM”) facility, managed by Ascendiant Capital Markets, LLC, at an average price of $0.92. The Company received net proceeds of $12.2 million. For the three months ended March 31, 2023, the Company sold 3,021,632 shares at an average price of $2.17 and received net proceeds of $6.4 million.
Warrants
The table below summarizes the warrants outstanding at March 31, 2024 (in thousands, except exercise price data):
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 March 31, 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 March 31, 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 in DE Chancery Court (see Part II, Item 1, Legal Proceedings, for additional information), and to date that litigation has not been resolved and the 702,834 warrants have not been issued.
Accordingly, as of March 31, 2024 and 2023, we had only issued 6.3 million of the QPhoton Warrants, of which approximately 56% have been forfeited as of March 31, 2024, because the corresponding Underlying Options had expired or 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 $353 thousand during the three months ended March 31, 2023, with an ending balance of $175 thousand as of March 31, 2023. As of March 31, 2024, the QPhoton Warrants have no carrying value as a liability on the Company’s consolidated balance sheet and there was no mark-to-market adjustment recognized during the three months ended March 31, 2024. |
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Stock-Based Compensation |
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| 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 March 31, 2024, a total of 13,027,563 shares and options were issued and outstanding under the 2022 Plan.
Options
The following table summarizes the Company’s option activity for the three months ended March 31, 2024:
The Company did not grant any options during the three months ended March 31, 2024. 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 months ended March 31, 2023:
The following table summarizes the exercise price range as of March 31, 2024 (in thousands, except exercise price data):
The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2023 was $1.38 per share. There is no comparable figure for the three months ended March 31, 2024, as the Company did not grant any stock options granted during the period. As of March 31, 2024, total unrecognized compensation cost related to common stock options was $4.6 million, which is expected to be recognized over a period of 3.8 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):
For the three months ended March 31, 2024 and 2023, the statement of stockholders’ equity was lower by $14 thousand and lower by $49 thousand, respectively, as compared to the statement of cash flows for timing differences between award dates and the realization of stock-based compensation expense. The expense for the three months ended March 31, 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 three months ended March 31, 2024 per their respective employment and separation agreements (the “Separation Agreement Shares”). The Company did not issue any stock grants during the three months ended March 31, 2024. In conjunction with The Separation Agreement Shares, the Company recognized $197 thousand of stock-based compensation expense during the three months ended March 31, 2024, and does not expect future expense related to these offerings as they are fully vested.
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):
The difference in stock-based compensation for services on the statement of stockholders’ equity as compared to the statement of cash flows for the years ended March 31, 2024 and 2023 of $55 thousand and $2.2 million, was driven by timing differences between award dates and the realization of stock-based compensation expense.
In terms of new issuances, the Company issued 73 thousand and 1.5 million shares of common stock for services in the three months ended March 31, 2024 and 2023, respectively. |
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Related Party Transactions |
3 Months Ended |
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Mar. 31, 2024 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | Note 13. Related Party Transactions
There were no related party transactions during the three months ended March 31, 2024 and 2023. |
License Agreement – Stevens Institute of Technology |
3 Months Ended |
|---|---|
Mar. 31, 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 March 31, 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. |
Restatement of Previously Issued Financial Statements |
3 Months Ended |
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Mar. 31, 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 three months ended March 31, 2024, we amended our consolidated statements of operations, our consolidated statements of stockholders’ equity, and our consolidated statements of cash flows for the three months ended March 31, 2023 (the “Previously Issued Financial Statements”). The Previously Issued Financial Statements 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 statement of operations for the three months ended March 31, 2023, is a decrease in net loss of $2.4 million. The aggregate impact of these errors on the Company’s condensed consolidated balance sheet for the three months ended March 31, 2023, is (i) decreased intangible and goodwill assets of $9.9 million; (ii) decreased liabilities of $1.2 million; and (iii) decreased stockholder’s equity of $8.8 million. |
Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 16. Subsequent Events
In April, May, July and August 2024, the Company redeemed 416,915 shares of Series A Convertible Preferred in five payments of $455 thousand each for a cumulative redemption amount of $2.3 million. As of October 1, 2024, the Company has redeemed 496,698 shares of Series A Preferred Stock for a cumulative redemption amount of $2.7 million in cash paid to the Series A Holders. As of October 1, 2024 there are 993,306 shares of Series A Preferred Stock issued and outstanding.
On August 6, 2024, the Company entered into a Securities Purchase Agreement with Streeterville, pursuant to which the Company issued and sold to Streeterville a Secured Convertible Promissory Note (the “Streeterville Secured Convertible Note”) in the original principal amount of $8.25 million (the “Principal Amount”). The Principal Amount includes an original issue discount of $750 thousand. In exchange for the Streeterville Secured Convertible Note, Streeterville paid $7.5 million in cash. The Streeterville Secured Convertible Note accrues interest at a rate of 10% per annum and has a maturity date of 18 months from the Effective Date, 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 Secured 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 $450 thousand.
There are no other events of a subsequent nature that in management’s opinion are reportable. |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
3 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
||||||
| Pay vs Performance Disclosure | |||||||
| Net Income (Loss) | $ (6,436) | $ (6,137) | [1],[2] | ||||
| |||||||
Insider Trading Arrangements |
3 Months Ended |
|---|---|
Mar. 31, 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 |
Accounting Policies, by Policy (Policies) |
3 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 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.
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| Reclassifications | Reclassifications Certain reclassifications have been made to the fiscal year 2023 audited consolidated financial statements to conform to the presentation in the three months ended March 31, 2024. The reclassifications had no impact on consolidated net loss, total consolidated assets, total consolidated liabilities, or consolidated stockholders’ equity. |
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| 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. |
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| 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. |
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| 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 March 31, 2024 and December 31 2023, the Company had $4.3 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. |
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| 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:
The revenue the Company has recognized in the three months ended March 31, 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. |
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| 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 March 31, 2024 and December 31, 2023 are considered fully collectible and thus management has not recorded a provision for credit losses. |
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| 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 March 31, 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. |
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| 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. |
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| 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 March 31, 2024 and December 31, 2023, we had no finance leases.
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| 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 March 31, 2024 and 2023, 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. |
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| 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. |
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| 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 months ended March 31, 2024 and 2023, the Company did not record any impairment from long-lived assets. |
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| 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:
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 March 31, 2024 and December 31, 2023, the Company had $4.3 million and $793 thousand, respectively, in Level 1 assets, comprised of U.S. Government mutual funds, and no carrying value for Level 3 liabilities, comprised of warrant liabilities. See Note 11, Capital Stock – Warrants, for a full discussion of the warrant liability. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
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| 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. |
Net Loss per Common Share (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 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):
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| 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):
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Intangible Assets and Goodwill (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 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):
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| Schedule of Future Amortization Expense | The Company expects future amortization expense
to be the following (in thousands):
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Property and Equipment (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 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):
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Operating Leases (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 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 March 31, 2024 (in thousands):
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| Schedule of Other Information Related Operating Lease Liabilities | Other information related to operating lease liabilities
consists of the following (in thousands):
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Financial Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||
| Financial Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Amounts Related to Financial Liabilities | The Company has the following amounts related to financial liabilities
(in thousands):
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Capital Stock (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Stock [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Warrants Outstanding | The table below summarizes the warrants outstanding
at March 31, 2024 (in thousands, except exercise price data):
|
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Stock-Based Compensation (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Option Activity | The following table summarizes the Company’s option activity
for the three months ended March 31, 2024:
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| 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 months ended March 31, 2023:
|
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| Schedule of Exercise Price Range | The following table summarizes the exercise price range as of March
31, 2024 (in thousands, except exercise price data):
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| Schedule of Stock-Based Compensation Expense for Services | 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):
|
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| Schedule of Stock-Based Compensation Expense 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):
|
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Nature of the Organization and Business (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
Jul. 20, 2018 |
|
| Nature of the Organization and Business [Line Items] | |||
| Incorporation date | Jul. 25, 2001 | ||
| Common stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 | |
| Cash and cash equivalents | $ 6,101 | $ 2,059 | |
| Accumulated deficit | (138,376) | $ (131,940) | |
| Working capital deficit | $ 3,700 | ||
| Corporate History [Member] | |||
| Nature of the Organization and Business [Line Items] | |||
| Common stock, par value (in Dollars per share) | $ 0.0001 |
Significant Accounting Policies (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Significant Accounting Policies [Abstract] | ||
| Invested market fund | $ 4,300 | $ 2,100 |
| Value of assets | $ 4,300 | $ 793 |
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 | ||||||
|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
[2] | |||||
| Numerator: | |||||||
| Net loss | $ (6,436) | $ (6,137) | [1] | ||||
| Less: Series A convertible preferred stock dividends | (216) | ||||||
| Net loss available to common stockholders – basic | $ (6,436) | $ (6,353) | |||||
| Denominator: | |||||||
| Weighted average shares used in computing net loss per common share – basic (in Shares) | 81,934 | 58,948 | |||||
| Net loss per common share - basic (in Dollars per share) | $ (0.08) | $ (0.11) | |||||
| |||||||
Net Loss per Common Share (Details) - Schedule of Computation of Basic and Diluted Loss Per Share (Parentheticals) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
||||
| Schedule of Computation of Basic and Diluted Loss Per Share [Abstract] | |||||
| Net loss available to common stockholders – diluted | $ (6,436) | $ (6,353) | |||
| Weighted average shares used in computing net loss per common share – diluted | 81,934 | 58,948 | [1] | ||
| Net loss per common share - diluted | $ (0.08) | $ (0.11) | [1] | ||
| |||||
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 | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items] | ||
| Effect anti-dilutive | 17,893 | 15,655 |
| Warrants [Member] | ||
| Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items] | ||
| Effect anti-dilutive | 2,918 | 6,182 |
| Options [Member] | ||
| Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items] | ||
| Effect anti-dilutive | 13,476 | 9,473 |
| Unvested restricted common stock [Member] | ||
| Schedule of Weighted Average Common Stock Equivalents Securities Outstanding Effect Anti-Dilutive [Line Items] | ||
| Effect anti-dilutive | 1,499 | |
Income Taxes (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
| |
| Income Taxes [Abstract] | |
| Federal income tax rate | 21.00% |
| Tax-effected carryforwards | $ 14,300,000 |
| Carryforwards assumed tax rate | 26.00% |
| Net deferred tax assets | $ 11,200,000 |
| Capitalized research and development expenditures | 1,800,000 |
| Intangible asset | 700,000 |
| Valuation allowance increased | 1,700,000 |
| Federal R&D credit carryforwards | $ 250,000 |
Intangible Assets and Goodwill (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Intangible Assets and Goodwill [Abstract] | ||
| Amortization expense of intangible assets | $ 776 | $ 776 |
| Godwill | $ 55,573 | $ 55,573 |
Intangible Assets and Goodwill (Details) - Schedule of Amounts Related to Intangible Assets - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Amounts Related to Intangible Assets [Line Items] | ||
| Gross Carrying Amount | $ 16,991 | $ 16,991 |
| Accumulated Amortization | (5,691) | (4,915) |
| Net Carrying Amount | 11,300 | 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 | (1,987) | (1,715) |
| Net Carrying Amount | 1,264 | 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 | (370) | (320) |
| Net Carrying Amount | 639 | 689 |
| Technology and licensed patents [Member] | ||
| Schedule of Amounts Related to Intangible Assets [Line Items] | ||
| Gross Carrying Amount | 12,731 | 12,731 |
| Accumulated Amortization | (3,334) | (2,880) |
| Net Carrying Amount | $ 9,397 | $ 9,851 |
Intangible Assets and Goodwill (Details) - Schedule of Future Amortization Expense - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Future Amortization Expense [Abstract] | ||
| 2024 (remaining nine months) | $ 2,328 | |
| 2025 | 2,472 | |
| 2026 | 2,021 | |
| 2027 | 1,903 | |
| 2028 | 1,819 | |
| Thereafter | 757 | |
| Total | $ 11,300 | $ 12,076 |
Property and Equipment (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Property and Equipment [Abstract] | ||
| Depreciation expense | $ 68 | $ 203 |
Property and Equipment (Details) - Schedule of Property and Equipment - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Schedule of Property and Equipment [Line Items] | ||
| Total cost of property and equipment | $ 4,721 | $ 3,142 |
| Accumulated depreciation | (340) | (272) |
| Property and equipment, net | 4,381 | 2,870 |
| Computer and Lab Equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total cost of property and equipment | 4,468 | 2,999 |
| Network Equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total cost of property and equipment | $ 29 | 29 |
| Estimated Useful Life | 4 years | |
| Furniture and Fixtures [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total cost of property and equipment | $ 32 | 32 |
| Estimated Useful Life | 7 years | |
| Software [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total cost of property and equipment | $ 63 | 49 |
| Estimated Useful Life | 3 years | |
| Leasehold Improvements [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Total cost of property and equipment | $ 129 | $ 33 |
| Estimated Useful Life | Lessor of lease term or 5 | |
| Computer and Laboratory Equipment [Member] | ||
| Schedule of Property and Equipment [Line Items] | ||
| Estimated Useful Life | 5 years |
Operating Leases (Details) - Schedule of Undiscounted Future Minimum Lease Payments Under Operating Leases - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Undiscounted Future Minimum Lease Payments Under Operating Leases [Abstract] | ||
| 2024 (remaining nine months) | $ 321 | |
| 2025 | 341 | |
| 2026 | 350 | |
| 2027 | 266 | |
| Total minimum payments | 1,278 | |
| Less: imputed interest | (247) | |
| Present value of operating lease liabilities | 1,031 | |
| Less: current portion included in other current liabilities | (256) | |
| Long-term operating lease liabilities | $ 775 | $ 840 |
Operating Leases (Details) - Schedule of Other Information Related Operating Lease Liabilities - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Schedule of Other Information Related Operating Lease Liabilities [Abstract] | ||
| Cash paid for operating lease liabilities | $ 66 | $ 94 |
| Weighted average remaining lease term in years | 3 years 6 months | 4 years 4 months 24 days |
| Weighted average discount rate | 10.00% | 10.00% |
Financial Liabilities (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
Sep. 23, 2022 |
|
| Financial Liabilities [Line Items] | |||
| Accrued interest | $ 14 | $ 14 | |
| Outstanding balance | |||
| Streeterville Capital, LLC [Member] | |||
| Financial Liabilities [Line Items] | |||
| Outstanding balance | $ 1,900 | ||
| Unsecured Promissory Note [Member] | |||
| Financial Liabilities [Line Items] | |||
| Initial principal amount | $ 8,250 | ||
| Interest percentage | 10.00% | ||
| Redemption amount | $ 750 | ||
| Streeterville Capital, LLC [Member] | |||
| Financial Liabilities [Line Items] | |||
| Maturity date | 18 months | ||
| Original issue discount | $ 750 |
Financial Liabilities (Details) - Schedule of Amounts Related to Financial Liabilities - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Amounts Related to Financial Liabilities [Abstract] | ||
| Remaining loan balances | $ 2,063 | |
| Remaining unamortized debt issuance costs | (138) | |
| Financial liabilities, net of issuance costs | $ 1,925 |
Loan Receivable (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
Jun. 06, 2023 |
May 16, 2023 |
|---|---|---|---|---|
| Loan Receivable [Line Items] | ||||
| Principal amount | $ 2,000 | |||
| Simple interest rate | 10.00% | |||
| Annual interest rate, percentage | 15.00% | |||
| net of provision for credit losses | $ 286 | $ 279 | ||
| Millionways [Member] | ||||
| Loan Receivable [Line Items] | ||||
| Acquire, percentage | 100.00% | |||
| Principal amount | $ 500 | |||
| net of provision for credit losses | $ 572 | $ 558 |
Contingencies (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Mar. 31, 2024 |
Dec. 31, 2023 |
Oct. 13, 2022 |
|
| Contingencies [Line Items] | |||||
| Other current liabilities (in Dollars) | $ 787 | $ 787 | $ 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 |
Capital Stock (Details) - USD ($) |
3 Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Feb. 09, 2023 |
Jun. 16, 2022 |
Jun. 13, 2022 |
Nov. 17, 2021 |
Mar. 31, 2024 |
Mar. 31, 2023 |
Mar. 19, 2024 |
Dec. 31, 2023 |
Nov. 30, 2021 |
Aug. 31, 2020 |
||||||
| Capital Stock [Line Items] | |||||||||||||||
| Conversion price per share (in Dollars per share) | $ 5.5 | ||||||||||||||
| Warrants term | 2 years | ||||||||||||||
| Received net proceeds (in Dollars) | $ 12,202,000 | $ 6,354,000 | [1] | ||||||||||||
| 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 | ||||||||||||||
| Issuance of warrant | 702,834 | ||||||||||||||
| Forfeited percentage | 56.00% | ||||||||||||||
| Recognized mark-to-market gains (in Dollars) | (353,000) | [1],[2] | |||||||||||||
| Warrant [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Exercise price (in Dollars per share) | $ 2.27 | ||||||||||||||
| Recognized mark-to-market gains (in Dollars) | 175,000 | ||||||||||||||
| QPhoton Warrants [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Issued warrants price (in Dollars) | $ 6,300,000 | $ 6,300,000 | |||||||||||||
| 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 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Purchased shares | 1,545,459 | ||||||||||||||
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 | $ 0.0001 | ||||||||||||
| 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 | ||||||||||||||
| Cash purchase price (in Dollars) | $ 8,195,000 | ||||||||||||||
| Price of per share (in Dollars per share) | $ 5.5 | ||||||||||||||
| Redeemed, shares | 82,783 | ||||||||||||||
| Cumulative redemption amount (in Dollars) | $ 455,000 | ||||||||||||||
| Preferred stock, shares issued | 1,407,221 | 1,490,000 | |||||||||||||
| Preferred stock, shares outstanding | 1,407,000 | 1,490,004 | |||||||||||||
| Preferred stock, share authorized | 1,550,000 | 1,550,000 | |||||||||||||
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | Preferred Warrants [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Purchase of warrants | 1,545,459 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | Preferred Stock [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Preferred stock, shares issued | 1,407,221 | ||||||||||||||
| Preferred stock, shares outstanding | 1,490,004 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | Falcon Capital Partners [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Shares converted | 45,455 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | Greenfield Children, LLC, [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Shares converted | 10,000 | ||||||||||||||
| Accrued dividend shares | 11,096 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | Warrant [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Exercise price (in Dollars per share) | $ 7 | ||||||||||||||
| Series A Convertible Preferred Stock [Member] | Falcon Capital Partners [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Shares converted | 47,728 | ||||||||||||||
| Series B Preferred Stock [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Preferred stock, shares issued | |||||||||||||||
| Preferred stock, shares outstanding | |||||||||||||||
| Preferred stock, share authorized | 3,080,000 | 3,080,000 | |||||||||||||
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | ||||||||||||||
| Preferred stock, share authorized | 3,079,864 | ||||||||||||||
| Other Offerings [Member] | |||||||||||||||
| Capital Stock [Line Items] | |||||||||||||||
| Sale of stock units | 13,602,940 | 3,021,632 | |||||||||||||
| Average price (in Dollars per share) | $ 0.92 | $ 2.17 | |||||||||||||
| Received net proceeds (in Dollars) | $ 12,200,000 | $ 6,400,000 | |||||||||||||
| |||||||||||||||
Capital Stock (Details) - Schedule of Warrants Outstanding - Warrant [Member] shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 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 | (3,309) |
| Warrants Outstanding | 3,016 |
Stock-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Jul. 05, 2022 |
Mar. 31, 2024 |
Mar. 31, 2023 |
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 | 91,345,000 | 77,451,000 | ||||
| Common stock shares issued | 91,345,000 | 77,451,000 | ||||
| Weighted average grant-date fair value of stock options granted (in Dollars per share) | ||||||
| Expected to be recognized over a period | 3 years 9 months 18 days | |||||
| Stockholders’ equity (in Dollars) | $ 14 | $ 49 | ||||
| Stock-based compensation expens (in Dollars) | 1,226 | $ 692 | ||||
| Realization of stock-based compensation expense (in Dollars) | 55 | |||||
| Equity Option [Member] | ||||||
| Stock-based Compensation [Line Items] | ||||||
| Total unrecognized compensation cost (in Dollars) | $ 4,600 | |||||
| Separation Agreement Shares [Member] | ||||||
| Stock-based Compensation [Line Items] | ||||||
| Shares issued | 218,000 | |||||
| Stock-based compensation expens (in Dollars) | $ 197 | |||||
| Common Stock [Member] | ||||||
| Stock-based Compensation [Line Items] | ||||||
| Number of shares issued for services | 73,000 | 1,500,000 | ||||
| Common Stock [Member] | ||||||
| Stock-based Compensation [Line Items] | ||||||
| Shares issued | 13,603,000 | 3,022,000 | ||||
| Realization of stock-based compensation expense (in Dollars) | $ 2,200 | |||||
| 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 | |||||
| Common stock shares outstanding | 13,027,563 | |||||
| Common stock shares issued | 13,027,563 | |||||
| Incentive Plan [Member] | ||||||
| Stock-based Compensation [Line Items] | ||||||
| Shares issued | 18,000,000 | |||||
| Incentive Plans and Options [Member] | ||||||
| Stock-based Compensation [Line Items] | ||||||
| Weighted average grant-date fair value of stock options granted (in Dollars per share) | $ 1.38 | |||||
Stock-Based Compensation (Details) - Schedule of Option Activity - $ / shares |
3 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Mar. 31, 2024 |
|
| Schedule of Option Activity [Abstract] | ||
| Number Outstanding, Outstanding balance | 13,843,499 | |
| Weighted Average Exercise Price Per Share, Outstanding balance | $ 2.64 | |
| Weighted Average Remaining Contractual Life (Years), Outstanding balance | 3 years 8 months 12 days | 3 years 6 months |
| Number Outstanding, Vested and exercisable | 8,428,994 | |
| Weighted Average Exercise Price Per Share, Vested and exercisable | $ 3.27 | |
| Weighted Average Remaining Contractual Life (Years), Vested and exercisable | 3 years 2 months 12 days | |
| Number Outstanding, Granted | ||
| Weighted Average Exercise Price per Share, Granted | ||
| Weighted Average Remaining Contractual Life (Years), Granted | ||
| Number Outstanding, Exercised | ||
| Weighted Average Exercise Price Per Share, Exercised | ||
| Weighted Average Remaining Contractual Life (Years), Exercised | ||
| Number Outstanding, Forfeited | (815,937) | |
| Weighted Average Exercise Price Per Share, Forfeited | $ 2.4 | |
| Weighted Average Remaining Contractual Life (Years), Forfeited | ||
| Number Outstanding, Outstanding balance | 13,027,562 | |
| Weighted Average Exercise Price Per Share, Outstanding balance | $ 2.66 |
Stock-Based Compensation (Details) - Schedule of Grant-Date Fair Value of Stock Options Granted |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Expected dividend yield | |
| Expected life of options (in years) | 5 years |
| Minimum [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Exercise price (in Dollars per share) | $ 1.84 |
| Risk-free interest rate | 4.70% |
| Expected volatility | 122.20% |
| Maximum [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Exercise price (in Dollars per share) | $ 1.84 |
| Risk-free interest rate | 4.70% |
| Expected volatility | 136.90% |
Stock-Based Compensation (Details) - Schedule of Exercise Price Range shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Schedule of Exercise Price Range [Line Items] | |
| Outstanding Options | 13,028 |
| Exercisable Options | 8,429 |
| 0.00 – 1.00 [Member] | |
| Schedule of Exercise Price Range [Line Items] | |
| Exercise Price, lower range (in Dollars per share) | $ / shares | $ 0 |
| Exercise Price, upper range (in Dollars per share) | $ / shares | $ 1,000 |
| Outstanding Options | 180 |
| Exercisable Options | 10 |
| 1.00 – 2.00 [Member] | |
| Schedule of Exercise Price Range [Line Items] | |
| Exercise Price, lower range (in Dollars per share) | $ / shares | $ 1 |
| Exercise Price, upper range (in Dollars per share) | $ / shares | $ 2,000 |
| Outstanding Options | 5,448 |
| Exercisable Options | 1,791 |
| 2.00 – 3.00 [Member] | |
| Schedule of Exercise Price Range [Line Items] | |
| Exercise Price, lower range (in Dollars per share) | $ / shares | $ 2 |
| Exercise Price, upper range (in Dollars per share) | $ / shares | $ 3,000 |
| Outstanding Options | 5,880 |
| Exercisable Options | 5,127 |
| 3.00 – 6.00 [Member] | |
| Schedule of Exercise Price Range [Line Items] | |
| Exercise Price, lower range (in Dollars per share) | $ / shares | $ 3 |
| Exercise Price, upper range (in Dollars per share) | $ / shares | $ 6,000 |
| Outstanding Options | 38 |
| Exercisable Options | 29 |
| 6.00 – 7.00 [Member] | |
| Schedule of Exercise Price Range [Line Items] | |
| Exercise Price, lower range (in Dollars per share) | $ / shares | $ 6 |
| Exercise Price, upper range (in Dollars per share) | $ / shares | $ 7,000 |
| Outstanding Options | 665 |
| Exercisable Options | 660 |
| 7.00 – 12.00 [Member] | |
| Schedule of Exercise Price Range [Line Items] | |
| Exercise Price, lower range (in Dollars per share) | $ / shares | $ 7 |
| Exercise Price, upper range (in Dollars per share) | $ / shares | $ 12,000 |
| Outstanding Options | 818 |
| Exercisable Options | 812 |
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 | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Stock-based compensation | $ 1,226 | $ 692 |
| Research and development [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Stock-based compensation | 694 | 362 |
| Selling and marketing [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Stock-based compensation | 68 | (192) |
| General and administrative [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Stock-based compensation | $ 464 | $ 522 |
Stock-Based Compensation (Details) - Schedule of Stock-Based Compensation Expense for Services - USD ($) $ in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
||||
| Schedule Of Stock Based Compensation Expense For Services Abstract | |||||
| Stock-based compensation for services | $ 59 | $ 154 | [1] | ||
| |||||
License Agreement – Stevens Institute of Technology (Details) |
3 Months Ended |
|---|---|
Mar. 31, 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. |
Restatement of Previously Issued Financial Statements (Details) - Previously Reported [Member] $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Restatement of Previously Issued Financial Statements (Details) [Line Items] | |
| Net loss | $ 2.4 |
| Intangible and goodwill assets | 9.9 |
| Liabilities | 1.2 |
| Equity, Attributable to Parent | $ 8.8 |
Subsequent Events (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2024 |
Aug. 06, 2024 |
Aug. 31, 2024 |
Jul. 31, 2024 |
May 31, 2024 |
Apr. 30, 2024 |
Mar. 31, 2024 |
Mar. 19, 2024 |
Dec. 31, 2023 |
|
| Series A Convertible Preferred [Member] | Subsequent Event [Member] | |||||||||
| Subsequent Events [Line Items] | |||||||||
| Redeemed, shares (in Shares) | 416,915 | ||||||||
| Redeemed, shares value | $ 455,000 | ||||||||
| Cumulative redemption amount | $ 2,300,000 | ||||||||
| Series A Preferred Stock [Member] | |||||||||
| Subsequent Events [Line Items] | |||||||||
| Redeemed, shares (in Shares) | 82,783 | ||||||||
| Cumulative redemption amount | $ 455,000 | ||||||||
| Preferred stock issued (in Shares) | 1,407,221 | 1,490,000 | |||||||
| Preferred stock outstanding (in Shares) | 1,407,000 | 1,490,004 | |||||||
| Paid a cash | $ 8,195,000 | ||||||||
| Forecast [Member] | |||||||||
| Subsequent Events [Line Items] | |||||||||
| Paid a cash | $ 7,500,000 | ||||||||
| Forecast [Member] | Streeterville Secured Convertible Note [Member] | |||||||||
| Subsequent Events [Line Items] | |||||||||
| Principal amount | 8,250,000 | ||||||||
| Principal amount includes an original issue discount | $ 750,000 | ||||||||
| Interest rate | 10.00% | ||||||||
| Maturity date | 18 months | ||||||||
| Received fee | $ 450,000 | ||||||||
| Forecast [Member] | Series A Convertible Preferred [Member] | |||||||||
| Subsequent Events [Line Items] | |||||||||
| Redeemed, shares (in Shares) | 416,915 | 416,915 | 416,915 | ||||||
| Redeemed, shares value | $ 455,000 | $ 455,000 | $ 455,000 | ||||||
| Cumulative redemption amount | $ 2,300,000 | $ 2,300,000 | $ 2,300,000 | ||||||
| Forecast [Member] | Series A Preferred Stock [Member] | |||||||||
| Subsequent Events [Line Items] | |||||||||
| Redeemed, shares (in Shares) | 496,698 | ||||||||
| Cumulative redemption amount | $ 2,700,000 | ||||||||
| Preferred stock issued (in Shares) | 993,306 | ||||||||
| Preferred stock outstanding (in Shares) | 993,306 | ||||||||