# Quantum Computing Inc. (QUBT) 10-Q SEC filing - Q1 FY2026

- Filed: May 11, 2026, 4:06 PM EDT
- Fiscal quarter: Q1 FY2026
- Calendar quarter: Q1 2026
- Accession: 0001213900-26-054473
- OpenCapital page: https://www.opencapital.sh/filings/0001213900-26-054473
- Markdown URL: https://www.opencapital.sh/filings/0001213900-26-054473.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/1758009/000121390026054473/0001213900-26-054473-index.htm

## Filing documents

- [10-Q (ea0289133-10q_quantum.htm)](https://www.sec.gov/Archives/edgar/data/1758009/000121390026054473/ea0289133-10q_quantum.htm)

---

## 10-Q

SEC source: [ea0289133-10q_quantum.htm](https://www.sec.gov/Archives/edgar/data/1758009/000121390026054473/ea0289133-10q_quantum.htm)

**UNITED
STATES**

**SECURITIES
AND EXCHANGE COMMISSION**

**Washington,
D.C. 20549**

**FORM 10-Q**

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

For
the quarterly period ended March 31, 2026

or

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

For
the transition period from __________ to __________

Commission
File Number**:** 001-40615

**QUANTUM
COMPUTING INC.**

(Exact
name of registrant as specified in its charter)

**Delaware** **82-4533053**

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

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

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

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

**Title of each class** **Trading Symbol(s)** **Name of each exchange on which registered**

Common Stock, par value $.0001 QUBT The Nasdaq Stock Market LLC

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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

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

Yes
☐ No ☒

As of May
8, 2026, there were 225,534,987 shares of the registrant’s common stock outstanding.

**FORWARD-LOOKING
STATEMENTS**

This
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In some cases, forward-looking statements are identified by terms such as “may,” “will,” “should,”
“could,” “would,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “projects,” “predicts,” “potential” and similar expressions intended to
identify forward-looking statements.

These
forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to differences
in our future financial and other results include those discussed in the risk factors set forth in Part I, Item 1A of this Quarterly
Report on Form 10-Q as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and the factors described below:

- Our  ability to effectively manage future growth and achieve operational efficiencies;
- the  ability to implement our business plans, forecasts and other expectations, including the  integration of recently acquired businesses, and to identify and realize additional opportunities;
- the  market acceptance for our products and services;
- the  results of our research and development and any failure to adequately and timely develop  our products;
- the  failure of any of our products to perform as expected and any liability or loss of market  share that may come as a result;
- changes  in the competitive and highly regulated industries in which we operate, variations in operating  performance across competitors, changes in laws and regulations affecting our business and  changes in our capital structure;
- success  in retaining or recruiting, or changes required in, officers, key employees or directors,  and our ability to attract and retain key personnel;
- inability  or failure to protect intellectual property;
- the  diversion of management’s attention and consumption of resources as a result of acquisitions  of other companies and success in integrating and otherwise achieving the benefits of recent  and potential acquisitions;
- our  inability to effectively integrate or benefit from recently purchased assets or businesses;
- global  inflation and interest rates;
- impacts  of the wars in Ukraine or Israel or other global conflicts;
- fluctuations  in foreign exchange rates;
- failure  to maintain adequate operational and financial resources or raise additional capital or generate  sufficient cash flows;
- any  significant disruption in or unauthorized access to our computer systems or those of third  parties that we utilize in our operations, including those relating to cybersecurity or arising  from cyber-attacks; and
- other  factors detailed under the section of this Quarterly Report on Form 10-Q entitled “Risk  Factors.”

You
should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed
with the Securities and Exchange Commission (the “SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding
that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we
expect. We qualify all forward-looking statements by these cautionary statements.

Throughout
this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “our
Company,” “QCi” and “QUBT,” refer to Quantum Computing Inc., a Delaware corporation, and unless the context
indicates otherwise, also includes our wholly-owned subsidiaries.

**QUANTUM
COMPUTING INC.**

**TABLE
OF CONTENTS**

|  |  | **Page  No.** |
| --- | --- | --- |
| **PART I.** | [**FINANCIAL INFORMATION**](#a_001) | F-1 |
| Item 1. | [Financial Statements (Unaudited)](#a_002) | F-1 |
|  | [Condensed Consolidated Balance Sheets](#a_003) | F-1 |
|  | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](#a_004) | F-2 |
|  | [Condensed Consolidated Statements of Stockholders’ Equity](#a_005) | F-3 |
|  | [Condensed Consolidated Statements of Cash Flows](#a_006) | F-4 |
|  | [Notes to the Unaudited Condensed Consolidated Financial Statements](#a_007) | F-5 |
| Item 2. | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#a_008) | 1 |
| Item 3. | [Quantitative and Qualitative Disclosures About Market Risk](#a_009) | 7 |
| Item 4. | [Controls and Procedures](#a_010) | 7 |
| **PART II.** | [**OTHER INFORMATION**](#a_011) | 9 |
| Item 1. | [Legal Proceedings](#a_012) | 9 |
| Item 1A. | [Risk Factors](#a_013) | 10 |
| Item 2. | [Unregistered Sales of Equity Securities and Use of Proceeds](#a_014) | 11 |
| Item 3. | [Defaults Upon Senior Securities](#a_015) | 11 |
| Item 4. | [Mine Safety Disclosures](#a_016) | 11 |
| Item 5. | [Other Information](#a_017) | 11 |
| Item 6. | [Exhibits](#a_018) | 12 |

i

**PART
I - FINANCIAL INFORMATION**

## Item 1. Financial Statements (Unaudited)

**Item 1.
Condensed Consolidated Financial Statements**

**QUANTUM COMPUTING INC.**

### Condensed Consolidated Balance Sheets

_(Unaudited, in thousands, except par value data)_

| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Assets |  |  |
| Current assets: |  |  |
| Cash and cash equivalents | $257,711 | $737,880 |
| Accounts receivable, net | 4,281 | 519 |
| Inventory | 4,112 | 352 |
| Short term investments | 728,401 | 379,421 |
| Accrued interest receivable | 5,346 | 3,634 |
| Prepaid expenses and other current assets | 5,225 | 11,914 |
| Total current assets | 1,005,076 | 1,133,720 |
| Property and equipment, net | 16,942 | 12,971 |
| Operating lease right-of-use assets | 5,206 | 2,353 |
| Intangible assets, net | 19,191 | 6,500 |
| Goodwill | 146,511 | 55,573 |
| Long-term investments | 422,818 | 403,121 |
| Accrued interest receivable - long term | 4,517 | 4,551 |
| Other non-current assets | 273 | 131 |
| Total assets | $1,620,534 | $1,618,920 |
| Liabilities and Stockholders’ Equity |  |  |
| Current liabilities: |  |  |
| Accounts payable | $2,707 | $778 |
| Accrued expenses | 8,342 | 9,135 |
| Deferred revenue | 1,882 | 395 |
| Other current liabilities | 2,144 | 766 |
| Total current liabilities | 15,075 | 11,074 |
| Derivative liability | 4,597 | 7,773 |
| Operating lease liabilities | 3,678 | 1,808 |
| Total liabilities | 23,350 | 20,655 |
| Commitments and Contingencies (see Note 10) |  |  |
| Stockholders’ equity: |  |  |
| Preferred stock, $0.0001 par value, 1,550 shares Series A Preferred authorized; no shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively; 3,080 shares of Series B Preferred Stock authorized; no shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively | - | - |
| Common stock, $0.0001 par value, 250,000 shares authorized; 225,494 and 224,165 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively | 23 | 22 |
| Additional paid-in capital | 1,823,284 | 1,816,494 |
| Accumulated deficit | (223,206) | (219,156) |
| Accumulated other comprehensive (loss) income | (2,917) | 905 |
| Total shareholders’ equity | 1,597,184 | 1,598,265 |
| Total liabilities and shareholders’ equity | $1,620,534 | $1,618,920 |

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

F-1

**QUANTUM COMPUTING INC.**

### Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

_(Unaudited, in thousands, except per share data)_

| Line item | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Total revenue | $3,691 | $39 |
| Cost of revenue | 4,412 | 26 |
| Gross (loss) profit | (721) | 13 |
| Operating expenses |  |  |
| Research and development | 6,969 | 2,985 |
| Sales and marketing | 1,597 | 672 |
| General and administrative | 11,263 | 4,642 |
| Total operating expenses | 19,829 | 8,299 |
| Loss from operations | (20,550) | (8,286) |
| Non-operating income (expense) |  |  |
| Interest and other income | 13,495 | 1,696 |
| Interest expense | (171) | (58) |
| Change in fair value of derivative liability | 3,176 | 23,630 |
| (Loss) income before income tax provision | (4,050) | 16,982 |
| Income tax provision | - | - |
| Net (loss) income | (4,050) | 16,982 |
| Other comprehensive (loss) income: |  |  |
| Unrealized losses on available-for-sale debt securities | (3,822) | - |
| Total comprehensive (loss) income | $(7,872) | $16,982 |
| (Loss) earnings per share: |  |  |
| Basic | $(0.02) | $0.13 |
| Diluted | $(0.02) | $0.11 |
| Weighted average shares used in computing net (loss) income per common share: |  |  |
| Basic | 223,986 | 135,217 |
| Diluted | 223,986 | 153,006 |

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

F-2

**QUANTUM
COMPUTING INC.**

Condensed
Consolidated Statements of Stockholders’ Equity

*(Unaudited,
in thousands)*

_Three Months Ended March 31, 2026_

| Line item | Common Stock / Shares | Common Stock / Amount | Additional / Paid-In / Capital | Accumulated / Deficit | Accumulated / Other / Comprehensive / Income (Loss) | Total / Stockholders’ / Equity |
| --- | --- | --- | --- | --- | --- | --- |
| Balances, January 1, 2026 | 224,165 | $22 | $1,816,494 | $(219,156) | $905 | $1,598,265 |
| Issuance of shares related to stock option exercises | 856 | 1 | 3,506 | - | - | 3,507 |
| Shares released from escrow relating to settled litigation - see Note 10 | 100 | - | - | - | - | - |
| Equity consideration for acquisition | - | - | 2,038 | - | - | 2,038 |
| Stock-based compensation | 373 | - | 1,246 | - | - | 1,246 |
| Net loss | - | - | - | (4,050) | - | (4,050) |
| Unrealized losses on available-for-sale debt securities | - | - | - | - | (3,822) | (3,822) |
| Balances, March 31, 2026 | 225,494 | $23 | $1,823,284 | $(223,206) | $(2,917) | $1,597,184 |

_Three Months Ended March 31, 2025_

| Line item | Common Stock / Shares | Common Stock / Amount | Additional / Paid-In / Capital | Accumulated / Deficit | Accumulated / Other / Comprehensive / Income (Loss) | Total / Stockholders’ / Equity |
| --- | --- | --- | --- | --- | --- | --- |
| Balances, January 1, 2025 | 129,012 | $13 | $307,756 | $(200,482) | - | $107,287 |
| Issuance of shares for cash | 8,163 | 1 | 93,635 | - | - | 93,636 |
| Issuance of shares related to exercise of warrants | 6 | - | 12 | - | - | 12 |
| Stock-based compensation | - | - | 2,892 | - | - | 2,892 |
| Stock-based compensation for services | - | - | 18 | - | - | 18 |
| Issuance of shares related to stock option exercises | 141 | - | - | - | - | - |
| Net income | - | - | - | 16,982 | - | 16,982 |
| Balances, March 31, 2025 | 137,322 | $14 | $404,313 | $(183,500) | - | $220,827 |

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

F-3

**QUANTUM COMPUTING INC.**

### Condensed Consolidated Statements of Cash Flows

_(Unaudited, in thousands)_

| Line item | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Cash flows from operating activities: |  |  |
| Net (loss) income | $(4,050) | $16,982 |
| Adjustments to reconcile net (loss) income to net cash used in operations |  |  |
| Depreciation and intangibles amortization | 1,972 | 975 |
| Change in fair value of derivative liability | (3,176) | (23,630) |
| Provision for credit losses | (23) | - |
| Amortization of operating lease right-of-use assets | 350 | 104 |
| Stock-based compensation expense | 1,246 | 1,387 |
| Stock-based compensation expense for services | - | 18 |
| Change in operating assets and liabilities |  |  |
| Accounts receivable | (56) | 7 |
| Inventory | (690) | (113) |
| Accrued interest receivable | (1,678) | - |
| Prepaid expenses and other current assets | (3,199) | (499) |
| Other non-current assets | (142) | - |
| Accounts payable | 1,176 | 650 |
| Deferred revenue | 220 | 4 |
| Accrued expenses and other current liabilities | (1,037) | (196) |
| Operating lease liabilities | (336) | (104) |
| Other long-term liabilities | - | (16) |
| Net cash used in operating activities | (9,423) | (4,431) |
| Cash flows from investing activities: |  |  |
| Purchase of property and equipment | (1,822) | (1,733) |
| Purchases of available-for-sale debt securities | (710,658) | - |
| Proceeds from sales of available-for-sale debt securities | 21,300 | - |
| Proceeds from maturities of available-for-sale debt securities | 316,859 | - |
| LSI acquisition | (97,499) | - |
| NuCrypt acquisition, net of cash acquired | (2,433) | - |
| Net cash used in investing activities | (474,253) | (1,733) |
| Cash flows from financing activities: |  |  |
| Proceeds from exercise of warrants | - | 12 |
| Proceeds from issuance of common stock | 3,507 | 93,636 |
| Net cash provided by financing activities | 3,507 | 93,648 |
| Net (decrease) increase in cash | (480,169) | 87,484 |
| Cash and cash equivalents, beginning of period | 737,880 | 78,945 |
| Cash and cash equivalents, end of period | $257,711 | $166,429 |
| Supplemental disclosures of cash flow information: |  |  |
| Cash paid for interest | - | $16 |
| Non-cash investing and financing activities: |  |  |
| Common stock awards issued related to employee bonuses | - | $1,486 |
| Fair value of unissued common stock equity consideration related to business combination | $2,038 | - |

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

F-4

**QUANTUM
COMPUTING INC.**

Notes
to the Unaudited Condensed Consolidated Financial Statements

March
31, 2026

### **Note 1. Nature of the Organization and Business**

*Corporate
History*

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

In February 2026, the Company completed its acquisition of Luminar
Semiconductor, Inc. (“LSI”), a manufacturer and seller of photonic components that are important building blocks on QCi’s
technology roadmap. The LSI acquisition will bring QCi a portfolio of core photonic technologies, patents, and a highly experienced team
of engineers and scientists that will accelerate QCi’s roadmap while continuing to support and grow LSI’s established customer
base.

In
March 2026, the Company acquired NuCrypt, LLC (“NuCrypt”), a quantum communications technology company. NuCrypt contributes
expertise in generating, distributing, and measuring entangled photons over fiber optic links, which is expected to enhance QCi’s development
of quantum security products. The NuCrypt acquisition helps establish quantum communications as an important commercialization vertical
within QCi’s broader quantum technology strategy. By integrating NuCrypt’s suite of quantum communications systems and products,
QCi expects to advance its technology roadmap while extending its portfolio of quantum communications and quantum photonics solutions.

*Nature
of Business*

QCi
is an American company utilizing integrated photonics and non-linear quantum optics to develop and deliver machines for quantum computing,
reservoir computing, and remote sensing, imaging and cybersecurity applications based on patented and proprietary photonics technology.
QCi’s products are designed to operate at room temperature and at very low power levels compared to other quantum systems currently
available in the market, such as superconducting, ion-trap, or annealing architectures. Our core photonics technology enables the execution
of a go-to-market strategy which emphasizes scalability, accessibility and affordability. Our quantum machines, supported by professional
services through our “Quantum Solutions” offering, enable subject matter experts (SMEs) and end users to deliver critical
business solutions involving highly complex optimization problems. Through our LSI subsidiaries, QCi also offers a range of photonic components
and engineering services.

Our leading quantum products today are our Entropy Quantum Computer
(“EQC”), reservoir computer, photonic vibrometer, and quantum secured communication systems. Our longer-term product development
plan is to migrate our current designs, as well as other product designs based on discrete components, to a set of TFLN optical integrated
circuits built on TFLN wafers. We believe that the acquisitions of LSI and NuCrypt will accelerate our technology roadmap by enhancing
our capabilities in integrated photonics and quantum security, which will broaden our quantum secured network product line and support
the Company’s initiatives to further integrate and miniaturize certain products for commercial and government customers. In addition,
QCi will offer LSI’s portfolio of photonic semiconductor products, including lasers, photo detectors and avalanche diodes.

F-5

*Liquidity*

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. We have not achieved a level of sales adequate to support the Company’s cost structure.
The Company has historically incurred losses and negative cash flows from operations. The Company completed two acquisitions during the
three months ended March 31, 2026. The acquisitions support the Company’s long-term strategic roadmap and are expected to add annual
revenue to QCi’s condensed consolidated results of operations. See Note 3 for further discussion. As of March 31, 2026, the Company
had cash and cash equivalents on hand of $257.7 million, $1.2 billion of short term and long term investments, accumulated deficit of
$223.2 million, and working capital of $990.0 million. As a result, the Company has adequate liquid assets on hand to meet its obligations
over the next 12 months.

### **Note 2. Significant Accounting Policies**

*Basis
of Presentation and Principles of Consolidation:*

The Company prepares its condensed 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.

Furthermore,
the accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP
for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited
condensed consolidated financial statements have been included. The results of operations for the three months ended March 31, 2026 are
not necessarily indicative of the results that may be expected for the year ending December 31, 2026 or any future period. The unaudited
condensed consolidated balance sheet as of December 31, 2025 has been derived from audited consolidated financial statements at that
date, but does not include all disclosures required by U.S. GAAP for complete financial statements. The information included in this
Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” “Risk Factors,” and the audited consolidated financial statements and notes thereto included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

*Reclassifications*

Certain reclassifications have been made to the fiscal 2025 condensed
consolidated financial statements to conform with the fiscal 2026 presentation. The reclassifications had no impact on net income (loss),
total assets, total liabilities, or 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 condensed 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.

F-6

*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, certificates of deposits and deposit
and money market accounts with high quality financial institutions which, at times, may exceed federally insured limits. As of March 31,
2026 and December 31, 2025, the Company had $257.7 million and $737.9 million, respectively, in cash equivalents invested in mutual funds,
certificates of deposits and deposits. The Company has not experienced any losses on these deposits and believes it is not exposed to
significant credit risk on cash and cash equivalents.

*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 other current liabilities and operating lease liabilities,
respectively, on the condensed 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
leases are comprised of operating leases for our facilities, and as of March 31, 2026 and December 31, 2025, the Company was not party
to any finance leases.

*Valuation
of Goodwill*

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, 2026, 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.

*Intangible Assets*

The Company performs valuations of assets acquired and liabilities
assumed on each acquisition accounted for as a business combination and allocates the purchase price of the acquired business to the respective
net tangible and intangible assets. The Company determines the appropriate useful life by performing an analysis of expected cash flows
based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the
straight-line method which approximates the pattern in which the economic benefits are consumed.

F-7

*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 repair costs are expensed 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, 2026 and 2025, the Company did not record any impairment related to long-lived assets.

*Fair Value
of Financial Instruments*

The carrying amount of certain financial instruments held by the Company,
such as accounts receivable, short- and long-term investments, 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 lease liabilities approximate fair value
due to the market interest rates that these obligations bear and interest rates currently available to the Company.

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

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

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

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

The
categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement. As of March 31, 2026 and December 31, 2025, the Company’s cash and cash equivalents of $256.5 million
and $737.9 million, respectively, were in Level 1 assets, comprised of U.S. Government mutual funds. As of March 31, 2026 and December
31, 2025, the Company’s cash and cash equivalents of $1.2 million and $-0-, respectively, were in Level 2 assets, comprised of
certificates of deposits. As of March 31, 2026 and December 31, 2025 the Company’s available-for sale securities of $1.2 billion
and $782.5 million, respectively, were in Level 2 assets, comprised of U.S. Treasuries, U.S. agency securities, corporate debt securities,
asset-backed securities and certificates of deposits. The Company had $4.6 million and $7.8 million as of March 31, 2026 and December
31, 2025, respectively, in Level 3 liabilities, which are comprised of derivative liabilities. See Note 11, *Capital Stock –
Warrants*, for a full discussion of the warrant liability.

F-8

*Research
and Development Cost**s***

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.

*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.

*Net
(Loss) Income Per Share*

Basic
net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share includes the potential dilutive effect 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. Because the impact of these items is generally anti-dilutive during periods of net loss,
there is no difference between basic and diluted income (loss) per common share for periods with net losses.

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

| Basic net (loss) income per common share: | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Numerator: |  |  |
| Net (loss) income | $(4,050) | $16,982 |
| Net (loss) income | $(4,050) | $16,982 |
| Denominator: |  |  |
| Weighted average outstanding shares of common share – basic* | 223,986 | 135,217 |
| (Loss) earnings per common share - basic | $(0.02) | $0.13 |
| Diluted net (loss) income per common share: |  |  |
| Numerator: |  |  |
| Net (loss) income | $(4,050) | $16,982 |
| Net (loss) income | $(4,050) | $16,982 |
| Denominator: |  |  |
| Weighted average common shares outstanding - basic | 223,986 | 135,217 |
| Effect of dilutive securities | - | 17,789 |
| Weighted average common shares outstanding - diluted | 223,986 | 153,006 |
| (Loss) earnings per common share - diluted | $(0.02) | $0.11 |

\* The total shares outstanding as of December 31, 2025 was 224,164,254, however the weighted average share calculation does not include 700,000 shares of unvested common stock.

F-9

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, 2026, 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 period that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive
(in thousands):

| Line item | Three Months Ended / March 31, | Three Months Ended / March 31, |
| --- | --- | --- |
|  | 2026 |  |
| Warrants |  | 1,363 |
| Options |  | 4,336 |
| Unvested restricted common stock |  | 732 |
| Total potentially dilutive shares |  | 6,431 |

For
the three months ended March 31, 2025, the following table sets forth the dilutive securities included in diluted earnings per share
(in thousands):

| Line item | Three Months Ended / March 31, | Three Months Ended / March 31, |
| --- | --- | --- |
|  | 2025 |  |
| Warrants |  | 3,523 |
| Options |  | 13,002 |
| Unvested restricted common stock |  | 1,264 |
| Total potentially dilutive shares |  | 17,789 |

*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 condensed consolidated financial position or results of operations upon adoption.

In
November 2024, the FASB issued ASU 2024-03, *Income Statement – Reporting Comprehensive Income (Topic 220): Disaggregation
of Income Statement Expenses* (“ASU 2024-03”), which requires public entities to provide disaggregated disclosures of
certain expense captions presented on the face of the income statement into specific categories within the notes to the consolidated
financial statements. ASU 2024-03 is effective for the Company’s annual periods beginning after December 15, 2026, and interim
periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The ASU may be applied either on a
prospective or retrospective basis. The Company is currently evaluating the impact of the adoption of ASU 2024-03 on its condensed
consolidated financial statements and related disclosures.

F-10

On
July 30, 2025, the FASB issued ASU 2025-05, *Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts
Receivable and Contract Assets*, which amends ASC 326-20 to provide a practical expedient (for all entities) and an accounting policy
election (for all entities, other than public business entities, that elect the practical expedient) related to the estimation of expected
credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. The
standard is effective for annual reporting periods beginning after December 15, 2025, including interim periods, and allows for early
adoption. The Company adopted the guidance as of January 1, 2026 and adoption did not have a material impact on our consolidated financial
statements and related disclosures.

Other
recent authoritative guidance issued by the FASB (including technical corrections to the ASC) and the SEC did not or are not expected
to have a material effect on our condensed consolidated financial statements.

### **Note 3. Acquisitions**

LSI
Acquisition

On December 15, 2025, the Company entered into a Stock Purchase Agreement
with Luminar Technologies, Inc., a Delaware corporation (the “Seller”) and Luminar Semiconductor, Inc. a Delaware corporation
(“LSI”), pursuant to which, the Company agreed to acquire all of the issued and outstanding shares of common stock of LSI
from the Seller (the “Transaction”). The Transaction was completed on February 2, 2026 (the “LSI Closing Date”).
 LSI is engaged primarily in the design, development, manufacturing, packaging, and development services of photonic components and
sub-systems (including semiconductor lasers and photodetectors), application-specific integrated circuits, and pixel-based sensors. LSI’s
revenue is derived from customers located in the United States and international markets.

The purchase price was $110.0 million in cash,
subject to a dollar-for-dollar adjustment to the extent that the working capital at closing was greater or less than the target working
capital of $8.1 million. The consideration paid by the Company at closing consisted of approximately $97.5 million in cash, along with
$11.0 million placed with an escrow agent at signing. The escrow will remain in place for twelve months following the LSI Closing Date
to cover certain limited indemnification obligations of the Seller.

The
fair value of consideration transferred is below (in thousands):

| Initial purchase price | 110,000 |
| --- | --- |
| Less adjustments per purchase agreement for working capital and indebtedness | (1,501) |
| Preliminary purchase price | 108,499 |
| Amount prepaid and in escrow | (11,000) |
| Cash consideration on closing date | $97,499 |

The acquisition is accounted for in accordance with FASB ASC Topic 805, Business
Combinations “ASC 805”). This method requires that assets acquired and liabilities assumed in a business combination be recognized
at their respective estimated fair values as of the acquisition date. The Company allocated the purchase price to identifiable assets
acquired based on their estimated fair values. The fair value of the consideration transferred and the assets acquired and liabilities
assumed was determined by the Company and in doing so management engaged a third-party valuation specialist to assist with the measurement
of the fair value of identifiable intangible assets. The estimated fair value of the identifiable assets acquired and liabilities assumed
was based on management’s best estimates. The table below represents the preliminary purchase price allocation for LSI based on
estimates, assumptions, valuations and other analyses as of the Closing Date, that have not been finalized in order to make a definitive
allocation. Accordingly, the adjustments to allocate the purchase price will remain preliminary until management finalizes the fair values
of assets acquired and liabilities assumed. The fair value of intangible assets was based upon an independent appraiser utilizing the
cost, income or market approach. Operating lease asset and operating lease liability were valued based upon the present value of lease
payments over the remaining lease term. The fair value of the customer relationships was determined using the multi-period excess earnings
income approach or cost approach. The fair value of trade names and developed technology was determined using the relief-from-royalty
method. The fair value of all other assets and liabilities approximated the carrying values at acquisition date. The excess of purchase
consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The final amounts
allocated to assets acquired and liabilities assumed, and therefore, calculation of goodwill, are dependent upon certain valuation and
other studies that have not yet been completed and could differ materially from the amounts presented in the condensed consolidated financial
statements. The goodwill recorded from this acquisition represents business benefits the Company anticipates from the acquired workforce
and expectations for expanded sales opportunities to foster further business growth. The goodwill associated with the acquisition is deductible
for tax purposes.

F-11

The
preliminary purchase price is allocated to the tangible and intangible assets and liabilities of LSI based on their estimated fair values,
with any excess purchase consideration allocated to goodwill as follows (in thousands):

| Assets acquired: / Cash and cash equivalents | Acquisition Date / Fair Values Assigned / - |
| --- | --- |
| Accounts receivable | 3,624 |
| Inventory | 3,070 |
| Prepaid expenses and other current assets | 1,101 |
| Property and equipment | 3,246 |
| Operating lease right-of-use assets | 3,181 |
| Intangible assets | 13,548 |
|  | 27,770 |
| Liabilities assumed: |  |
| Accounts payable | 721 |
| Accrued expenses | 604 |
| Deferred revenue and contract liabilities | 1,267 |
| Other current liabilities | 913 |
| Operating lease liabilities, net of current portion | 2,268 |
|  | 5,773 |
| Total identifiable net assets acquired | 21,997 |
| Goodwill | 86,502 |
| Preliminary purchase price | $108,499 |

The
recorded intangibles include developed technology, customer relationships and trade name and are being amortized using the straight-line
method over the useful lives of five to seven years.

From the
acquisition date through March 31, 2026, LSI contributed revenue of $3.5 million and operating loss of $2.5 million.

NuCrypt
Acquisition

The
Company completed its acquisition of NuCrypt, LLC (“NuCrypt”), a quantum communications technology company, on March 4, 2026.
The acquisition helps establish quantum communications as an important commercialization vertical within QCi’s broader quantum
technology strategy. By integrating NuCrypt’s suite of quantum communications systems and products, QCi expects to advance its
technology roadmap while extending its portfolio of quantum communications and quantum photonics solutions.

The
purchase price was $2.5 million in cash, subject to a working capital adjustment at closing, and 250,000 shares of QCi’s common
stock. The equity consideration is valued at the fair value as of the acquisition date and will be issued equally in shares of common
stock on the first, second and third anniversaries of the acquisition. The shares are reserved out of the Company’s authorized
but unissued shares.

The
fair value of consideration transferred is below (in thousands):

| Initial cash purchase price | 2,500 |
| --- | --- |
| Plus adjustments per purchase agreement for working capital | (9) |
| Equity consideration at fair value | 2,038 |
| Preliminary Purchase Price | 4,529 |
| Less: Cash Retained by Company | (58) |
| Fair value of consideration transferred | $4,471 |

F-12

The acquisition is accounted for in accordance with FASB ASC Topic 805, Business
Combinations “ASC 805”). This method requires that assets acquired and liabilities assumed in a business combination be recognized
at their respective estimated fair values as of the acquisition date. The Company allocated the purchase price to identifiable assets
acquired based on their estimated fair values. The fair value of the consideration transferred and the assets acquired and liabilities
assumed was determined by the Company and in doing so management engaged a third-party valuation specialist to assist with the measurement
of the fair value of identifiable intangible assets. The estimated fair value of the identifiable assets acquired and liabilities assumed
was based on management’s best estimates. The table below represents the preliminary purchase price allocation for LSI based on
estimates, assumptions, valuations and other analyses as of the Closing Date, that have not been finalized in order to make a definitive
allocation. Accordingly, the adjustments to allocate the purchase price will remain preliminary until management finalizes the fair values
of assets acquired and liabilities assumed. The fair value of intangible assets was based upon an independent appraiser utilizing the
cost, income or market approach. Operating lease asset and operating lease liability were valued based upon the present value of lease
payments over the remaining lease term. The fair value of the customer relationships was determined using the multi-period excess earnings
income approach or cost approach. The fair value of trade names and developed technology was determined using the relief-from-royalty
method. The fair value of all other assets and liabilities approximated the carrying values at acquisition date. The excess of purchase
consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The final amounts
allocated to assets acquired and liabilities assumed, and therefore, calculation of goodwill, are dependent upon certain valuation and
other studies that have not yet been completed and could differ materially from the amounts presented in the condensed consolidated financial
statements. The goodwill recorded from this acquisition represents business benefits the Company anticipates from the acquired workforce
and expectations for expanded sales opportunities to foster further business growth. The goodwill associated with the acquisition is deductible
for tax purposes.

The
preliminary purchase price is allocated to the tangible and intangible assets and liabilities of NuCrypt based on their estimated fair
values, with any excess purchase consideration allocated to goodwill as follows (in thousands):

| Assets acquired: | Acquisition Date / Fair Values Assigned |
| --- | --- |
| Cash and cash equivalents | $58 |
| Accounts receivable | 59 |
| Prepaid expenses and other current assets | 11 |
| Operating lease right-of-use assets | 22 |
| Property and equipment | 18 |
|  | 168 |
| Liabilities assumed: |  |
| Accounts payable | 32 |
| Other current liabilities | 43 |
|  | 75 |
| Total identifiable net assets acquired | 93 |
| Goodwill | 4,436 |
| Preliminary purchase price | $4,529 |

From
the acquisition date through March 31, 2026, NuCrypt contributed revenue of $18 thousand and operating loss of $152 thousand.

Unaudited
Proforma Consolidated Results

The table below presents the unaudited pro forma condensed consolidated
results assuming the acquisition of LSI and NuCrypt had occurred on January 1, 2025 (in thousands):

_Three-month period ended March 31, 2026_

| Line item | QCi | LSI | Nu Crypt | Total |
| --- | --- | --- | --- | --- |
| Total revenue | $204 | $5,211 | $364 | $5,779 |
| Net (loss) income | $(1,417) | $(2,593) | $(278) | $(4,289) |

_Three-month period ended March 31, 2025_

| Line item | QCi | LSI | Nu Crypt | Total |
| --- | --- | --- | --- | --- |
| Total revenue | $39 | $8,473 | $191 | $8,703 |
| Net (loss) income | $16,982 | $(5,206) | $19 | $11,795 |

F-13

The proforma information above reflects the combination of the Company’s
results of operations as disclosed in the accompanying condensed consolidated statement of operations together with the unaudited results
of LSI and NuCrypt for the same periods.

### **Note 4. Segment Reporting**

Our
Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, manages the Company’s business activities as
a single operating and reportable segment at the consolidated level. Accordingly, our CODM uses condensed consolidated net (loss) income
to measure segment profit or loss, allocate resources and assess performance. Further, the CODM reviews and utilizes natural expenses,
such as employee wages and benefits at a consolidated level, to manage the Company’s operations and strategic growth initiatives.

The following
table presents segment information of revenue, significant expenses and net (loss) income (in thousands):

| Line item | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Revenue | $3,691 | $39 |
| Less: |  |  |
| Salaries and employee related costs | 8,810 | 3,245 |
| Stock-based compensation | 1,246 | 1,405 |
| Rent and facilities | 831 | 233 |
| Professional services and legal fees | 7,493 | 1,532 |
| Technology & IT costs | 1,100 | 452 |
| Direct and indirect materials | 657 | - |
| Other sales and marketing costs | 932 | 265 |
| Depreciation and amortization expense | 1,972 | 975 |
| Other operational expense | 1,200 | 218 |
| Operating loss | (20,550) | (8,286) |
| Other income (loss) |  |  |
| Interest and other income | 13,495 | 1,696 |
| Interest expense | (171) | (58) |
| Change in fair value of derivative and warrant liabilities | 3,176 | 23,630 |
| Segment net loss | (4,050) | 16,982 |
| Other comprehensive income | (3,822) | - |
| Total comprehensive income (loss) | $(7,872) | $16,982 |

### **Note 5. Income Taxes**

The
Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances
are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of March 31,
2026, the Company has a valuation allowance against all of its net deferred tax assets.

The
total effective tax rate was 0% for each of the three months ended March 31, 2026 and 2025.

For
each of the three months ended March 31, 2026 and 2025, the Company’s effective tax rate differed from the federal statutory rate
of 21%, primarily due to the valuation allowance placed against its net deferred tax assets.

The
Company did not pay any material state income tax during the three months ended March 31, 2026 and 2025.

Loss
carryovers are generally subject to modification by tax authorities until three years after they have been utilized; as such, the Company
is subject to examination for the fiscal years ended 2018 through present.

F-14

*Uncertain
Tax Positions*

The Company recognizes the financial statement effects of a tax position
when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination. The Company
currently has approximately $465 thousand of uncertain tax positions as of March 31, 2026, all of which are related to R&D tax credits
and are accounted as contra-deferred tax assets. The Company does not expect any significant changes to its uncertain tax positions in
the coming 12 months.

### **Note 6. Available-For-Sale Debt Securities**

The
following table summarizes available-for sale debt securities held by the Company as of March 31, 2026:

| Line item | Remaining / Contractual / Maturity | Amortized / Cost | Gross / Unrealized / Gains | Gross / Unrealized / Losses | Fair Value |
| --- | --- | --- | --- | --- | --- |
| U.S. Treasuries | < 1 year | $385,053 | $52 | $(264) | $384,841 |
|  | 1 - 3 years | 180,702 | - | (719) | 179,983 |
|  | 3 - 5 years | - | - | - | - |
| Corporate debt securities | < 1 year | 338,101 | 17 | (804) | 337,314 |
|  | 1 - 3 years | 234,190 | 2 | (1,166) | 233,026 |
|  | 3 - 5 years | - | - | - | - |
| Certificates of Deposits | < 1 year | 4,748 | - | (2) | 4,746 |
|  | 1 - 3 years | 250 | - | - | 250 |
|  | 3 - 5 years | - | - | - | - |
| U.S. Agency Securities | < 1 year | 1,499 | - | - | 1,499 |
|  | 1 - 3 years | - | - | - | - |
|  | 3 - 5 years | - | - | - | - |
| Asset Backed Securities | < 1 year | - | - | - | - |
|  | 1 - 3 years | 6,572 | - | (24) | 6,548 |
|  | 3 - 5 years | 3,021 | - | (9) | 3,012 |
| Total available-for-sale debt securities |  | $1,154,136 | $71 | $(2,988) | $1,151,219 |

The
Company may from time to time sell its available-for-sale debt securities. There were $16 thousand in realized gains or on
sales of available-for-sale debt securities for the three months ended March 31, 2026. The realized gains on available-for-sale debt
securities related to investments purchased during the three months ended March 31, 2026. Therefore, there were no amounts
reclassified out of accumulated other comprehensive loss, net of tax during the three months ended March 31, 2026. The
Company’s investment portfolio includes callable securities that may be called prior to maturity.

The
aggregated net unrealized loss on available-for-sale debt securities in the amount of $2.9 million has been recorded in accumulated other
comprehensive loss in the Company’s consolidated balance sheet as of March 31, 2026.

### **Note 7. Goodwill and Intangible Assets**

The
changes in goodwill during the three months ended March 31, 2026 are as follows (in thousands):

| Balance at December 31, 2025 | 55,573 |
| --- | --- |
| LSI acquisition | 86,502 |
| NuCrypt acquisition | 4,436 |
| Balance at March 31, 2026 | $146,511 |

F-15

The composition of intangible assets, net, is as follows (in thousands):

| Line item | March 31, 2026 / Gross Carrying Amount | March 31, 2026 / Accumulated Amortization | March 31, 2026 / Net Carrying Amount | December 31, 2025 / Gross Carrying Amount | December 31, 2025 / Accumulated Amortization | December 31, 2025 / Net Carrying Amount |
| --- | --- | --- | --- | --- | --- | --- |
| Website domain name and trademark | $1,009 | $(774) | $235 | $1,009 | $(724) | $285 |
| Technology and licensed patents | 12,731 | (6,972) | 5,759 | 12,731 | (6,516) | 6,215 |
| Customer relationships | 647 | (15) | 632 | - | - | - |
| Developed technology | 9,995 | (239) | 9,756 | - | - | - |
| Tradename | 2,906 | (97) | 2,809 | - | - | - |
| Total | $27,288 | $(8,097) | $19,191 | $13,740 | $(7,240) | $6,500 |

The
Company recorded amortization expense of the Company’s intangible assets of $0.9 million and $0.8 million during the three months
ended March 31, 2026 and 2025, respectively. The Company expects future amortization expense to be the following (in thousands):

| Line item | Amortization |
| --- | --- |
| 2026 (remaining nine months) | $3,091 |
| 2027 | 4,004 |
| 2028 | 3,920 |
| 2029 | 2,859 |
| 2030 | 2,101 |
| Thereafter | 3,216 |
| Total | $19,191 |

### **Note 8. Property and Equipment, net**

The Company’s property and equipment, net, consist of (in thousands):

| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Computer and lab equipment | $17,463 | $13,070 |
| Network equipment | 47 | 35 |
| Furniture and fixtures | 150 | 99 |
| Software | 686 | 374 |
| Leasehold improvements | 2,421 | 2,303 |
| Construction in progress | 200 | - |
| Total cost of property and equipment | 20,967 | 15,881 |
| Accumulated depreciation | (4,025) | (2,910) |
| Property and equipment, net | $16,942 | $12,971 |

F-16

The Company
recorded depreciation expense of $1.1 million and $0.2 million during the three months ended March 31, 2026 and 2025, respectively, using
useful lives of the Company’s long-lived assets as follows:

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

Maintenance
and repairs are charged to operations when incurred. When property and equipment are sold or otherwise disposed, the asset account and
related accumulated depreciation and amortization accounts are relieved, and any gain or loss is included in other income or expense.
There were no significant gains or losses in the three months ended March 31, 2026 or 2025.

### **Note 9. Operating Leases**

The
Company leases its facilities under operating leases which expire at various dates through 2030. Most of the Company’s leases include
one or more options to renewal. 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
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, 2026 (in thousands):

| Year |  |
| --- | --- |
| $2026 (remaining nine months) | $1,684 |
| 2027 | 2,275 |
| 2028 | 1,579 |
| 2029 | 665 |
| 2030 | 137 |
| Total minimum payments | 6,340 |
| Less: imputed interest | (895) |
| Present value of operating lease liabilities | 5,445 |
| Less: current portion included in other current liabilities | (1,767) |
| Long-term operating lease liabilities | $3,678 |

F-17

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

| Line item | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Operating lease cost | $445 | $171 |
| Short term lease cost | 17 | 10 |
| Total Lease Cost | $462 | $181 |
| Cash payments for operating leases | $449 | $171 |

| Line item | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Weighted average remaining lease term in years | 2.94 | 3.30 |
| Weighted average discount rate | 10.76% | 10.00% |

### **Note 10. Commitments and 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 condensed consolidated financial position or results
of operations and are adequately covered by our liability insurance. However, it is possible that condensed consolidated cash flows or
results of operations could be materially affected in any particular period by the unfavorable resolution of one or 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 in the following proceedings.

F-18

BV
Advisory v. QCi Breach Lawsuit

At the time of the QPhoton merger in June 2022,
QPhoton had an outstanding balance of principal and interest due to BV Advisory Partners LLC (“BV Advisory”) under a note
purchase agreement dated March 1, 2021 (the “BV Note Purchase Agreement”). The Company recorded an estimated payable, recognized
in other current liabilities of $536 thousand as of December 31, 2024. During the quarter ended September 30 2025, this matter was settled
for $750 thousand and the remaining amount was recognized when the settlement agreement was finalized.

On August 16, 2022, BV Advisory filed a complaint in the Delaware Court
of Chancery naming QPhoton, the Company and certain of the Company’s directors and officers (among others) as defendants seeking
monetary damages for an alleged breach of the BV Note Purchase Agreement. During the year ended December 31, 2024, BV Advisory’s
other claims were dismissed by the Delaware Court of Chancery and BV Advisory transferred its claim for breach of the BV Note Purchase
Agreement to the Delaware Superior Court. On July 17, 2025, the Company, Keith Barksdale (the managing member of BV Advisory), and BV
Advisory entered into a settlement agreement pursuant to which BV Advisory dismissed its claims with prejudice. The settlement was previously
described in our Annual Report on Form 10-K for the year ended December 31, 2025. There were no material developments related to this
matter during the quarter ended March 31, 2026.

BV
Advisory v. QCi Appraisal Action

BV Advisory was a shareholder of QPhoton,
Inc., the predecessor in interest to QPhoton, LLC, a wholly owned subsidiary of the Company. BV Advisory rejected the merger
consideration and on October 13, 2022 filed a petition in the Delaware Court of Chancery seeking appraisal of the QPhoton shares it
owned. The Company included BV Advisory’s ownership of QPhoton in the purchase price accounting for the QPhoton merger.

Pursuant to the July 2025 settlement agreement,
the Company agreed to issue to Mr. Barksdale or his designees 1.9 million shares of the Company’s common stock and BV Advisory
dismissed its appraisal action with prejudice. The settlement was previously described in our Annual Report on Form 10-K for the year
ended December 31, 2025. There were no material developments related to this matter during the quarter ended March 31, 2026.

QCi
v. BV Advisory Injunction Lawsuit

On January 31, 2025, the Company filed a complaint in Delaware Chancery
Court against BV Advisory and Mr. Barksdale, asserting claims for defamation, breach of contract, conversion, aiding and abetting conversion,
and misappropriation of trade secrets based on their unauthorized possession and dissemination of certain of the Company’s confidential
and privileged documents. The Company sought, among other relief, injunctive relief and damages. Pursuant to the July 2025 settlement
agreement, the Company agreed dismiss the injunction action with prejudice. The settlement was previously described in our Annual Report
on Form 10-K for the year ended December 31, 2025. There were no material developments related to this matter during the quarter ended
March 31, 2026

Securities
Class Action Lawsuit

On
February 25, 2025, a class action lawsuit was filed against the Company and certain of its current and past officers in the New Jersey
District Court, by a plaintiff seeking to represent a class of all persons who purchased the Company’s securities between March
30, 2020 and January 15, 2025, alleging violations of Section 10(b) and 20(a) of the Exchange Act. The complaint alleges that the Company
made false and/or misleading statements and/or failed to disclose material information about the Company’s customers, contracts
and business operations in its public statements and SEC filings. The plaintiff seeks unspecified monetary damages plus attorney’s
fees and costs. In June 2025, the New Jersey District Court designated a lead plaintiff who filed an amended operative complaint on or
about August 26, 2025. The Company filed a motion to dismiss the amended operative complaint on November 14, 2025. While the Company’s
motion to dismiss was pending, the lead plaintiff filed a motion for leave to file a second amended complaint. The second amended
complaint was subsequently filed on February 13, 2026. The Company filed a motion to dismiss the second amended complaint on March
13, 2026, and the lead plaintiff filed its opposition to the company’s motion to dismiss on April 22, 2026. The Company intends
to file a reply memorandum of law in support of the motion to dismiss and the brief is due on or before May 22, 2026.

F-19

Shareholder
Derivative Action Lawsuit

On
March 31, 2025, a shareholder derivative action (the “March 2025 Derivative Action”) was filed against certain of the Company’s
current and past officers and directors, purportedly on behalf of the Company, in the United States District Court for the District of
New Jersey, for alleged breaches of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and violations
of the Exchange Act by the named officers and directors. The plaintiff seeks unspecified monetary damages plus attorney’s fees
and costs. No pre-litigation demand was made on the Company’s board of directors. The Company and its board of directors dispute
the allegations in the complaint and intend to vigorously defend against the asserted claims.

On
May 6, 2025, a shareholder derivative action (the “May 2025 Derivative Action”) was filed against certain of the Company’s
current and past officers and directors, purportedly on behalf of the Company, in the United States District Court for the District of
New Jersey, for alleged breaches of fiduciary duties, gross mismanagement, waste of corporate assets, unjust enrichment, aiding and abetting
breaches of fiduciary duties, and violations of the Exchange Act. The plaintiff seeks unspecified monetary damages plus attorney’s
fees and costs. No pre-litigation demand was made on the Company’s board of directors. The Company and its board of directors dispute
the allegations in the complaint and intend to vigorously defend against the asserted claims.

On
June 19, 2025, a shareholder derivative action (the “June 2025 Derivative Action”) was filed against certain of the Company’s
current and past officers and directors, purportedly on behalf of the Company, in the United States District Court for the District of
New Jersey, for alleged breaches of fiduciary duties, waste, unjust enrichment, common law fraud, and violations of the Exchange Act.
The plaintiff seeks unspecified monetary damages plus attorney’s fees and costs. The Company and its board of directors dispute
the allegations in the complaint and intend to vigorously defend against the asserted claims.

On
September 25, 2025, a shareholder derivative action (the “September 2025 Derivative Action”) was filed against certain of
the Company’s current and past officers and directors, purportedly on behalf of the Company, in the Superior Court of New Jersey
Chancery Division, Hudson County, for alleged breaches of fiduciary duty, unjust enrichment, gross mismanagement, corporate waste, and
aiding and abetting fiduciary duties. The Company and its board of directors dispute the allegations in the complaint and intend to vigorously
defend against the asserted claims.

The
March 2025 Derivative Action, May 2025 Derivative Action, June 2025 Derivative Action, and September 2025 Derivative Action, have each
been stayed pending the resolution of the Company’s motion to dismiss the Securities Class Action.

### **Note 11. Capital Stock**

*Authorized
Classes of Stock*

As of March 31, 2026, the Company is authorized
to issue common stock, par value $0.0001 per share, and two classes of preferred stock, par value $0.0001 per share, including 1,550,000
shares designated as Series A and 3,079,864 shares designated as Series B. No shares of Series A or Series B preferred stock were outstanding
as of March 31, 2026 and December 31, 2025.

*At-the-market facility*

The Company did not sell any shares through its
at-the-market facility during the three months ended March 31, 2026 and 2025.

*Equity Activity*

Net proceeds during the three months ended March
31, 2026 were $3.5 million from stock option exercises.

*Warrants*

The
table below summarizes the warrants outstanding at March 31, 2026 (in thousands, except exercise price data):

| Issuance Date | Expiration Date | Exercise Price | Issued | Exercised | Forfeited / Canceled | Warrants Outstanding |
| --- | --- | --- | --- | --- | --- | --- |
| June 16, 2022 | May 9, 2027 | $0.0001 | 6,325 | (1,187) | (4,467) | 671 |
| November 18, 2024 | November 18, 2029 | $2.875 | 800 | (304) | - | 496 |
| December 12, 2024 | December 12, 2029 | $5.75 | 500 | (100) | - | 400 |
| January 9, 2025 | January 9, 2030 | $14.0875 | 327 | (65) | - | 262 |
|  |  |  |  |  |  | 1,829 |

F-20

On June 16, 2022, the Company issued 6.3 million QPhoton warrants to
purchase common stock at an exercise price of $0.0001 per share, exercisable upon exercise of certain underlying Company options and warrants
outstanding as of June 15, 2022. As of March 31, 2026, approximately 71% of the QPhoton warrants have been forfeited because the corresponding
underlying instruments expired or were forfeited. The QPhoton warrants are classified as liabilities and measured at fair value, with
changes recognized in earnings. The liability was $4.6 million as of March 31, 2026. See Note 2 - Significant Accounting Policies –
Fair Value of Financial Instruments - for valuation methodology and inputs. During the three months ended March 31, 2026 and 2025, the
Company recognized mark-to-market gains of $3.2 million and $23.6 million, respectively. During the year ended December 31, 2025, $21.0
million was reclassified from warrant liability to additional paid-in capital upon exercise of QPhoton warrants.

### **Note 12. Stock-based Compensation**

*Incentive
Plans*

The
Quantum Computing Inc. 2019 Equity and Incentive Plan, as amended in 2021 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 3.0 million shares of common
stock, all of which have been issued.

On
July 5, 2022, the Board of Directors adopted the Quantum Computing Inc. 2022 Equity and Incentive Plan (the “2022 Plan”),
which was approved by a majority of the shareholders in September 2022. The 2022 Plan initially provided for the issuance of up to 16
million shares of the Company’s common stock and includes provisions for annual automatic evergreen increases of 1,000,000 shares
of common stock. As of March 31, 2026, the total number of shares of our common stock reserved for issuance under the 2022 Plan is 20
million and of that amount a total of 17.4 million shares, including 6.1 million shares underlying 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, 2026 (in thousands, except exercise
price and contractual life data):

| Line item | Number Outstanding | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (Years) |
| --- | --- | --- | --- |
| Balance as of January 1, 2026 | 7,063 | $4.11 | 2.6 |
| Granted | 89 | 8.91 | - |
| Exercised | (856) | 4.10 | - |
| Forfeited | (154) | 9.54 | - |
| Balance as of March 31, 2026 | 6,142 | 4.04 | 2.7 |
| Vested and exercisable as of March 31, 2026 | 3,760 | $3.27 | 2.4 |

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, 2026 and 2025:

| Line item | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Exercise price | $7.60 - 12.11 | $4.52 - 8.01 |
| Risk-free interest rate | 3.4 - 3.6% | 4.0 - 4.2% |
| Expected volatility | 131.3 - 136.2% | 130 - 138% |
| Expected dividend yield | 0% | 0% |
| Expected life of options (in years) | 10.0 | 5.0 |

F-21

The
following table summarizes the exercise price range as of March 31, 2026 (in thousands, except exercise price data):

| Exercise Price | Outstanding Options | Exercisable Options |
| --- | --- | --- |
| $0.00 - 1.00 | 604 | 420 |
| $1.00 - 2.00 | 2,802 | 1,344 |
| $2.00 - 3.00 | 1,221 | 1,221 |
| $3.00 - 6.00 | 133 | 53 |
| $6.00 - 8.00 | 568 | 545 |
| $8.00 - 12.00 | 233 | 77 |
| $12.00 - 15.00 | 580 | 100 |
|  | 6,141 | 3,760 |

The
weighted average grant-date fair value of stock options granted during the three months ended March 31, 2026 and 2025 was $8.91 and $7.40
per share, respectively. As of March 31, 2026, total unrecognized compensation cost related to common stock options was $10.1 million,
which is expected to be recognized over a period of 3.38 years.

*Restricted
Stock*

As
of March 31, 2026, there were 760 thousand shares of the Company’s common stock issued and unvested that had been awarded as stock-based
compensation under the 2022 Plan. The following table summarizes the Company’s activity for restricted stock tied to vesting schedules
for the three months ended March 31, 2026 (in thousands):

| Line item | Number Outstanding | Weighted Average Fair Value |
| --- | --- | --- |
| Unvested as of December 31, 2025 | 700 | $5.62 |
| Granted | 60 | 9 |
| Vested | - | - |
| Forfeited | - | - |
| Unvested as of March 31, 2026 | 760 | $6.58 |

*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 condensed consolidated statements of operations (in thousands):

| Line item | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Research and development | $756 | $497 |
| Sales and marketing | 62 | 60 |
| General and administrative | 428 | 830 |
| Total stock-based compensation | $1,246 | $1,387 |

For
the three months ended March 31, 2025, stock-based compensation on the condensed consolidated statements of stockholders’ equity
was $1.5 million higher than expense recorded in the consolidated statement of operations, due to timing differences between award dates
and the realization of stock-based compensation expense.

The Company
issued 373 thousand shares of common stock during the three months ended March 31, 2026. The Company did not issue any shares of common
stock as compensation during the three months ended March 31, 2025.

F-22

### **Note 13. Related Party Transactions**

There
were no related party transactions during the three months ended March 31, 2026 and 2025.

### **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 QPhoton Merger, 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, 2026, 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. Subsequent Events**

There
are no subsequent events that in management’s opinion are reportable.

F-23

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

*The
following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our
condensed consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with
the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
For additional context with which to understand our financial condition and results of operations, see the audited consolidated financial
statements and accompanying notes contained therein as of December 31, 2025 and 2024 and related notes in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on March 2, 2026. Certain amounts may not foot due to
rounding. Certain information in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking
statements that involve numerous risks and uncertainties, including, but not limited to, those described under the sections entitled
“Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” included in this
Quarterly Report on Form 10-Q and under the heading “Risk Factors” in our Form 10-K. We assume no obligation to update any
of these forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.*

**Business
Overview**

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

QCi’s
proprietary core technology is our integrated photonics approach, which allows us to condition, manipulate, and measure single and entangled
photons (particles of light) and gives us the ability to exploit the non-linear capabilities of photons (our “Core Photonics Technology”).
Our Entropy Quantum Computer (“EQC”) is a quantum application of our Core Photonics Technology, designed to solve complex
optimization problems. EQC is based on a patent-pending methodology that uses controlled feedback through energy loss in a photonic loop
architecture to drive photonic states to their least lossy configurations. The EQC’s involvement of the changing environment as
an integral part of the system is in sharp contrast to competing quantum approaches, including superconducting, trapped-ion, and annealing
architectures, which seek to establish stable quantum states by the complete elimination of environmental effects. As a result, the EQC
can consume less power than these competing methods and operates at room temperature making it compatible with an ordinary server room
environment. We anticipate that our EQC may enable us to develop and produce multiple generations of quantum machines with increasing
computational power, scalability, and speed.

In
addition to our EQC technology, we have leveraged QCi’s core photonics technology to demonstrate powerful quantum sensing use cases
in LiDAR (light detection and ranging), a technology that uses pulsed laser light to measure distances to objects by calculating the
time it takes for the reflected light to return, reservoir computing, a form of neural network that can be used in machine learning applications,
and a quantum cyber solution, a method for highly secure communication within a network. Several of these technologies are in the early
stages of commercialization and several are available to customers through our research and development offerings.

1

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

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

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

**Key
Factors Affecting Our Performance**

This section discusses the primary operational
and market drivers that we expect will influence our results of operations, liquidity, and capital resources.

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

2

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

We rely on third-party manufacturers and a limited
number of qualified suppliers for certain key components. Availability, quality, lead times, pricing, and our ability to scale internal
and external manufacturing with robust quality systems will affect delivery schedules, cost of revenue, and margins. See Part II, Item
1A, “Risk Factors,” for additional discussion.

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

Compliance with U.S. export control and economic
sanctions regimes and other applicable regulations may affect our addressable markets, supply chain, and operational timelines. See Part
II, Item 1A, “Risk Factors,” and the Risk Factors in our 2025 Annual Report on Form 10-K.

**Results
of Operations**

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

| Line item | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 | Three Months Ended March 31, / % Change |
| --- | --- | --- | --- |
| Total revenue | $3,691 | $39 | NM |
| Cost of revenue | 4,412 | 26 | NM |
| Gross (loss) profit | (721) | 13 | NM |
| Gross margin | -20% | 33% | (159 |
| Operating expenses: |  |  |  |
| Research and development | 6,969 | 2,985 | 133% |
| Sales and marketing | 1,597 | 672 | 138% |
| General and administrative | 11,263 | 4,642 | 143% |
| Total operating expenses | 19,829 | 8,299 | 139% |
| Loss from operations | (20,550) | (8,286) | 148% |
| Non-operating income (expense): |  |  |  |
| Interest and other income | 13,495 | 1,696 | 696% |
| Interest expense | (171) | (58) | 195% |
| Change in fair value of derivative |  |  |  |
| liability | 3,176 | 23,630 | (87 |
| Total non-operating income | 16,500 | 25,268 | (35 |
| Net (loss) income | $(4,050) | $16,982 | (124 |

Revenue for the three months ended March 31, 2026 was $3.7 million
compared to $39 thousand for the comparable prior year period, an increase of $3.7 million. Acquisitions, including our LSI and NuCrypt
acquisitions, contributed $3.5 million in total revenue during the three months ended March 31, 2026. Revenue without the acquisitions
increased $0.2 million over the prior year.

3

*Cost
of Revenue*

Cost
of revenue was $4.4 million for the three months ended March 31, 2026, compared to $26 thousand for the comparable prior year period,
an increase of $4.4 million. The increase was primarily due to the LSI and NuCrypt acquisitions which added $4.2 million in costs for
the three months ended March 31, 2026. Cost of revenue without the acquisitions increased $0.2 million over the prior year.

*Gross
Margin*

Gross
margin for the three months ended March 31, 2026 was a loss of $0.7 million compared to $13 thousand for the comparable prior year period.
The decrease in gross margin was largely due to under-absorption of fixed costs due to lower production volumes. We anticipate product
gross margins will improve as volumes recover.

*Operating
Expenses*

Operating expenses for the three months ended
March 31, 2026 increased by $11.5 million compared to the three months ended March 31, 2025. Acquisitions, including our LSI and NuCrypt
acquisitions, added $1.9 million in total operating expenses. The increase is further discussed below.

Research and development expenses consist primarily
of labor expenses for employees that primarily engage in research and development efforts and non-labor expenses for the development of
hardware products and supporting software. We focus the bulk of our research and development activities on the continued development of
existing products and the development of new offerings for emerging market opportunities. Research and development costs were $7.0 million
for the three months ended March 31, 2026, compared to $3.0 million for the three months ended March 31, 2025. Research and development
expenses increased $4.0 million for the three months ended March 31, 2026. Acquisitions, including our LSI and NuCrypt acquisitions, contributed
to $0.7 million of the increase with the remaining increase primarily due to higher headcount and related payroll costs, higher recurring
lab equipment and consumables costs, and higher depreciation for long-lived laboratory equipment, partially offset by lower stock based
compensation expense. The Company is aggressively pursuing its technology roadmap and has hired additional scientists, engineers and technicians
in order to accelerate the development of key technologies and products.

Sales and marketing expenses consist primarily of employee compensation
as well as customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs. Sales and
marketing expenses were $1.6 million for the three months ended March 31, 2026 as compared to $0.7 million for the three months ended
March 31, 2025, a 138% increase. Acquisitions added $0.3 million of selling and marketing expenses. The remaining increase is primarily
due to increases in the sales staff, higher tradeshow and travel-related costs and increased marketing program costs.

General
and administrative expenses consist primarily of compensation expenses for employees performing administrative functions and professional
fees incurred for legal, auditing and other consulting services. General and administrative expenses were $11.3 million for the three
months ended March 31, 2026 compared to $4.6 million for the three months ended March 31, 2025. General and administrative expenses increased
143% for the three months ended March 31, 2026, compared to the comparable prior year period primarily due to acquisitions ($0.9 million),
acquisition-related transaction expenses ($5.6 million) and ongoing litigation ($0.1 million).

4

*Non-operating
Income (Expense)*

Non-operating
income (expense) includes interest and other income, interest expense and change in fair value of derivative liability.

Interest and other income was $13.5 million for
the three months ended March 31, 2026 and $1.7 million for the three months ended March 31, 2025, an increase over the prior year of
$11.8 million. The increase was primarily due to the Company maintaining higher cash balances in mutual funds, deposit and money market
accounts, U.S. Treasuries, U.S. agency securities, corporate debt securities, asset-backed securities and certificates of deposits

Interest expense, net consists primarily of interest
on financial liabilities, including payroll-related taxes.

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

**Liquidity
and Capital Resources.**

We
have incurred net losses and experienced negative cash flows from operations since inception. During the three months ended March 31,
2026, the Company raised $3.5 million through the exercise of stock options. The Company has no lines of credit or short-term debt obligations
outstanding. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in
research and development and go-to-market programs. As of March 31, 2026, the Company had cash and cash equivalents of $257.7 million
and investments of $1.2 billion.

We
believe that our existing cash, cash equivalents and investments will be sufficient to meet our working capital and capital expenditure
needs for at least the next twelve months, although we may choose to take advantage of opportunistic capital raising or financing transactions
at any time.

Our primary uses of cash are to fund and invest in our operations as
we continue to grow our business. We will require a significant amount of cash for continued investment in our TFLN chip contract manufacturing
business run out of the AZ Chips Facility, or our Foundry Services offering, including but not limited to future-identified space for
expansion of our AZ Chips Facility, as well as ongoing research and development for our non-linear quantum optical products and photonics
chips. Until such time as we can generate significant revenue from sales or subscriptions of our hardware offerings, we expect to finance
our operating and investing needs through our cash and cash equivalents and, equity and/or debt financings or other capital sources, including
but not limited to U.S. government grant and loan programs. We may, however, be unable to raise sufficient funds or enter into such other
arrangements, when needed, on favorable terms, or at all. In particular, uncertain and unfavorable conditions in the United States and
global macroeconomic environment, including inflationary pressures, interest rates, bank failures, and financial and credit market fluctuations,
could reduce our ability to access capital on favorable terms, or at all. To the extent that we raise additional capital through the sale
of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and
equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through
equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our product development and go-to-market
efforts. There can be no assurances that the Company will be able to secure additional equity and/or debt investments or achieve an adequate
sales level. We believe, however, that the Company’s existing cash and cash equivalents, together with any cash generated from operations
and the proceeds from any additional equity or debt issuances will be sufficient to meet the Company’s liquidity needs for at least
the next 12 months.

5

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

| Line item | March 31, 2026 | December 31, 2025 | Increase/ (Decrease) |
| --- | --- | --- | --- |
| Current assets | $1,005,076 | $1,133,720 | $(128,644) |
| Current liabilities | $15,075 | $11,074 | $4,001 |
| Working capital | $990,001 | $1,122,646 | $(132,645) |

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

*Cash
Flows*

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

| Line item | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 |
| --- | --- | --- |
| Net cash used in operating activities | $(9,423) | $(4,431) |
| Net cash used in investing activities | (474,253) | (1,733) |
| Net cash provided by financing activities | 3,507 | 93,648 |
| Net decrease (increase) in cash and cash equivalents | $(480,169) | $87,484 |

Net cash used in operating activities for the three months ended March
31, 2026 was $9.4 million compared to $4.4 million for the same period in 2025. Cash used in the three months ended March 31, 2026 consisted
of net loss of $4.1 million and a change in operating assets and liabilities of $5.7 million partially offset by non-cash charges of $0.4
million. The non-cash charges consist of depreciation and amortization of $2.3 million and stock based compensation of $1.2 million offset
by the change in fair value of derivatives of $3.2 million.

Net
cash used in investing activities for the three months ended March 31, 2026 and 2025 was $474.3 million and $1.7 million, respectively,
and was attributable to net purchases of available for sale securities of $372.5 million, cash paid for acquisitions of $99.9 million
and capital expenditures of $1.8 million.

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

On
a long-term basis, our liquidity is dependent on the continuation and expansion of operations and receipt of revenues. Demand for our
products and services will be dependent on, among other things, market acceptance of our products and services, the technology market
in general, and general economic conditions, which are cyclical in nature. As most of our revenues will be from the sales of our products
and services, our business operations may be adversely affected by the actions of our competitors and prolonged recession periods.

6

**Critical
Accounting Estimates**

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

There
have been no material changes to our critical accounting estimates since our Form 10-K for the year ended December 31, 2025, filed with
the SEC on March 2, 2026 (the “2025 Form 10-K”).

## Item 3.
Quantitative and Qualitative Disclosures About Market Risk**

There
have been no material changes in market risks from the information presented in Part II, Item 7A. “Quantitative and Qualitative
Disclosures About Market Risk,” in the 2025 Form 10-K.

**Item
4. Controls and Procedures**

*Evaluation
of Disclosure Controls and Procedures*

We maintain “disclosure controls and procedures,” as such
term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing
and evaluating our disclosure controls and procedures, our management recognized that controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Management necessarily
applied judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of any 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, 2026, 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
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

*Material Weakness in Internal Control over
Financial Reporting* 

A “material weakness,” as defined
in Rule 1-02(a)(4) of Regulation S-X, is a deficiency, or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.

7

The ineffectiveness of the Company’s internal
control over financial reporting was due to the following material weaknesses:

- We did not design and maintain an effective control environment commensurate with our financial reporting requirements. During the period, we lacked a sufficient number of trained professionals with (i) an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, limited personnel resulted in insufficient segregation of duties in our finance and accounting functions.
- The material weakness in the control environment contributed to additional material weaknesses: (i) we did not design and maintain an effective risk-assessment process at a precise enough level to identify new and evolving risks of material misstatement in our financial statements, including timely changes to existing controls or implementation of new controls to respond to changes in risk; and (ii) we did not design and maintain effective information technology general controls (“ITGCs”) for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (a) user-access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to financial applications, programs and data; (b) program change-management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (c) computer-operations controls to ensure that data backups are authorized and monitored; and (d) controls to obtain, review and evaluate third-party service-organization reports and to implement complementary user-entity controls, as applicable.

These material weaknesses did not result in a
material misstatement to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

*Management’s Plan to Remediate the Material
Weaknesses*

The Company has been implementing and continues
to implement measures designed to remediate the material weaknesses described above and to ensure that the related controls are designed,
implemented and operating effectively. During 2025, we strengthened our accounting function through the hiring of five full-time accounting
professionals, including a Controller and a Manager of Technical Accounting, to enhance oversight, technical expertise and execution of
key financial reporting processes. In addition to identifying and remediating design deficiencies in our processes, we have formally documented
procedures for significant accounting and financial reporting processes, including procedures addressing revenue recognition and segregation
of duties.

During 2026, we plan to (i) further document and
implement control procedures and control monitoring; (ii) identify and remediate gaps in our information-technology general controls related
to security, user access, restricted access and change management; and (iii) design and implement risk-assessment processes to identify
and address new and evolving risks associated with financial reporting. We are committed to maintaining a strong internal control environment
and believe that these remediation efforts will represent significant improvements in our control environment. Management will continue
to monitor and evaluate the effectiveness of internal control over financial reporting on an ongoing basis and will implement additional
enhancements as necessary. We currently expect that these measures, once fully implemented and operational for a sufficient period of
time and tested, will remediate the material weaknesses, which we aim to achieve by the end of 2026; however, the timing of remediation
is subject to successful design, implementation and sustained operating effectiveness.

*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.

8

**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 Partners, LLC Proceedings*

There were no material developments during the
quarter ended March 31, 2026 with respect to the BV Advisory matters that were resolved in 2025 as previously disclosed.

*Securities
Class Action Lawsuit*

On
February 25, 2025, a class action lawsuit was filed against the Company and certain of its current and past officers in the New Jersey
District Court, by a plaintiff seeking to represent a class of all persons who purchased the Company’s securities between March
30, 2020 and January 15, 2025, alleging violations of Section 10(b) and 20(a) of the Exchange Act. The complaint alleges that the Company
made false and/or misleading statements and/or failed to disclose material information about the Company’s customers, contracts
and business operations in its public statements and SEC filings. The plaintiff seeks unspecified monetary damages plus attorney’s
fees and costs. In June 2025, the New Jersey District Court designated a lead plaintiff who filed an amended operative complaint on or
about August 26, 2025. The Company filed a motion to dismiss the amended operative complaint on November 14, 2025. While the Company’s
motion to dismiss was pending, the lead plaintiff filed a motion for leave to file a second amended complaint. The second amended complaint
was subsequently filed on February 13, 2026. The Company filed a motion to dismiss the second amended complaint on March 13, 2026 and
lead plaintiff filed its opposition to the Company’s motion to dismiss on April 22, 2026. The Company intends to file a reply memorandum
of law in support of the motion to dismiss and the brief is due on or before May 22, 2026. The Company disputes the allegations in the
complaint and intends to vigorously defend against the claims asserted.

*Shareholder
Derivative Action Lawsuit*

On
March 31, 2025, a shareholder derivative action (the “March 2025 Derivative Action”) was filed against certain of the Company’s
current and past officers and directors, purportedly on behalf of the Company , in the United States District Court for the District
of New Jersey, for alleged breaches of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and violations
of the Exchange Act by the named officers and directors. The plaintiff seeks unspecified monetary damages plus attorney’s fees
and costs. No pre-litigation demand was made on the Company’s board of directors. The Company and its board of directors dispute
the allegations in the complaint and intend to vigorously defend against the asserted claims.

On
May 6, 2025, a shareholder derivative action (the “May 2025 Derivative Action”) was filed against certain of the Company’s
current and past officers and directors, purportedly on behalf of the Company , in the United States District Court for the District
of New Jersey, for alleged breaches of fiduciary duties, gross mismanagement, waste of corporate assets, unjust enrichment, aiding and
abetting breaches of fiduciary duties, and violations of the Exchange Act. The plaintiff seeks unspecified monetary damages plus attorney’s
fees and costs. No pre-litigation demand was made on the Company’s board of directors. The Company and its board of directors dispute
the allegations in the complaint and intend to vigorously defend against the asserted claims.

On
June 19, 2025, a shareholder derivative action (the “June 2025 Derivative Action”) was filed against certain of the
Company’s current and past officers and directors, purportedly on behalf of the Company, in the United States District Court
for the District of New Jersey, for alleged breaches of fiduciary duties, waste, unjust enrichment, common law fraud, and violations
of the Exchange Act. The plaintiff seeks unspecified monetary damages plus attorney’s fees and costs. The Company and its
board of directors dispute the allegations in the complaint and intend to vigorously defend against the asserted claims.

9

On
September 25, 2025, a shareholder derivative action (the “September 2025 Derivative Action”) was filed against certain
of the Company’s current and past officers and directors, purportedly on behalf of the Company, in the Superior Court of New
Jersey Chancery Division, Hudson County, for alleged breaches of fiduciary duty, unjust enrichment, gross mismanagement, corporate
waste, and aiding and abetting fiduciary duties. The complaint is premised on the same core facts as the securities class action and
other related derivative actions previously filed and pending in the United States District Court for the District of New Jersey,
specifically, the complaint alleges omissions and misrepresentations related to Quad M, QPhoton, NASA, millionways, and the TFLN
foundry. The plaintiff seeks unspecified monetary damages plus attorney’s fees and costs. The Company and its board of
directors dispute the allegations in the complaint and intend to vigorously defend against the asserted claims.

The
March 2025 Derivative Action, May 2025 Derivative Action, June 2025 Derivative Action, and September 2025 Derivative Action, have each
been stayed pending the resolution of the Company’s motion to dismiss the Securities Class Action.

*BV
Advisory Partners, LLC Proceedings* 

There were no material developments during the quarter ended March 31, 2026 with respect to the BV Advisory matters that were resolved
in 2025 as previously disclosed.

**Item
1A. Risk Factors.**

Other than the amended and additional risk factors
set forth below, there were no material changes to the risk factors disclosed in Part II, Item 1A, Risk Factors of our Annual Report on
the Form 10-K for the year ended December 31, 2025 as filed with the SEC on March 2, 2026.

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

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

Failure to execute effectively could delay product
roadmaps, increase our cost structure and negatively impact revenue growth and margins.

***We depend on certain suppliers to source
products. Failure to maintain our relationship with any of these suppliers, or a failure to replace any of these suppliers, could have
a material adverse effect on our business, financial position, results of operations and cash flows.***

We buy our products and supplies from companies
that manufacture and source products from the United States and abroad. Our ability to develop and maintain relationships with qualified
suppliers who can satisfy our standards for quality and delivery in a timely and efficient manner is a significant challenge. For certain
photonic integrated circuits and related III-V components used in our devices, there are very few qualified suppliers, and in some cases
a single source. Any failure to maintain our relationship with any of our key suppliers, or a failure to replace any such supplier that
is lost, could have a material adverse effect on our business, financial position, results of operations and cash flows.

We may be required to replace a supplier if their
products do not meet our quality or safety standards, or if the United States government imposes restrictions on trade with certain countries,
such as China. In addition, our suppliers could discontinue selling products at any time for reasons that may or may not be in our control
or the suppliers’ control, including shortages of raw materials, environmental and social supply chain issues, public health emergencies,
labor disputes or weather conditions. Disruptions in transportation lines or geopolitical conditions including the ongoing war between
Russia and Ukraine, the war between Israel and Hamas, the state of the military conflict between Israel and Hezbollah or an invasion of
Taiwan by China, may also cause global supply chain issues that affect us or our suppliers. While we generally have multiple sources of
supply, we do rely on a single supplier for materials in some cases. The loss of, or substantial decrease in the availability of, products
from our suppliers, or the loss of a key supplier, temporarily or permanently, could result in a material shortage of products, which
could lead to price escalations that we may be unable to offset by our prices to our customers. When supply chain issues are later resolved
and prices return to normal levels, we may be required to reduce the prices at which we sell our products to our customers in order to
remain competitive. In addition, even where these risks do not materialize, we may incur costs as we prepare contingency plans to address
such risks. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier who is unwilling or
unable to satisfy our requirements with a supplier providing similar products. In addition, our suppliers’ ability to deliver products
may also be affected by raw material and commodity cost volatility or financing constraints caused by credit market conditions, which
could materially and negatively impact our net sales and operating costs, at least until alternate sources of supply are arranged. Requalification
of alternate suppliers can be lengthy and may require design changes, additional testing, and customer or regulatory re-approvals, which
could delay or prevent product development or shipments and increase cost of revenue. Any delay or unavailability of key products required
for our development activities in a timely or cost-effective manner could delay or prevent us from further developing our products and
services on our expected timelines or at all and could materially harm our business.

10

***We will require a significant amount of
cash for expenditures as we invest in ongoing research and development and business operations and may need additional capital sooner
than planned to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, and we cannot
be sure that additional financing will be available. If we are unable to raise additional funding when needed, we may be required to delay,
limit or substantially reduce our development efforts.***

Our business and future plans for expansion are
capital-intensive, and we will require additional capital for equipment and facilities for hardware manufacturing and optical chip fabrication.
As we ramp thin-film lithium niobate optical chips and related device platforms, and as we expand internal and external manufacturing
capacity, we expect near-term increases in operating expenses and pressure on gross margins during qualification and early production.
The specific timing of cash inflows and outflows may fluctuate substantially from period to period. We will require a significant amount
of cash for expenditures as we invest in ongoing research and development and business operations.

Our operating plan may change because of factors
currently unknown, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or
other sources. Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend
and other rights more favorable than those of our common stock, imposition of debt covenants and repayment obligations or other restrictions
that may adversely affect our business. Any funds we raise may not be sufficient to enable us to continue to implement our long-term business
strategy. Further, our ability to raise additional capital may be adversely impacted by worsening global economic conditions and disruptions
to and volatility in the credit and financial markets in the United States and worldwide resulting from disruptions in access to bank
deposits or lending commitments due to bank failures, the ongoing war between Russia and Ukraine and the related sanctions imposed against
Russia, and the war between Israel and Hamas, the state of the military conflict between Israel and Hezbollah and the related risk of
a larger regional conflict. In addition, we may seek additional capital due to favorable market conditions or strategic considerations
even if we believe that we have sufficient funds for current or future operating plans.

We may be unable to obtain additional financing
on acceptable terms, or at all, and any such financing may be dilutive to existing stockholders. The inability to obtain financing when
needed may make it more difficult for us to operate our business or implement our growth plans and we may be required to delay, limit
or substantially reduce our quantum computing development efforts. Our ability to raise additional capital through the sale of securities
could be significantly impacted by the resale of our securities by holders of our securities, which could result in a significant decline
in the trading price of our securities and potentially hinder our ability to raise capital on terms that are acceptable to us or at all.

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

There
were no unregistered, unreported sales of, or Company repurchases of, the Company’s equity securities during the three months ended
March 31, 2026.

**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.**

*Insider
Trading Arrangements*

During
the three months ended March 31, 2026, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities
Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such
terms are defined in Item 408 of Regulation S-K).

11

**Item
6. Exhibits.**

| Exhibit / Number | Exhibit Description | Filed or Furnished / Herewith |
| --- | --- | --- |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | X |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | X |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350. | X |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350. | X |
| 101.INS | Inline XBRL Instance Document | X |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Linkbase Document. | X |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | X |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X |
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | X |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | X |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |  |

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

12

**SIGNATURES**

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

**QUANTUM COMPUTING INC.**

Dated: May 11, 2026 By: */s/ Dr.  Yuping Huang*

Dr. Yuping Huang

Chief Executive Officer and President

By: */s/ Christopher  Roberts*

Christopher Roberts

Chief Financial Officer

13