Quantum Computing Inc. Commitments Disclosure

Note 10 – Contingencies

 

Indemnification Arrangements

 

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

 

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

 

Legal Proceedings

 

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

 

See Part I, Item 3, Legal Proceedings, in this Form 10-K for additional details on the status of motions on the following proceedings.

 

BV Advisory v. QCi Breach Lawsuit

 

At the time of the QPhoton Merger in June 2022, QPhoton had an outstanding balance of principal and interest due to BV Advisory Partners LLC (“BV Advisory”) based on a note purchase agreement that QPhoton had entered into with BV Advisory on March 1, 2021 (the “BV Note Purchase Agreement”). Accordingly, the Company had recorded an estimated payable, recognized as other current liabilities on the condensed consolidated financial statements, based on best available information in the amount of $536 thousand as of December 31, 2024. During the quarter ended September 30, 2025, this amount was repaid in full.

 

On August 16, 2022, BV Advisory filed a complaint in the Court of Chancery of the State of Delaware naming QPhoton, the Company and certain of the Company’s directors and officers (among others) as defendants seeking, among other relief, 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 Chancery Court 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 (“Barksdale” the managing member of BV Advisory), and BV Advisory entered into a settlement agreement (the “Settlement Agreement”) pursuant to which BV Advisory, dismissed its claims under the BV Note Purchase Agreement with prejudice. The terms of the settlement agreement are summarized in Part I, Item 3, Legal Proceedings.

BV Advisory v. QCi Appraisal Action

 

BV Advisory Partners, LLC (“BV Advisory”) was a shareholder of QPhoton, Inc., the predecessor in interest to the Company’s subsidiary, QPhoton, LLC (both referred to as “QPhoton” in this Legal Proceedings discussion). On October 13, 2022, BV Advisory filed a petition in the Court of Chancery of the State of Delaware (the “Delaware Chancery Court”) seeking appraisal rights on the shares of common stock of QPhoton it owned (which shares represented 10% of the shares of common stock of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton) pursuant to Section 262 of the Delaware General Corporation Law. Pursuant to the Settlement Agreement, the Company agreed to issue to Barksdale or his designees 1.9 million shares of the Company’s common stock and BV Advisory dismissed its claims under the appraisal action with prejudice. The terms of the settlement agreement are summarized in Part I, Item 3, Legal Proceedings.

 

QCi v. BV Advisory Injunction Lawsuit

 

On January 31, 2025, the Company filed a complaint in Delaware Chancery Court against BV Defendants (BV Advisory and its principal Keith Barksdale) asserting claims for defamation, breach of contract, conversion, aiding and abetting conversion, and misappropriation of trade secrets based on the BV Defendants’ unauthorized possession and dissemination of certain of the Company’s confidential and privileged documents. The Company sought, among other relief, injunctive relief and damages. On February 11, 2025, the Court granted the Company’s motion for temporary restraining order and instructed the parties to negotiate an expedited case schedule. On July 17, 2025, the Company, Barksdale and BV Advisory entered into the Settlement Agreement pursuant to which the Company dismissed its claims against BV Advisory with prejudice. The terms of the settlement agreement are summarized in Part I, Item 3, Legal Proceedings.

 

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 intends to bring a motion to dismiss the second amended complaint.  The motion is presently due on or before March 13, 2025. The Company disputes the allegations in the amended complaint, intends to vigorously defend against the claims asserted, and does not believe it is necessary to accrue a litigation reserve at this time.

 

Shareholder Derivative Action Lawsuits

 

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 which the Company and named defendants in that action plan to file on or before March 13, 2026. The Company disputes the allegations in the amended complaint, intends to vigorously defend against the claims asserted, and does not believe it is necessary to accrue a litigation reserve at this time.

 

Arbitration over Stock Options

 

In February 2025, the Company entered into arbitrations with two former consultants regarding forfeiture of stock options. The Company had issued stock options to the former consultants in 2020 and 2021 and terminated their consulting agreements in March 2024, at which time the Company informed the former consultants that any vested options had to be exercised within three months of the termination date, per the Company’s equity compensation plans. The former consultants did not exercise their vested options and the options were forfeited. In December 2024, the former consultants claimed that they still retained the right to exercise the options, which the Company rejected.

 

On February 23, 2026, with respect to the claims by one of the two consultants an arbitrator ruled in favor of the former consultant on 1 of the 7 claims. The arbitrator ruled in favor of the Company on the remaining 6 claims. The amount of award is confidential, however, the Company has accrued for the judgment as of December 31, 2025 and the award is immaterial to the Company’s financial condition, results of operations and cash flows. The Company has determined that the remaining arbitration is not material to its financial condition, results of operations or cash flows, and therefore the Company is discontinuing disclosure with respect to such proceeding.