This quarterly report on Form 10-Q and other reports filed Quantum Computing,
Inc. (the "Company" "we", "our", and "us") from time to time with the U.S.
Securities and Exchange Commission (the "SEC") contain or may contain
forward-looking statements and information that are based upon beliefs of, and
information currently available to, the Company's management as well as
estimates and assumptions made by Company's management. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are only
predictions and speak only as of the date hereof. When used in the filings, the
words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan,"
or the negative of these terms and similar expressions as they relate to the
Company or the Company's management identify forward-looking statements. Such
statements reflect the current view of the Company with respect to future events
and are subject to risks, uncertainties, assumptions, and other factors,
including the risks contained in the "Risk Factors" section of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2021, relating
to the Company's industry, the Company's operations and results of operations,
and any businesses that the Company may acquire. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by
applicable law, including the securities laws of the United States, the Company
does not intend to update any of the forward-looking statements to conform these
statements to actual results.
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States ("GAAP"). These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that
the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management's judgment in its application.
There are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. The following
discussion should be read in conjunction with our financial statements and notes
thereto appearing elsewhere in this report.
The Company is focused on providing software tools and applications for quantum
computers. We believe there is significant business opportunity in the quantum
computing industry, and that the quantum computing has the potential to disrupt
several global industries. Independent of when quantum computing delivers
compelling performance advantage over classical computing, the software tools
and applications necessary for accelerating real-world problems must be
developed to deliver on quantum computing's full promise.
Quantum computing is a fundamentally new paradigm compared with conventional
silicon-based computing, requiring a new and highly technical set of skills to
create the software that will drive quantum results. Organizations seeking to
gain advantage from the promise of quantum technology must acquire and develop
skills in quantum mechanics, mathematics and physics, and a deep knowledge of
the ever-changing quantum hardware. The pool of people with those skills today
is limited and in high demand.
In order to address the steep learning curve and highly particular skillset
associated with quantum computing, the Company is developing "quantum ready"
software applications and solutions for commercial and government entities
looking to leverage the expected future performance of quantum computing. We are
focused on being an enabler - creating software that provides the advantages of
advanced computing hardware for forward-thinking clients.
By reducing the barriers to adoption for commercial and government entities in
using quantum computing technologies to solve their most complex problems, we
believe our products will accelerate quantum technology adoption similar to the
adoption curve that has been witnessed with artificial intelligence. To this
end, we are leveraging our collective expertise in finance, computing,
mathematics and physics to develop a suite of applications that may enable
global industries to utilize quantum computers, quantum annealers and digital
simulators to improve their processes, profitability, and security.
The Company's flagship software solution, Qatalyst, is the industry's only
quantum application accelerator. It ensures that today's SMEs can continue to
create and solve the complex computations demanded by organizations to optimize
supply chains, logistics, emergency responses, clinical trials, and more.
Qatalyst software masks the complexity of quantum programming via the Q API
(Qatalyst Application Programming Interface), a powerful API comprised of six
function calls for complex computations. Instead of spending months or years
developing new applications and workflows requiring complex and extremely
low-level coding, users or applications can submit a problem to Qatalyst after
licensing the software, via the Q API. In practice, users have utilized
Qatalyst's simple API and familiar constructs to solve their first complex
problem within a week, as compared to the 6-12 months or more associated with
writing a single quantum software program using vendor toolkits.
The Company is focused on solving real-world problems with Qatalyst, including
supply chain and logistics optimization and crisis management, as well as
community detection opportunities such as drug discovery and fraud detection.
The Company is actively partnering with quantum computing leaders in both
hardware and software. As an Amazon AWS partner, the Company uses the AWS Braket
service to connect to multiple quantum computers, including Rigetti, DWave, and
IonQ. The same problem can be submitted to any of these QPUs or classical
processing units (CPUs) with no need for API call changes. Users seamlessly can
submit the same problem to diverse quantum computers (QPUs) to determine which
QPU will provide the best answers to their complex problem.
The Company believes that the development of real-world use cases, not just
science projects, is critical to the forward momentum of quantum computing as a
practical technology. To that end, the Company has created an internally funded
program called QikStart. It will provide access to Qatalyst and cloud-based
resources, experts, and funding to explore quantum applications to push the
boundaries of quantum computing for delivering practical business results, right
While the majority of the quantum computing market is focused on quantum
computing hardware, the Company realized the traditional software development
toolkit ("SDK") approach to creating quantum computing software is poorly suited
for non-quantum experts, given the completely new programming paradigm.
This represents a significant barrier to entry for companies looking to leverage
novel quantum computing capabilities for their business needs. Utilizing quantum
computers for real-world problems requires an abstract blend of a wide range of
computing and non-computing expertise, including:
? Subject Matter Expertise (SME): As with any problem, the first step is for a
business expert to rigorously define and describe what information and/or
results the business requires.
? Programming Excellence: In the classical computing world, a programmer will
take the problem defined by a SME (subject matter expert) and implement it
using standardized applications to run on the computer. In quantum computing,
programmers are required to explicitly program it for the quantum computer
they have access to, requiring a deep understanding of sophisticated areas of
expertise as described below.
? Mathematics: The problems that are attractive for being solved using quantum
computers require significant mathematical expertise to a) optimize the data
and problem for quantum computers, b) create the quantum-specific algorithms
and formulas required to solve the problem, c) iterate upon the results in a
way that optimizes the performance, cost and quality of result. Mathematics is
at the core of the many steps involved in quantum computing for optimizing,
compressing and applying algorithms to the data for obtaining truly optimal
? Quantum Mechanics: Quantum computing demands deep knowledge of the principles
driving the computing itself. Unlike classical computers which utilize 0 or 1
bits, quantum computers utilize qubits, which leverage concepts of quantum
mechanics such as probabilistic computation, superposition, and entanglement.
Experts much understand these concepts to create the algorithms necessary to
solve problems on a quantum computer. They must know how to "map" problems and
their associated data into problems that are optimized in the specific way
required for a quantum computer to accept and process the problem.
? Quantum Hardware Knowledge: QPUs (Quantum Processing Units) require that
programmers manage the configuration, actions, and overall operations of all
the underlying circuits utilized in solving the problem. For example, the
programming to configure and access QPUs is low level and extremely
complicated. This coding is proprietary to each vendor's QPU idiosyncratic
requirements, not to mention, unique to the specific count and version of QPUs
in the system, right now. When the system is expended or a QPU upgraded, all
the code has to be rewritten.
As one would expect given the dramatic differences in quantum computer hardware
architectures currently under development, quantum software requires a dramatic
shift from classic software. A user would have to literally have to create every
single circuit, gate, algorithm, action and process in low level software.
Moreover, the collective requirements imposed upon companies looking to utilize
quantum computers can require a training period of a year or longer, even for a
highly qualified subject matter expert. Consequently, the time, difficult and
expense of hiring such a diverse and deeply knowledgeable team to create quantum
applications and workflows limits any organization's ability to move forward
quickly with the power of quantum computing.
The Company's strategic goals are as follows:
1) Deliver production-ready software that de-risks the shift to quantum
2) Empower SMEs and programmers to access the power of quantum computing without
the prerequisite quantum expertise.
3) Eliminate the vendor lock-in created by the low-level coding required for
individual QPUs by allowing users to freely select the best QPU for their
specific problem with no low-level coding or programming changes.
4) Deliver the best performance results (speed, quality and diversity) at the
lowest cost for our users.
5) Provide software and the required hardware in the cloud to make it simple and
cost effective for organizations to begin leveraging quantum computing.
Products and Products in Development
Qatalyst (formerly Mukai) is our answer to the current state of the quantum
computing industry. As the industry's first publicly available Quantum
Application Accelerator, Qatalyst enables developers to create and execute
quantum-ready applications on conventional computers, while being ready to run
on quantum computers where those systems achieve performance advantage. Qatalyst
performs the complex problem transformations necessary to be executed on a
variety of quantum platforms today, and users can call upon the same Qatalyst
APIs (Application Programming Interfaces) to achieve optimization performance
advantages on conventional computers using our cloud-based solution.
Qatalyst dramatically reduces the time-to-quality results and the associated
costs for both conventional and quantum computers. Unlike more common toolsets
that require deep level quantum expertise to build new quantum problems and
workflows, Qatalyst is not a tool kit, but a complete platform. It accelerates
performance and results on classic and quantum computers, with no additional
quantum programming or quantum computing expertise required. This is why it is
unique in its approach to the quantum computing industry. Instead of invoking a
team of quantum specialists to transform an optimization problem, an SME or
programmer submits their current problem via a software API to the Qatalyst
cloud-based platform. Qatalyst manages the workflow, optimizations, and results,
without any further intervention by the user. Qatalyst provides a unique
advantage to reduce applications development risks and costs by eliminating the
need for scarce high-end quantum programmers.
Qatalyst is integrated with the Amazon Cloud BRAKET API, offering access to
multiple Quantum Processing Units ("QPUs") including DWave, Rigetti, and IonQ.
Qatalyst also integrates directly with IBM's QPUs.
By using Qatalyst, application developers can run their applications on any or
all of the available QPUs by merely selecting which QPU they prefer to run on
based on the desired performance results of the application. We believe this
provides a substantial advantage over any other toolkit or platform in the
market today. These advantages are significant not just for application
developers but for any company that is considering using or exploring quantum
computing technology for business applications.
Qatalyst also eliminates the need for the low-level hardware programming
expertise required by toolkits. This programming is time consuming and must be
updated constantly as QPUs evolve and change, resulting in significant
development costs. Qatalyst automatically optimizes the same problem submitted
by a SME for multiple Quantum and Conventional Processors. The SME or programmer
selects one, or many, processing resources and the problem is submitted by
Qatalyst. This is an enormous advantage over any tool set in the market today.
These advantages are significant not just for application developers but for any
company that is considering using or exploring quantum computing technology for
The Company's innovative Qatalyst software masks the complexity of quantum
programming via the Q API, a powerful six call API that users can learn in a
day. Instead of spending months or years developing new applications and
workflows requiring complex and extremely low-level coding, users, workflows or
applications can immediately submit a problem to Qatalyst within a day, using
the same familiar constructs they use right now, via the Q API. Users have
utilized Qatalyst's simple API and familiar constructs to solve their first
complex problem within a week, as compared to the 6-12 months associated with
quantum software toolkits.
Today, SMEs can leverage the power of Qatalyst to solve high-value discrete
optimization problems present in banking & finance, insurance underwriting, life
sciences (bio/pharma), oil & gas, logistics & supply chain and cybersecurity.
Currently, Qatalyst offers the following features:
? Quantum-ready engines tuned for complex computations. These engines
automatically optimize, submit, and iterate to return excellent, diverse
results for supply chain and other constrained optimization problems.
? Transparent abstraction from quantum hardware variance. Qatalyst eliminates the
need to write low-level, assembly-type code to support different vendors'
quantum hardware architectures, such as D-Wave, Rigetti, IBM and ION-Q. The
same problem can run seamlessly across all quantum types and architectures.
? Qatalyst Core: an engine that utilizes sophisticated mathematics, quantum
transformation and iterative processing to find highly optimal answers across
both classic and quantum computers. For example, LaGrange multipliers, which
work to compress and simplify the problem prior to constraint optimization. The
Core applies these advanced mathematical techniques, based on the type of
problem and processing required.
? Q Graph: a powerful transformation engine that empowers SMEs to submit and
analyze graph models as part of their complex optimizations. Q Graph accepts
familiar graph models and functions including Clique Cover, Community Detection
? Qontrol: a portal that provides administrative management tools for user
administration, request control, statuses and alerts. Qontrol also enables
system administrators and users to import Qatalyst results into popular
analysis applications such as Excel or Tableau.
Results of Operations
Three Months Ended March 31, 2022 vs. March 31, 2021
For the Three Months For the Three Months
March 31, 2022 March 31, 2021
(In thousands) Amount Mix Amount Mix Change
Products 0 0 % 0 0 % 0 %
Services 31,240 100 % 0 0 % 100 %
Total $ 31,240 100 % $ 0 100.0 % 100 %
Revenues for the three months ended March 31, 2022 were $31,240 as compared with
$0 for the comparable prior year period. There is no revenue comparison for the
comparable prior year period because the Company had not yet sold any products
or services. Revenue in the current reporting period is derived from
professional services provided to multiple commercial customers under
Cost of Revenues
Cost of revenues for the three months ended March 31, 2022 was $11,568 as
compared with $0 for the comparable prior year period, a change of $11,568.
There is no cost of revenues comparison for the comparable prior year period
because the Company had not yet sold any products or services. Cost of revenues
for the current reporting period consists primarily of salary expense.
Gross margin for the three months ended March 31, 2022 was $19,672 or 63% as
compared with 0% for the comparable prior year period. There is no gross margin
comparison for the comparable prior year period because the Company had not yet
sold any products or services.
Operating expenses for the three months ended March 31, 2022 were $6,728,603 as
compared with $3,393,129 for the comparable prior year period, an increase of
$3,335,473 or 98%. The increase in operating expenses is due in large part to
the $738,458 increase in legal expense related to investment transaction
expenses, $870,716 increase in salary expense due to changes in the number and
composition of staff, $1,102,633 increase in stock-based compensation related in
large part to hiring additional staff, $399,142 increase in research and
development expenses related primarily to hiring additional technical staff, and
$67,411 increase in consultant and professional services expense compared with
the comparable prior year period.
Net Income (Loss)
Our net loss for the three months ended March 31, 2022 was $7,133,692 as
compared with a net loss of $3,391,746 for the comparable prior year period, an
increase of $3,741,946 or 110%. The increase in net loss is primarily due to the
increase in operating expenses, noted above, as well as $435,625 in interest
expense related to the accrual of dividends and amortization of Original Issue
Discount for the Series A Convertible Preferred and Warrants recorded during the
three months ended March 31, 2022 compared with interest expense of $0 during
the comparable prior year period.
Liquidity and Capital Resources
Since commencing operations as Quantum Computing in February 2018, the Company
has raised $27,759,904 through private placement of equity and $5,133,000
through private placements of Convertible Promissory Notes for a total of
$32,892,904 in new investment. The Company has no lines of credit, and no
long-term debt obligations outstanding. As of March 31, 2022, the Company had
cash and equivalents of $11,513,369 on hand.
The following table summarizes total current assets, liabilities and working
capital at March 31, 2022, compared to December 31, 2021:
March 31, December 31,
2022 2021 Increase/(Decrease)
Current Assets $ 13,249,630 $ 17,221,654 $ (3,972,024 )
Current Liabilities $ 1,036,926 $ 1,082,298 $ (45,372 )
Working Capital (Deficit) $ 12,212,704 $ 16,139,357 $ (3,926,653 )
At March 31, 2022, we had working capital of $12,212,704 as compared to working
capital of $16,139,357 at December 31, 2021, a decrease of $3,926,653. The
decrease in working capital is primarily attributable to the use of cash to pay
for operating expenses and capital investments, including the Note Purchase
Agreement with QPhoton.
Net cash used in operating activities for the three months ended March 31, 2022
and 2021 was $4,193,833 and $1,506,431, respectively. The net loss for the three
months ended March 31, 2022 and 2021, was $7,133,692 and $3,391,746,
Net cash used in investing activities for the three months ended March 31, 2022
and 2021 were $1243,955 and $4,043. The increase in investment in the current
period is due primarily toa $1,250,000 investment related to the Note Purchase
Agreement with QPhoton, and $3,383 invested in computer equipment.
Net cash provided by financing activities for the three months ended March 31,
2022 was $212,500 compared with $80,000 during the same period of 2021. Cash
flows provided in financing activities during the three months ended March 31,
2022 were attributable to the amortization of the original issue discount for
the Series A Convertible Preferred stock. The cash flow provided by financing
activities during the period ended March 31, 2021 was primarily attributable to
issuance of common stock for the exercise of options and the exercise of
Previously, we have funded our operations primarily through the sale of our
equity (or equity linked) and debt securities. During the first three months of
2022, we have funded our operations primarily through the use of cash on hand.
As of April 30, 2022, we had cash on hand of approximately $8,538,480. We have
approximately $38,384 in monthly lease and other mandatory payments, not
including payroll, employee benefits and ordinary expenses which are due
On a long-term basis, our liquidity is dependent on continuation and expansion
of operations and receipt of revenues. Demand for the products and services will
be dependent on, among other things, market acceptance of our products and
services, the technology market in general, and general economic conditions,
which are cyclical in nature. In as much as a major portion of our activities
will be the receipt of revenues from the sales of our products, our business
operations may be adversely affected by our competitors and prolonged recession
Critical Accounting Policies and Estimates
Certain of our accounting policies require the application of significant
judgment by our management, and such judgments are reflected in the amounts
reported in our condensed consolidated financial statements. In applying these
policies, our management uses judgment to determine the appropriate assumptions
to be used in the determination of estimates. Those estimates are based on our
historical experience, terms of existing contracts, our observance of market
trends, information provided by our strategic partners and information available
from other outside sources, as appropriate. Actual results may differ
significantly from the estimates contained in our condensed consolidated
We have identified the accounting policies below as critical to our business
operations and the understanding of our results of operations.
The Company recognizes revenue in accordance with ASC 606 - Revenue from
Contracts with Customers. Revenue from time and materials based contracts is
recognized as the direct hours worked during the period times the contractual
hourly rate, plus direct materials and other direct costs as appropriate, plus
negotiated materials handling burdens, if any. Revenue from units-based
contracts is recognized as the number of units delivered or performed during the
period times the contractual unit price. Revenue from fixed price contracts is
recognized as work is performed with estimated profits recorded on a percentage
of completion basis. The Company has no cost reimbursement ("cost-plus") type
contracts at this time.
Off Balance Sheet Arrangements
During the three months ended March 31, 2022 and for fiscal 2021, we did not
engage in any material off-balance sheet activities or have any relationships or
arrangements with unconsolidated entities established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Further, we have not guaranteed any obligations of
unconsolidated entities nor do we have any commitment or intent to provide
additional funding to any such entities.
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