Quantum Computing Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quantum Computing Inc. develops nanophotonic quantum computing, sensing, imaging, cybersecurity and related technologies. Following its June 2022 QPhoton merger, the Company offers integrated quantum software, hardware and professional services. The unaudited report covers the three and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods.
Products remained in early commercialization. Revenue was generated entirely from professional services; the Company expected subscription and hardware sales to begin in the second half of 2023.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $112,190 | $65,484 | $232,719 | $96,724 |
| Gross profit | $61,033 | $60,251 | $125,324 | $79,924 |
| Gross margin | 54% | 92% | 54% | 83% |
| Operating loss | $(3,859,096) | $(4,808,364) | $(11,646,605) | $(11,517,295) |
| Net loss | $(4,642,448) | $(5,104,576) | $(13,148,585) | $(12,238,268) |
| Basic loss per share | $(0.07) | $(0.17) | $(0.20) | $(0.42) |
- Second-quarter revenue increased 71%, while six-month revenue increased 141%, driven by changes in the number and size of active government and commercial service contracts.
- Six-month operating expenses were $11.8 million, up 2% year over year. Research and development increased by $1.2 million, while legal, intangible-related and consulting costs declined.
- Stock-based compensation was $3.9 million for the six months and represented a significant portion of operating expenses.
- Cash and cash equivalents were $7.2 million at June 30, 2023, compared with $5.3 million at December 31, 2022.
- Net cash used in operating activities was $9.8 million for the six months, compared with $8.9 million in the prior-year period.
- Net cash used in investing activities was $1.1 million, including $581,333 for equipment and $504,668 for loans receivable, principally the millionways investment.
- Net cash provided by financing activities was $12.8 million, primarily from ATM equity sales, partially offset by debt repayments.
- Current assets were $8.0 million and current liabilities were $11.7 million, resulting in a working-capital deficit of $3.7 million.
- Short-term loans payable were $6.5 million at June 30, 2023. Total liabilities were $11.7 million; no long-term loans were reported at period-end.
- Total assets were $88.6 million, including $65.1 million of goodwill and $12.8 million of net intangible assets.
Material Changes Versus the Prior Comparable Period
- Revenue growth did not yet include product revenue; both the current and prior-year periods reported zero product revenue.
- Gross margin declined to 54% from 92% for the quarter and to 54% from 83% for the six-month period because of higher direct labor costs and more specialized skill requirements.
- The quarterly operating loss improved by $949,268, but the six-month operating loss increased by $129,310.
- The six-month net loss increased by $910,317, principally because of higher research and development costs and financing expenses related to the ATM facility and Streeterville note.
- Common shares outstanding increased from 55.96 million at December 31, 2022 to approximately 67.2 million at June 30, 2023, reflecting ATM sales and other equity issuances.
- The Company sold 8.9 million shares through its ATM facility during the first six months at an average price of $1.65, generating $14.7 million of gross proceeds. Approximately $10.3 million remained available under the ATM agreement at June 30, 2023.
- QPhoton purchase accounting was revised using a third-party valuation. Identifiable intangible assets were reduced from the initial estimate by $9.6 million, with a corresponding increase in goodwill; goodwill also declined by $3.6 million from forfeited merger-related warrants.
Guidance, Outlook, Risks and Unusual Items
- Management expected subscription and hardware sales to commence in the second half of 2023, including planned releases and shipments of Dirac, reservoir computing, QRNG and other products. The filing does not provide quantitative revenue or earnings guidance.
- The Company planned to develop a U.S.-based quantum chip fabrication facility in Arizona, had begun the grant application process under the CHIPS Act and had placed approximately $1.3 million of deposits on long-lead equipment after quarter-end. Completion could take up to two years and remains subject to permitting, financing and supply-chain factors.
- Management disclosed substantial doubt about the Company’s ability to continue as a going concern for twelve months from the financial statement issuance date. The Company reported recurring losses, $9.8 million of operating cash use for the six months, a working-capital deficit and dependence on additional financing and future sales.
- After June 30, the Company raised $7.8 million gross through additional ATM sales, repaid $1.5 million of the Streeterville note and reported approximately $10.1 million of cash on August 8, 2023. The remaining Streeterville principal and accrued interest was $4.9 million as of August 10, 2023.
- Streeterville had redemption rights of up to $750,000 per month and contractual restrictions related to additional financings, Nasdaq listing, trading status and liens. Events of default could accelerate the note and increase the interest rate.
- BV Advisory litigation remained pending regarding the QPhoton notes, alleged contractual breaches and appraisal rights. The Company disputed the claims and stated that it could not assess the potential impact of the appraisal demand. Oral argument on the motion to dismiss was scheduled for October 2023.
- On July 27, 2023, BV Advisory and its chief executive filed a petition seeking appointment of a receiver, alleging insolvency and poor governance. The Company characterized the allegations as baseless and intended to defend the petition.
- Management reported that disclosure controls and procedures were not effective as of June 30, 2023 because the Company lacked sufficient accounting staff for proper segregation of duties.
- The filing contains an apparent inconsistency: a note states net loss of $16.3 million for the period ended June 30, 2023, while the consolidated statements and MD&A report a six-month net loss of $13.15 million. The filing text does not clearly reconcile this difference.
Most Important Facts for Investors to Verify
- Whether planned subscription, hardware and product sales actually began and produced material revenue after June 30, 2023.
- The Company’s ability to fund operations, debt repayments, chip-facility deposits and ongoing research and development without continued equity issuance.
- The remaining Streeterville obligations, redemption requirements, restrictive covenants and any potential events of default.
- The status and potential financial effect of BV Advisory’s litigation, appraisal demand and receiver petition.
- The resolution of the reported net-loss discrepancy and the effect of QPhoton purchase-accounting revisions on goodwill and intangible assets.
- Whether management remediated the ineffective disclosure controls and accounting-staff segregation-of-duties weakness.
- The recoverability of the substantial goodwill and intangible-asset balances relative to the Company’s limited revenue base.