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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Quantum Computing Inc.    QUBT

QUANTUM COMPUTING INC.

(QUBT)
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QUANTUM COMPUTING : Management's Discussion and Analysis of Financial Condition and Results of Operations, (form 10-Q)

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08/10/2020 | 11:44am EDT
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, 2019, 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.



Overview



At the present time, we are a development stage company with limited
operations. The Company is currently developing "quantum ready" software
applications and solutions for companies that want to leverage the promise of
quantum computing. We believe the quantum computer holds the potential to
disrupt several global industries. Independent of when quantum computing
delivers compelling performance advantage over classic computing, the software
tools and applications to accelerate real-world problems must be developed to
deliver quantum computing's full promise. We specialize in quantum
computer-ready software application, analytics, and tools, with a mission to
deliver differentiated performance using non-quantum processors in the
near-term.



We are leveraging our collective expertise in finance, computing, mathematics
and physics to develop a suite of quantum software applications that may enable
global industries to utilize quantum computers, quantum annealers and digital
simulators to improve their processes, profitability, and security. We primarily
focus on the quadratic unconstrained binary optimization (QUBO) formulation,
which is equivalent to the Ising model implemented by hardware annealers, both
non-quantum from Fujitsu and others and quantum from D-Wave Systems, and also
mappable to gate-model quantum processors. We have built a software stack that
maps and optimizes problems in the QUBO form and then solves them powerfully on
cloud-based processors. Our software is designed to be capable of running on
both classic computers and on annealers such as D-Wave's quantum processor. We
are also building applications and analytics that deliver the power of our
software stack to high-value discrete optimization problems posed by financial,
bio/pharma, and cybersecurity analysts. The advantages our software delivers can
be faster time-to-solution to the same results, more-optimal solutions, or
multiple solutions.



                                       19




Products and Products in Development

Quantum Asset Allocator: We have released our first commercial product for the
FinTech, or Financial Technology, market, the Quantum Asset Allocator (QAA). The
target market for QAA is financial institutions who are currently addressing
asset allocation problems but are looking for better tools with which to
optimize portfolio performance. QAA is available both as a cloud-based software
service and as an on-premises software-plus-hardware system.



"Mukai" quantum application development platform: The Company recently released
its "Mukai" quantum application development platform. Mukai can be used to solve
extremely complex optimization problems, which are at the heart of some of the
most difficult computing challenges in industry and government. Its software
stack enables developers to create and execute quantum-ready applications on
classic computers, while being ready to run on quantum computers when those
systems can achieve performance advantages. Mukai uses highly-optimized parallel
code, and is currently centered on the quadratic unconstrained binary
optimization (QUBO) formulation well known to quantum annealing users.



The Company is currently working on software products to address, community detection (analysis for pharmaceutical applications and epidemiology), optimization of job shop scheduling, logistics, and dynamic route optimization for transportation systems. The Company is continuing to seek out difficult problems for which our technology may provide improvement over existing solutions.




Financial Application



The Company is currently focused on a number of software application development
efforts relating to finance. We are working with early users of our QAA product,
to find related problems that are large and complex enough to benefit from
quantum acceleration. The finance industry has used quantitative finance
software applications for several decades. However, existing software
applications have been limited in their performance due to the lack of computing
power needed to solve the relevant classes of optimization problems.



We are continuing to develop software to address two classes of financial optimization problems: Asset allocation and Yield Curve Trades. For asset allocation, our target clients are the asset allocation departments of large funds, who we envision using our application to improve their allocation of capital into various asset classes.




Development of these algorithms has been on-going for the past four quarters and
we have been working with beta clients for our financial application since
August of 2019. Once client beta testing is completed we plan to hire sales
staff to begin commercial sales and marketing anticipated to begin in the third
or fourth quarter of 2020.



Results of Operations


Three Months Ended June 30, 2020 vs. June 30, 2019



Revenues



                    For the Three Months            For the Three Months
                     Ended June 30, 2020             Ended June 30, 2019
(In thousands)   Amount             Mix          Amount             Mix          Change
Products               0                   0 %         0                   0 %         0 %
Services               0                   0 %         0                   0 %         0 %
Total            $     0               100.0 %   $     0               100.0 %         0 %




                                       20




Revenues for the three months ended June 30, 2020 were $0 as compared with $0
for the comparable prior year period, a change of $0, or 0%. The lack of revenue
is due to the fact that the Company has not yet completed the development and
testing of any products for sale, or sold any products or services to any
customers.



Cost of Revenues



Cost of revenues for the three months ended June 30, 2020 was $0 as compared
with $0 for the comparable prior year period, a change of $0 or 0%. There was no
cost of revenues recorded because the Company has not yet commenced marketing
and selling products or services.



Gross Margin


Gross margin for the three months ended June 30, 2020 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet commenced marketing and selling products or services.



Operating Expenses



Operating expenses for the three months ended June 30, 2020 were $917,556 as
compared with $1,982,982 for the comparable prior year period, a decrease of
$1,065,425, or 54%. The decrease in operating expenses is due in large part to
the $1,262,445 decrease in stock-based compensation expense in the second
quarter of 2020 compared with the comparable period in 2019. In addition,
changes in the number and composition of staff resulted in a $17,965 increase in
salary and benefit expenses, and a $190,515 increase in research and development
expenses, offset in part by a $22,888 decrease in consulting fees, compared to
the comparable prior year period.



Net Income (Loss)



Our net loss for the three months ended June 30, 2020 was $1,778,599 as compared
with a net loss of $2,033,226 for the comparable prior year period, a decrease
of $254,627 or 12.5%. The decrease in net loss is primarily due to the decrease
in operating expenses, offset by $814,131 in interest expense largely associated
with the mark to market repricing of a convertible promissory note derivative,
replacing one derivative with another, granting warrants, and repricing existing
warrants, and other financing related expenses recorded in the current period
compared to the comparable prior year period.



Six Months Ended June 30, 2020 vs. June 30, 2019




Revenues



                                        For the Six Months Ended                 For the Six Months Ended
                                             June 30, 2020June 30, 2019
(In thousands)                      Amount                  Mix              Amount                  Mix              Change

Products                                    0                        0 %             0                        0 %             0 %
Services                                    0                        0 %             0                        0 %             0 %
Total                             $         0                    100.0 %   $         0                    100.0 %             0 %



Revenues for the Six months ended June 30, 2020 were $0 as compared with $0 for
the comparable prior year period, a change of $0, or 0%. The lack of revenue is
due to the fact that the Company has not yet completed the development and
testing of any products for sale, or sold any products or services to any
customers.



Cost of Revenues


Cost of revenues for the Six months ended June 30, 2020 was $0 as compared with
$0 for the comparable prior year period, a change of $0 or 0%. There was no cost
of revenues recorded because the Company has not yet commenced marketing and
selling products or services.



Gross Margin


Gross margin for the Six months ended June 30, 2020 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet commenced marketing and selling products or services.



                                       21





Operating Expenses



Operating expenses for the Six months ended June 30, 2020 were $2,655,949 as
compared with $2,566,120 for the comparable prior year period, an increase of
$89,828, or 3.5%. The increase in operating expenses is due in large part to the
$383,908 increase in research and development expenses, offset in part by a
$321,345 decrease in stock-based compensation expense in the first half of 2020
compared with the comparable period in 2019. In addition, changes in the number
and composition of staff resulted in a $67,144 increase in salary and benefit
expenses, and a $33,751 decrease in consulting expenses, coupled with an $11,400
decrease in audit fees, compared to the comparable prior year period.



Net Income (Loss)



Our net loss for the Six months ended June 30, 2020 was $2,476,778 as compared
with a net loss of $2,668,899 for the comparable prior year period, a decrease
of $192,122 or 7.2%. The decrease in net loss is primarily due to the increase
in operating expenses, noted above, offset by $432,500 in other income from a
legal settlement and a local government business grant, and a $143,533 increase
in interest expense largely associated with the mark to market repricing of a
convertible promissory note derivative, replacing one derivative with another,
granting warrants, and repricing existing warrants, and other financing related
expenses recorded in the current period compared to the comparable prior year
period.


Liquidity and Capital Resources




Since commencing operations as Quantum Computing in February 2018, the Company
has raised $75,000 through private placement of equity and $5,341,055 through
private placements of Convertible Promissory Notes for a total of $5,416,055 in
new investment. The Company has no bank loans or lines of credit, and no
long-term debt obligations. As of June 30, 2020, the Company had cash and
equivalents of $496,601 on hand.



The following table summarizes total current assets, liabilities and working capital at June 30, 2020, compared to December 31, 2019:



                              June 30,       December 31,
                                2020             2019           Increase/(Decrease)
Current Assets              $    505,187$     122,649     $             382,538
Current Liabilities         $  3,523,844$   2,960,538     $            (563,306 )
Working Capital (Deficit)   $ (3,018,657 )$  (2,837,889 )   $           
 180,768




At June 30, 2020, we had a working capital deficit of $3,018,657 as compared to
working capital deficit of $2,837,889 at December 31, 2019, an increase of
$180,768. The increase in working capital deficit is primarily attributable to
an increase in accrued expenses and short-term loans resulting from deferring
payments to some suppliers and obtaining new sources of debt financing.



Net Cash



Net cash used in operating activities for the six months ended June 30, 2020 and
2019 was $2,408,104 and $933,936, respectively. The net loss for the six months
ended June 30, 2020 and 2019, was $2,476,778 and $2,668,900, respectively.



Net cash used in investing activities for the six months ended June 30, 2020 and
2019 were $3,258 and $ 0, respectively representing a $3,258 increase in
investments for computer equipment in 2020 compared with the first six months of
2019.


Net cash provided in financing activities for the six months ended June 30, 2020
was $2,806,863 and cash flows provided (used) in the same period of 2019 was
($26,000.) Cash flows provided in financing activities during the first
six-month period in 2020 were primarily attributable to issuance of convertible
notes, conversion of convertible notes to stock, and the exercise of warrants
issued with those notes.  The cash flow used in financing activities during the
first six months of 2019 were related to the redemption of a convertible
promissory note.



                                       22




Previously, we have funded our operations primarily through the sale of our
equity (or equity linked) and debt securities. During 2020, we have funded our
operations through the sale of convertible debt securities and exercise of
warrants issued in conjunction with convertible debt, and income from a legal
settlement with REMTC. As of August 10, 2020, we had cash on hand of
approximately $345,149. We have approximately $8,795 in monthly lease and other
mandatory payments, not including payroll and ordinary expenses which are due
monthly.



On a long-term basis, our liquidity is dependent on continuation and expansion
of operations and receipt of revenues. Our current capital and revenues are not
sufficient to fund such expansion and we will continue to rely on the sale of
our debt and or equity securities to fund operations.



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 periods.



Going Concern


The Company's financial statements have been prepared on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.



The Company has earned no revenue from operations in the six-month periods ended
June 30, 2020 and 2019, and has an accumulated deficit of $31,237,733 and
$23,048,767 respectively. The Company's ability to continue as a going concern
is dependent upon its ability to develop additional sources of capital or
ultimately acquire an entity which the Company hopes will become profitable at
some time in the near future. The accompanying financial statements do not
include any adjustments that might result from the outcome of these
uncertainties. Management is seeking additional capital to finance the
operations of the Company.



Off Balance Sheet Arrangements




During the six months ended June 30, 2020 or for fiscal 2019, 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.



Critical Accounting Policies and Estimates

We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.



Use of Estimates:


These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America. Because a
precise determination of assets and liabilities, and correspondingly revenues
and expenses, depends on future events, the preparation of financial statements
for any period necessarily involves the use of estimates and assumption an
example being assumptions in valuation of stock options. Actual amounts may
differ from these estimates. These financial statements have, in management's
opinion, been properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized below.



Cash and Cash Equivalents


The Company's policy is to present bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.



                                       23





Property and Equipment


Property and equipment is stated at cost or contributed value. Depreciation of
furniture, software and equipment is calculated using the straight line method
over their estimated useful lives, and leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the
lease term. The cost and related accumulated depreciation of equipment retired
or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as a gain or
loss on sale of equipment.



Net Loss Per Share:


Net loss per share is based on the weighted average number of common shares and common shares equivalents outstanding during the period.

© Edgar Online, source Glimpses


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Financials (USD)
Sales 2019 - - -
Net income 2019 -8,38 M - -
Net Debt 2019 1,51 M - -
P/E ratio 2019 -2,64x
Yield 2019 -
Capitalization 59,5 M 59,5 M -
EV / Sales 2018 -
EV / Sales 2019 -
Nbr of Employees 7
Free-Float 48,2%
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Income Statement Evolution
Managers
NameTitle
Robert P. Liscouski Chairman, President & Chief Executive Officer
Christopher B. Roberts Chief Financial Officer & Director
Michael Booth Chief Technology Officer
Bertrand Velge Independent Director
Justin Schreiber Independent Director
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