Quantum Computing Inc. — Q2 2021 Form 10-Q Summary
Business Context and Reporting Period
Quantum Computing Inc. is a development-stage company focused on quantum-ready software, including its Qatalyst platform and optimization solvers. The company had not yet generated revenue and was pursuing commercial, government, research, and strategic partnership opportunities. The report covers the three and six months ended June 30, 2021; financial statements are unaudited.
As of June 30, 2021, the company had 29,055,702 shares outstanding. It subsequently began trading on Nasdaq on July 15, 2021.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross profit | $0 | $0 |
| Operating expenses | $4.3 million | $7.7 million |
| Net loss | $4.1 million | $7.5 million |
| Loss per share, basic and diluted | $0.14 | $0.26 |
| Net cash used in operating activities | Not separately provided | $2.7 million |
| Cash and cash equivalents at period-end | $12.6 million |
Because revenue was zero, gross and operating margins are not meaningful. Stock-based compensation was $2.5 million in the second quarter and $4.5 million for the first six months, representing a significant portion of operating expenses.
Total assets were $12.9 million and total liabilities were $0.8 million at June 30, 2021. The company reported no long-term debt, no bank line of credit, and no outstanding loans payable after forgiveness of its $218,371 Paycheck Protection Program loan.
Material Changes Versus the Prior Comparable Period
- Revenue remained $0 for both the quarter and year-to-date period, as the company had not sold products or services.
- Second-quarter operating expenses increased 371% to $4.3 million from $0.9 million, primarily because stock-based compensation increased by $2.3 million, research and development expense increased by $0.2 million, salaries increased by $0.4 million, and consulting expense increased by $0.2 million.
- Six-month operating expenses increased 191% to $7.7 million from $2.7 million, driven principally by a $3.3 million increase in stock-based compensation, as well as higher research and development, salary, and consulting costs.
- Second-quarter net loss increased 131% to $4.1 million from $1.8 million. Six-month net loss increased 203% to $7.5 million from $2.5 million.
- Operating cash use increased to $2.7 million from $2.4 million for the comparable six-month period, while financing cash inflows declined to $0.1 million from $2.8 million.
- Cash declined by $2.6 million from December 31, 2020, and working capital decreased to $12.1 million from $14.5 million.
- The company issued shares for cash, warrants, options, and services during the period, increasing shares outstanding from 27.97 million at December 31, 2020 to 29.06 million at June 30, 2021.
Outlook, Commentary, Risks, and Unusual Items
- Management stated that it was focusing on sales and marketing after commercializing initial products, but provided no revenue, profitability, or cash-flow guidance.
- Liquidity depends on converting products and services into revenue and may also require additional equity or other financing. Management reported approximately $11.4 million of cash as of August 13, 2021, compared with $12.6 million at June 30, 2021.
- Management reported approximately $8,129 in monthly lease and other mandatory payments, excluding payroll, benefits, and ordinary operating expenses.
- The PPP loan and accrued interest were forgiven in June 2021, producing $218,371 of other income. This was a non-recurring benefit.
- COVID-19 could disrupt research and development, operations, sales, customer relationships, and the ability to raise capital. The filing states that the financial impact was not reasonably estimable.
- Disclosure controls and procedures were assessed as ineffective because the company lacked sufficient accounting staff for proper segregation of duties. Management planned to hire additional administrative and accounting personnel.
- The filing identifies no material litigation and no material changes to previously disclosed risk factors other than COVID-19-related risks.
- The company reported no material off-balance-sheet arrangements, derivative instruments, or hedging activities.
Most Important Facts for Investors to Verify
- Whether the company has begun generating commercial revenue after June 30, 2021 and whether customer adoption of Qatalyst and related products is material.
- The sustainability of cash resources given continued operating losses, zero revenue, and declining cash balances.
- The amount and future impact of stock-based compensation, consultant equity awards, warrant exercises, and potential dilution.
- Whether management remediated the ineffective disclosure controls and accounting-staff segregation-of-duties deficiency.
- The extent to which the company will require additional equity financing and the resulting dilution risk.
- Whether claimed product performance, strategic partnerships, government opportunities, and quantum-computing market prospects translate into contracted revenue.
- The filing’s inconsistent presentation of certain operating-expense figures in the MD&A versus the financial statements should be reconciled to the filed financial statements and XBRL data.