Quantum Computing Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Quantum Computing Inc. (QCi) is a development-stage quantum technology company focused on room-temperature photonic quantum computing, sensing, cybersecurity, professional services, and thin-film lithium niobate (TFLN) chips. The unaudited filing covers the three months ended March 31, 2024, with comparison to March 31, 2023. The filing was signed October 2, 2024, and includes subsequent events through October 1, 2024.
Financial highlights
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $27 thousand | $121 thousand | Down 78% |
| Gross profit / margin | $11 thousand / 41% | $65 thousand / 54% | Down $54 thousand; margin down 13 percentage points |
| Operating expenses | $6.330 million | $6.160 million | Up 3% |
| Loss from operations | $6.319 million | $6.095 million | Loss increased 4% |
| Net loss | $6.436 million | $6.137 million | Loss increased 5% |
| Net loss per share | $0.08 | $0.11 | Improved, partly reflecting higher share count |
| Cash used in operations | $3.848 million | $4.298 million | Use decreased $450 thousand |
| Capital expenditures | $1.579 million | $379 thousand | Increased $1.200 million |
| Cash from financing | $9.469 million | $6.134 million | Primarily ATM equity issuance |
Revenue consisted entirely of professional services; no product revenue was reported. Management attributed the decline to changes in the number, size, and effort level of active customer proof-of-concept and research and development contracts.
Research and development expense was $2.220 million, sales and marketing expense was $451 thousand, and general and administrative expense was $3.659 million. Stock-based compensation expense increased to $1.226 million from $692 thousand.
Cash and cash equivalents were $6.101 million at March 31, 2024, compared with $2.059 million at December 31, 2023. Working capital improved to $3.746 million from a deficit of $2.156 million. Total assets were $79.196 million, including $55.573 million of goodwill and $11.300 million of intangible assets. Total liabilities were $3.856 million, excluding $7.740 million of mezzanine equity.
The Streeterville unsecured note was fully repaid by March 1, 2024. No financial liabilities were outstanding at March 31, 2024. Operating lease liabilities totaled $1.031 million, including $775 thousand classified as long-term.
Material changes versus the prior comparable period
- Revenue fell 78%, and gross margin declined from 54% to 41%, reflecting lower professional-services activity and the absence of a scaled product revenue base.
- Operating expenses increased 3%, led by higher stock-based compensation and continued investment in research and development, sales, and commercialization.
- Operating and net losses widened despite lower interest expense following repayment of the Streeterville unsecured note.
- Operating cash usage improved, but investing cash usage increased substantially due primarily to equipment purchases for the planned TFLN chip manufacturing facility in Tempe, Arizona.
- QCi sold 13.603 million common shares through its at-the-market facility for net proceeds of $12.202 million, compared with 3.022 million shares and $6.354 million of net proceeds in Q1 2023. Shares outstanding increased to 91.345 million from 77.451 million at December 31, 2023.
- On March 19, 2024, QCi agreed to redeem its outstanding Series A preferred stock for an aggregate cash purchase price of $8.195 million over 18 monthly payments, subject to specified waivers. It had redeemed 82,783 shares for $455 thousand by March 31, 2024.
- The prior-year comparative financial statements were restated. The filing states that the restatement decreased Q1 2023 net loss by $2.4 million and reduced previously reported March 31, 2023 intangible assets and goodwill by $9.9 million, liabilities by $1.2 million, and stockholders’ equity by $8.8 million.
Guidance, outlook, risks, contingencies, and unusual items
Management provided no quantified revenue or earnings guidance. QCi expects continued losses and higher operating expenses while investing in product development, go-to-market programs, photonic chips, and the TFLN facility. The company is pursuing potential government funding under Department of Energy and CHIPS Act programs, but the filing does not state that funding has been awarded.
Management states that additional financing is required to fund operations for the next 12 months and that substantial doubt exists regarding the company’s ability to continue as a going concern. The company may seek additional equity, debt, grants, or other financing. Additional equity or convertible debt could materially dilute existing shareholders.
Subsequent to quarter-end, QCi issued an $8.25 million secured convertible promissory note to Streeterville on August 6, 2024, receiving $7.5 million in cash before a $450 thousand placement-agent fee. The note bears 10% annual interest and matures 18 months from issuance unless earlier prepaid, redeemed, or accelerated. Proceeds are intended primarily for working capital, sales and marketing, and TFLN facility capital expenditures.
By October 1, 2024, QCi had redeemed 496,698 Series A preferred shares for cumulative cash payments of $2.7 million, leaving 993,306 shares outstanding. The filing does not clearly state the remaining redemption schedule or total cash requirement after that date.
Key risks include limited revenue and commercialization history, dependence on additional capital, competition, customer and market acceptance, reliance on third-party suppliers, difficulty attracting qualified personnel, intellectual-property and product claims, potential impairment of goodwill and intangible assets, and volatile stock-based valuations.
QCi disclosed ongoing BV Advisory litigation relating to the QPhoton merger, including an appraisal action and a breach lawsuit. The company has recorded a $536 thousand estimated payable but has not accrued additional amounts. Eight of ten counts in the breach lawsuit were dismissed with prejudice in July 2024; the remaining matters were unresolved as of October 1, 2024. A separate defamation lawsuit filed by QCi was dismissed on procedural grounds.
Disclosure controls and procedures were reported ineffective as of March 31, 2024 because the company lacked sufficient accounting staff to provide proper segregation of duties. No material changes to internal control over financial reporting were reported during the quarter.
Most important facts for investors to verify
- Whether QCi can generate material product revenue and reduce its reliance on professional-services contracts.
- Available liquidity after the quarter-end secured convertible note, preferred-stock redemptions, operating cash burn, and TFLN facility spending.
- The terms, conversion mechanics, collateral, and potential dilution associated with the August 2024 Streeterville secured convertible note.
- The remaining cash obligations and timing under the Series A preferred-stock redemption agreement.
- Progress, funding, construction costs, and commercialization prospects for the Tempe TFLN chip facility.
- The effect of the Q1 2023 restatement and any further accounting or internal-control remediation.
- Potential financial exposure from BV Advisory litigation and the unresolved QPhoton-related appraisal claims.
- Future dilution from ATM share issuance, outstanding options, warrants, preferred stock, and convertible instruments.