Quantum Computing Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Quantum Computing Inc. filed a Form 10-Q for the three months ended March 31, 2021. The company develops software tools and applications intended to enable commercial and government users to apply quantum computers, quantum annealers, and digital simulators. Its primary product under development, Qatalyst, is described as a quantum application accelerator integrated with multiple quantum-computing platforms.
The financial statements are unaudited and prepared under U.S. GAAP. The company is a smaller reporting company and an emerging quantum-software business that had not yet generated customer revenue.
Financial Performance and Key Metrics
| Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Gross profit | $0 | $0 | No change |
| Operating expenses | $3.393 million | $1.738 million | Increase of approximately 95% |
| Net loss | $3.392 million | $0.698 million | Increase of approximately 644% |
| Basic and diluted loss per share | $0.12 loss | $0.09 loss | Loss per share increased |
| Net cash used in operating activities | $1.506 million | $0.269 million | Higher cash burn |
| Capital expenditures | $4,043 | $3,258 | Increase of $785 |
| Cash provided by financing activities | $80,000 | $370,198 | Decrease of $290,198 |
Operating expenses included $245,512 of salaries, $303,470 of consulting expense, $625,445 of research and development expense, $1.977 million of stock-based compensation, and $241,532 of other selling, general and administrative expense.
The increase in the net loss primarily reflected higher operating expenses, particularly stock-based compensation and research and development costs. The prior-year period included $425,000 of legal-settlement income and significant financing-related gains or expenses that did not recur in the current period.
Balance Sheet, Liquidity, and Debt
- Cash and cash equivalents were $13.766 million at March 31, 2021, compared with $15.196 million at December 31, 2020.
- Current assets were $14.057 million and current liabilities were $600,153, producing working capital of $13.457 million.
- Total assets were $14.090 million, compared with $15.268 million at year-end 2020.
- The company reported $218,371 of loans payable, consisting of an unsecured Paycheck Protection Program loan bearing interest at 1% annually. The company expected to seek forgiveness of up to the full amount, but stated that forgiveness was not assured.
- The company reported no bank lines of credit, no long-term debt obligations, and no material off-balance-sheet arrangements.
- Cash declined by $1.430 million during the quarter. Management reported approximately $13.545 million of cash on hand as of May 7, 2021 and approximately $6,743 of monthly lease and other mandatory payments, excluding payroll and ordinary operating expenses.
Material Changes Versus the Prior Comparable Period
- Revenue remained at zero because the company had not sold products or services to customers.
- Operating expenses increased by approximately $1.655 million, or 95%.
- Stock-based compensation expense increased substantially and was a significant component of both operating expenses and noncash operating adjustments.
- Research and development expense increased by approximately $281,000, consulting expense increased by approximately $227,000, and salaries and benefits increased by approximately $81,000.
- Net cash used in operations increased from $268,709 to $1.506 million.
- The company issued shares for services, exercised options and warrants, and recorded related equity activity during the quarter. Common shares outstanding increased from 27,966,096 at December 31, 2020 to 28,730,702 at March 31, 2021.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide quantitative revenue, earnings, or cash-flow guidance. Management’s stated objective is to commercialize Qatalyst and other quantum-ready applications, initially targeting financial services and cybersecurity, with potential later applications in artificial intelligence and genetics.
- The business has no revenue history and remains dependent on product development, market acceptance, and future financing or revenue generation.
- Management stated that long-term liquidity depends on continued operations, expansion, and receipt of revenues. The company has historically funded operations primarily through equity, equity-linked securities, and debt financing.
- COVID-19 could disrupt research and development, sales activity, customer and partner interactions, operations, and the company’s ability to raise additional capital. The filing states that the ultimate financial impact was not reasonably estimable.
- The PPP loan remained subject to forgiveness requirements, including limitations and employee and compensation conditions. Any unforgiven balance could require repayment.
- The company’s disclosure controls and procedures were determined to be ineffective as of the end of the reporting period, although management reported no changes in internal control over financial reporting that materially affected, or were reasonably likely to materially affect, those controls during the quarter.
- Stock-based compensation and equity issued for services were material. These noncash items reduced reported earnings and may contribute to dilution.
- The company reported no litigation expected to have a material adverse effect and no material defaults on indebtedness.
- Subsequent events included a $250,000 warrant exercise in April 2021 and the grant of 800,000 executive stock options at an exercise price of $6.40 per share.
Important Facts for Investors to Verify
- Whether and when Qatalyst or other products begin generating recurring commercial revenue.
- The company’s cash runway under its current operating expense and stock-compensation levels.
- Whether the $218,371 PPP loan is forgiven in whole or in part and the resulting repayment obligation.
- The extent of future equity issuance, option grants, warrant exercises, and dilution.
- Remediation plans and subsequent effectiveness of the company’s disclosure controls.
- The consistency of the stockholders’ equity presentation: the balance sheet reports total stockholders’ equity of $13.490 million at March 31, 2021, while portions of the stockholders’ deficit statement contain an apparent labeling or presentation inconsistency that should be reconciled to the filed financial statements.
- Whether the company can convert its research and development efforts into customer adoption, revenue, and positive operating cash flow.