Quantum Computing Inc. 2022 Form 10-K Summary
Business context and reporting period
Quantum Computing Inc. is a development-stage, full-stack quantum computing company focused on quantum software, photonic quantum hardware, cloud-based computing services, and professional solutions. The fiscal year ended December 31, 2022. The filing is an annual report and does not provide standalone fourth-quarter results.
The June 2022 merger with QPhoton expanded the Company into photonic quantum computing, including its Entropy Quantum Computer systems, Qatalyst software platform, quantum sensing, imaging, networking, and photonic chip development.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $135,648 | $0 | New revenue generation |
| Cost of revenue | $60,934 | $0 | New cost base |
| Gross profit | $74,714 | $0 | Gross margin: approximately 55.1% |
| Operating expenses | $36.7 million | $17.1 million | Up 114% |
| Loss from operations | $36.6 million | $17.1 million | Material deterioration |
| Net loss | $38.6 million | $27.9 million | Up 38% |
| Basic and diluted loss per share | $0.69 loss | $0.96 loss | Per-share loss decreased due to share issuance |
| Cash used in operating activities | $17.6 million | $6.8 million | Higher cash burn |
| Cash used in investing activities | $2.2 million | $22,500 | Higher investment in equipment and merger-related activities |
| Cash provided by financing activities | $8.4 million | $8.4 million | Approximately unchanged |
| Cash and cash equivalents | $5.3 million | $16.7 million | Down $11.4 million |
| Working capital | $(957,673) | $16.1 million | Declined $17.1 million |
| Total debt and accrued interest | Approximately $8.4 million | Not clearly comparable in the filing | New debt burden |
Operating expenses included $17.8 million of stock-based compensation, $4.6 million of research and development, $8.7 million of selling, general and administrative expense, $4.3 million of salaries and benefits, and $1.3 million of consulting expense. The reported net loss equates to an approximate net margin of negative 284.6% of revenue.
At December 31, 2022, total assets were $89.3 million, including $59.1 million of goodwill and $22.2 million of net intangible assets arising primarily from the QPhoton merger. Total liabilities were $14.4 million, and stockholders’ equity was $74.9 million. The Company reported an accumulated deficit of $120.0 million.
Material changes versus the prior comparable period
- Revenue increased from zero to $135,648, entirely from professional services provided under multi-month commercial and government contracts. The Company had not yet generated product revenue.
- Operating expenses more than doubled, primarily because of the QPhoton merger, additional personnel, increased research and development, stock-based compensation, and higher legal, audit, and other transaction-related costs.
- The QPhoton merger added substantial goodwill and intangible assets and resulted in the issuance of common stock, preferred stock, and warrants. The Company issued 26.6 million common shares in connection with the merger and recorded $59.1 million of goodwill.
- Cash declined substantially because of operating losses, merger-related spending, and capital investments in laboratory and computer equipment.
- Common shares outstanding increased from 29.2 million at December 31, 2021 to 56.0 million at December 31, 2022, creating significant dilution for existing shareholders.
- The Company entered into an $8.25 million unsecured promissory note with Streeterville Capital bearing 10% annual interest and maturing 18 months after issuance. The investor may redeem up to $750,000 per month beginning six months after issuance.
Guidance, outlook, commentary, risks, and unusual items
Management stated that the Company had completed its discovery and research phase and was transitioning toward commercialization. It expected revenue to increase meaningfully in 2023 as it emphasized hardware capabilities, quantum subscriptions, professional services, and related government and commercial opportunities. No formal numerical revenue or earnings guidance was provided.
The Company plans to develop additional Entropy Quantum Computer products, quantum networking and authentication products, quantum imaging and LiDAR applications, and a U.S.-based photonic chip manufacturing and research facility. Management acknowledged that construction could take several years and that necessary financing may not be available.
- The independent auditor included a going-concern explanatory paragraph. Management and the auditor identified substantial doubt regarding the Company’s ability to continue as a going concern because of recurring losses, negative operating cash flow, a working-capital deficit, and dependence on additional financing and future revenue.
- The Company has no line of credit and expects to require additional equity or debt financing. Future financing could dilute shareholders, impose repayment obligations or restrictive covenants, and may not be available on favorable terms.
- The Company’s disclosure controls and internal control over financial reporting were not effective as of December 31, 2022. Reported material weaknesses included insufficient segregation of duties, limited accounting policies and procedures, and inadequate levels of review.
- Material litigation includes BV Advisory claims concerning QPhoton notes, an alleged letter of intent, and appraisal rights relating to QPhoton shares. The Company disputes the claims and stated that the potential financial impact could not be assessed clearly.
- The quantum computing market remains immature, highly competitive, technically uncertain, and dependent on achieving customer adoption and measurable performance advantages over classical computing.
- The Company relies on third-party cloud providers, specialized suppliers, key technical personnel, and evolving intellectual property. Supply-chain interruptions, technology defects, cybersecurity incidents, export controls, regulatory changes, and competition from larger companies could materially affect results.
- Unusual financial items included $17.8 million of stock-based compensation, $3.2 million of intangible-asset amortization, merger-related goodwill of $59.1 million, and substantial non-cash consideration issued in the QPhoton transaction.
Important facts for investors to verify
- Reconcile the filing’s inconsistent net-loss and operating-cash-flow amounts: the audited financial statements report a 2022 net loss of $38.6 million and 2021 operating cash flow of negative $6.8 million, while portions of MD&A cite different figures.
- Verify current cash, monthly cash burn, debt maturities, and the redemption status of the Streeterville note.
- Assess whether professional-services revenue is converting into recurring subscriptions, hardware sales, or commercially scalable contracts.
- Review the valuation, useful lives, and impairment risk of the $59.1 million of goodwill and $22.2 million of intangible assets.
- Evaluate dilution from outstanding options, warrants, Series A preferred stock, the ATM facility, and potential future financing.
- Monitor remediation of the material weaknesses in internal control over financial reporting.
- Track the BV Advisory litigation and appraisal proceeding, including any accruals, settlements, or judgments.
- Confirm progress, funding sources, and expected capital requirements for the planned photonic chip manufacturing facility and other 2023 product initiatives.