10-Q: Quantum Computing Inc. Raises $750M, Reports Q3 Net Income

Quantum Computing Inc. reported a net income of $2.38 million for Q3 2025, driven by significant capital raises and a gain from derivative liability, despite continued operating losses and disclosure control deficiencies.

Summary

• Quantum Computing Inc. (QCi) reported a net income of $2.38 million for the three months ended September 30, 2025, a significant improvement from a net loss of $5.68 million in the prior-year period.
• Revenue for Q3 2025 increased by 280% to $384,000, compared to $101,000 in Q3 2024, primarily due to increased customer proof-of-concept and R&D services, and the start of cloud-based access revenue for the Dirac-3 quantum optimization system.
• Gross profit surged by 1,300% to $126,000 in Q3 2025, with gross margin improving to 33% from 9% in Q3 2024.
• Operating expenses significantly increased across all categories: Research and Development rose 101% to $4.51 million, Sales and Marketing increased 117% to $787,000, and General and Administrative expenses grew 84% to $5.23 million for Q3 2025.
• The company recorded a loss from operations of $10.40 million for Q3 2025, an increase from $5.44 million in Q3 2024.
• A substantial non-operating gain of $9.25 million from the change in fair value of derivative liability, coupled with $3.54 million in interest and other income, contributed to the positive net income.
• For the nine months ended September 30, 2025, QCi reported a net loss of $17.12 million, a slight improvement from a $17.31 million net loss in the same period last year.
• The company raised significant capital through private placements: $100 million in January 2025, $200 million in June 2025, and $500 million in September 2025, totaling $756.5 million in net proceeds from stock issuances for the nine months.
• As of September 30, 2025, cash and cash equivalents stood at $352.44 million, with total current assets of $562.79 million and working capital of $559.16 million, up from $74.59 million at December 31, 2024.
• The company's disclosure controls and procedures were deemed 'not effective' as of September 30, 2025.
• Several legal proceedings are ongoing, including a securities class action lawsuit and multiple shareholder derivative actions, all of which the company intends to vigorously defend.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company successfully raised substantial capital and showed revenue growth, it continues to incur significant operating losses and has identified 'not effective' disclosure controls, which are serious concerns. The positive net income for the quarter is largely due to non-operating gains, not core business profitability. The ongoing legal challenges also add uncertainty.

Positives

• Achieved net income of $2.38 million in Q3 2025, a significant turnaround from a net loss in the prior year.
• Reported substantial revenue growth of 280% in Q3 2025 and 56% for the nine months ended September 30, 2025, driven by increased R&D services and new cloud-based system access.
• Gross profit margin improved significantly to 33% in Q3 2025 (from 9% in Q3 2024) and 34% for the nine months (from 25% in 2024), indicating better cost management and higher-margin service offerings like Dirac-3.
• Successfully raised $756.5 million in net proceeds from equity private placements during the nine months ended September 30, 2025, significantly bolstering liquidity.
• Cash and cash equivalents increased to $352.44 million as of September 30, 2025, from $78.95 million at December 31, 2024, providing a strong financial runway.
• Working capital increased by $484.57 million to $559.16 million, indicating a much stronger short-term financial position.
• Recognized a $9.25 million gain from the change in fair value of derivative liability in Q3 2025, contributing to net income.
• Completed the buildout of a state-of-the-art TFLN chip manufacturing facility in Tempe, Arizona, in March 2025, advancing its core technology roadmap.
• Settled the BV Advisory breach of contract and appraisal lawsuits for $750,000 cash and 1.9 million common shares, resolving prior litigation.

Negatives

• Continued to incur significant operating losses, with a $10.40 million loss in Q3 2025 and a $28.86 million loss for the nine months ended September 30, 2025.
• Operating expenses more than doubled in Q3 2025 (93% increase) and rose 70% for the nine months, indicating high burn rate for R&D, sales, and administrative functions.
• Net cash used in operating activities increased to $19.28 million for the nine months ended September 30, 2025, from $12.44 million in the prior year.
• Net cash used in investing activities dramatically increased to $466.17 million, primarily due to purchases of available-for-sale debt securities, which ties up a significant portion of raised capital.
• Accumulated deficit remains high at $217.60 million as of September 30, 2025, reflecting historical losses.
• The company's disclosure controls and procedures were concluded to be 'not effective' as of September 30, 2025, raising concerns about financial reporting integrity.
• Facing multiple ongoing legal challenges, including a securities class action lawsuit and several shareholder derivative actions, which could result in significant monetary damages and divert management attention.
• The substantial capital raises have led to significant dilution of existing shareholders, with common stock outstanding increasing from 129.01 million shares at December 31, 2024, to 186.91 million shares at September 30, 2025, and further with subsequent placements.

Risks

• The markets for high-performance conventional and quantum computing and cloud-based services are dynamic and highly competitive, with competitors developing new devices and enhancing cloud-based services.
• Aggregate demand for solutions, services, and devices is correlated to global macroeconomic and geopolitical factors, which remain dynamic.
• Investments in quantum optical chips and devices will continue to increase operating costs and may decrease operating margins.
• Dependence on third-party component manufacturers, with very few qualified suppliers for certain components, could lead to extended disruptions and impact manufacturing ability.
• Success is highly dependent on the ability to attract and retain qualified employees in a competitive talent market.
• Uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest rates, bank failures, and financial and credit market fluctuations, could reduce the ability to access capital on favorable terms.
• Future capital raises through equity or convertible debt securities will dilute the ownership interest of existing stockholders, and terms may include liquidation or other preferences.
• Debt financing and equity financing, if available, may involve agreements with covenants limiting or restricting the company's ability to take specific actions.
• Inability to raise additional funds through equity or debt financings when needed may require delaying, limiting, or substantially reducing product development and go-to-market efforts.
• The company's disclosure controls and procedures were not effective as of September 30, 2025, indicating potential weaknesses in financial reporting and compliance.
• Ongoing legal proceedings, including a securities class action and shareholder derivative actions, could result in material adverse effects on financial position, results of operations, or cash flows, and divert management's attention.

Future Outlook

The company expects to incur additional losses and higher operating expenses for the foreseeable future as it continues to invest in research and development and go-to-market programs. It anticipates requiring a significant amount of cash for continued investment in its Foundry Services offering, including potential expansion of its AZ Chips Facility, and ongoing R&D for non-linear quantum optical products and photonics chips. The company believes its existing cash and cash equivalents, along with potential future equity/debt financings or government grants, will be sufficient to meet liquidity needs for at least the next 12 months, but acknowledges risks related to accessing capital and potential dilution.

Management Comments

• "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."
• "As a result, the Company believes it has adequate cash and cash equivalents on hand to meet its obligations over the next 12 months."
• "We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs."
• "We will require a significant amount of cash for continued investment in our Foundry Services offering, including but not limited to any 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."
• "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."
• "Our principal executive officer and principal financial officer concluded that as of September 30, 2025, our disclosure controls and procedures were not effective to provide reasonable assurance..."

Industry Context

Quantum Computing Inc. operates in the dynamic and highly competitive markets for high-performance conventional and quantum computing and cloud-based services. The company differentiates itself by developing room-temperature, low-power quantum machines based on integrated photonics and non-linear quantum optics, contrasting with more common superconducting or ion-trap architectures. Its strategic focus includes the Entropy Quantum Computer (EQC), reservoir computing, and quantum secured networks, with a long-term plan to migrate designs to Thin Film Lithium Niobate (TFLN) optical integrated circuits. The recent completion of a TFLN chip manufacturing facility in Tempe, AZ, positions the company to advance its proprietary technology, but it faces intense competition from established players and other emerging quantum technology firms.

Management Changes

Corporate Governance

Legal Proceedings

• BV Advisory v. QCi Breach Lawsuit: Settled on July 17, 2025, with the company agreeing to pay $750,000 and issue 1,900,000 shares of common stock to Barksdale or his designees. All claims dismissed with prejudice.
• BV Advisory v. QCi Appraisal Action: Settled on July 17, 2025, as part of the comprehensive settlement agreement. All claims dismissed with prejudice.
• QCi v. BV Advisory Injunction Lawsuit: Settled on July 17, 2025, as part of the comprehensive settlement agreement. All claims dismissed with prejudice.
• Securities Class Action Lawsuit: Filed February 25, 2025, alleging violations of Section 10(b) and 20(a) of the Exchange Act due to alleged false/misleading statements about customers, contracts, and business operations. The company disputes allegations and intends to file a motion to dismiss by November 14, 2025.
• Shareholder Derivative Actions (March, May, June, September 2025): Multiple lawsuits filed against current and past officers and directors for alleged breaches of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and Exchange Act violations. These actions are stayed pending the resolution of the motion to dismiss in the Securities Class Action.
• Stock Options Arbitration: Initiated in February 2025 with two former consultants regarding forfeited stock options. The company disputes the claims and intends to defend itself vigorously.

Stakeholder Impact

• Shareholders: Significant dilution from multiple large private placements, but also benefit from a strengthened balance sheet and extended operational runway. The 'not effective' disclosure controls and ongoing legal proceedings introduce uncertainty and potential risk to share value.
• Employees: Increased headcount in R&D and sales/marketing, indicating growth and investment in human capital. Stock-based compensation is a significant component of overall compensation.
• Customers: Continued investment in R&D and manufacturing facilities (TFLN chip facility) suggests ongoing product development and improved service offerings, such as cloud-based access to the Dirac-3 system.
• Creditors: Improved liquidity and working capital reduce immediate credit risk, but sustained operational losses indicate long-term reliance on external financing.

Next Steps

• File a motion to dismiss the operative complaint in the Securities Class Action lawsuit on or before November 14, 2025.
• Continue to invest in the Foundry Services offering, including potential expansion of the AZ Chips Facility.
• Continue ongoing research and development for non-linear quantum optical products and photonics chips.
• Address the identified deficiencies in disclosure controls and procedures to ensure effectiveness.

Key Dates

Recommendation

Quantum Computing Inc. presents a mixed financial picture. The company has successfully secured substantial capital, significantly improving its liquidity and providing a runway for its ambitious technology roadmap, including the TFLN chip manufacturing facility. Revenue growth, particularly in Q3 2025, and improved gross margins are positive indicators of market traction for its quantum and ancillary products. However, the company remains in a development stage, evidenced by increasing operating losses and a high cash burn rate. The disclosure of 'not effective' disclosure controls and the multitude of ongoing legal proceedings, including a securities class action and several derivative lawsuits, introduce significant governance and operational risks. While the capital raises provide stability, the substantial dilution and the unresolved internal control issues warrant caution. A 'hold' recommendation is appropriate as investors should monitor the company's progress in achieving operational profitability, resolving legal matters, and rectifying its internal control deficiencies before considering further investment.

Keywords

Quantum Computing, Photonics, SEC Filing, 10-Q, Financial Results, Capital Raise, Qubit, Entropy Quantum Computing, TFLN, Integrated Photonics, Quantum Sensing, Cybersecurity, Financial Performance, Stock Dilution, Legal Proceedings, Corporate Governance