Quantum Computing Inc. Reports Third Quarter and Nine Months 2023 Financial Results

LEESBURG, Va., Nov. 13, 2023 /PRNewswire/ -- Quantum Computing Inc. ("QCi", "we", "our" or the "Company") (Nasdaq: QUBT), an innovative, quantum optics and nanophotonics technology company, today announced its financial results for the three and nine-months periods ended September 30, 2023.

Robert Liscouski, co-Founder, CEO & Chairman of QCi, commented, "We achieved significant progress since the acquisition of QPhoton less than 17 months ago and we have continued that momentum thus far in 2023.  To date, QCi has announced five product releases, expanded manufacturing capacity and begun the buildout of our quantum chip facility, which establishes the roadmap for future product design, development and sales of a variety of lithium niobate chips in 2024, including physical unclonable function (PUF) and electro-optic modulator (EOM) chips.  We have secured multiple initial testing contracts with government agencies, initiated a growing number of proof of concepts, which we believe could develop into future contracts, established our first collaborations and sales teaming agreements and just several days ago, received our first hardware sales - commencing product delivery.  In addition, we have been in various stages of testing with several large organizations during 2023.  At some juncture, the increasing testing hurdles with these enterprises will reach a final round with potentially large rewards.  QCi is amid several such engagements, having successfully passed several testing rounds during 2023, and is cautiously optimistic waiting next steps."  Mr. Liscouski added, "We continued to significantly reduce our liabilities during the third quarter, which have decreased by over 78% through September 2023, maintained tight financial controls, holding our monthly operating cash expense levels consistent month after month, while rolling out our business development, marketing and sales plans to facilitate a multi-product release effort. We are planning for a robust 2024."

Third Quarter and Nine Months 2023 Financial Highlights

P&L

Revenue:

• Third quarter 2023 revenues totaled approximately $50,000 (53.0% gross margin) compared to $38,000 (33.9% gross margin) generated in the third quarter 2022 and $112,000 (54.4% gross margin) revenue for the second quarter 2023. Revenue to date has been derived from professional services provided to multiple government and commercial customers under multi-month contracts. Going forward with the commencement of delivery of our hardware products announced in mid-fourth quarter 2023, we anticipate a revenue mix of hardware and professional services.
  
  
• For the first nine months of 2023, revenues totaled approximately $283,000, an increase of 111% over the prior year nine-month period. The Company has only recently entered its commercialization phase and anticipated revenues to be minimal during 2023; however, as contracted testing and a backlog of proof-of-concept projects demonstrate positive results, the Company anticipates increasing revenue for the remainder of the year and material increases in 2024.

Operating Expenses:

• Third quarter 2023 operating expenses totaled $7.7 million compared to the previous year's third quarter operating expenses of $6.8 million and $3.9 million for the second quarter 2023. The $847,000 year-over-year increase in expenses is due to an overall increase in personnel as well as an increase in R&D reflecting significant new product development, offset by a decrease in intangible amortization related to the QPhoton merger. The $3.8 million increase in operating expenses compared with the second quarter of 2023 is mainly due to an adjustment in intangible asset amortization related to the QPhoton merger, which was posted in the second quarter, offset in part by an increase in technical labor expense in the third quarter.
  
  
• Operating expenses for the nine months ended September 30, 2023, totaled $19.5 million, an increase of approximately $1.2 million over the prior year nine-month period principally due to an increase in R&D of $1.7 million driven by hardware team's product development and testing of new hardware products, an $892,000 increase in compensation due to additional personnel, partially offset by a $1.2 million decrease in other selling, general & administrative expenses driven by lower legal expenses related to the QPhoton merger and adjustments to intangible amortization as well as a 35% reduction in outside consultants as responsibilities are shifted internally.
  
  
• The Company's average monthly operating cash burn during the third quarter of 2023 was approximately $1.6 million, an increase of $170,000 or roughly 11.9% over the prior year's third quarter results, and a decrease of approximately $90,000, or 5.6%, compared to the average monthly operating cash burn for the second quarter 2023.  The year-over-year increase in monthly cash burn is primarily due to additional quantum engineering hires and operational support staff. The level of monthly cash expenditure for operations is expected to hold relatively steady for the foreseeable future.

Net Results:

• The Company reported a net loss of $8.3 million, or $(0.11) per basic share for the third quarter of 2023, compared to a net loss of $7.6 million or $(0.22) per basic share for the same period of the previous year. The $707,000 year-over-year increased net loss is primarily due to an increase in operating expenses offset by a $125,000 increase in interest income related to the Company's cash invested in a highly liquid money market fund. The Company's third quarter losses increased approximately $3.6 million compared to second quarter 2023 due largely to adjustments related to the QPhoton acquisition.
  
  
• For the nine-months of 2023, the net loss totaled $21.4 million, or $(0.29) per basic share, compared to a net loss of $19.8 million, or $(0.58) per basic share in the prior year's nine-month period. The increase in net loss is largely due to the increase in operating expenses as well as an increase in interest expense and financing costs. As of September 30, 2023, the Company's tax loss carryforwards was approximately $13.1 million.

Balance Sheet

Assets:

• Total assets held consistent year-to-date at $89.3 million. As of September 30, 2023, cash and cash equivalents increased $2.1 million from year-end 2022 to $7.4 million, which excludes capital allocated to the note receivable and associated interest of approximately $543,000 invested to secure the Company's right of first refusal to potentially acquire millionways, Inc. ("millionways"). Since the beginning of 2023, the Company repaid debt and accrued interest of approximately $4.8 million and made $2.0 million in equipment deposits and expenses related to the new Arizona chip foundry. The net increase in cash and cash equivalents reflects $23.5 million (average share price $1.53) in capital secured from the Company's At the Market (ATM) offering year-to-date.

Liabilities: 

• Total liabilities decreased approximately $6.3 million to approximately $8.1 million compared to year-end 2022, driven primarily by the Company's monthly repayment of its debt, and sizable reduction in accrued expenses reflecting the issuance of restricted stock grants. As of September 30, 2023, the Company held no long-term debt and approximately $4.5 million in unsecured short-term promissory notes.

Shareholders' Equity: 

• As of June 30, 2023, the Company had positive shareholder equity totaling $81.2 million, an 8.5% increase from December 31, 2022.

Capitalization:

• As of September 30, 2023, the Company had approximately 75.1 million shares of common stock outstanding, an increase of approximately 7.9 million shares from the previous quarter. This increase is attributed to the sale of shares through the (ATM) facility exercised early in the quarter and 1.5 million in restricted stock grants with a five-year vesting period to five key technical staff employees as long-term incentive bonuses that were issued in satisfaction of an accrued expense totaling $2 million booked in the prior quarter. As of November 10, 2023, the Company has approximately $76.5 million of capacity remaining on its shelf registration statement on Form S-3 that was declared effective November 8, 2022. The Company's common stock outstanding on November 10, 2023 totals approximately 75.1 million shares.
  
  
• The Company's fully diluted shares, as of September 30, 2023, totaled approximately 96.6 million, which included 13.6 million stock options of which approximately 58% have vested (average exercise price $2.72), 1.6 million warrants (average exercise price $6.93), 4.8 million cashless warrants to pre-merger shareholders of QPhoton, and 1.6 million shares underlying Series A Preferred stock (on an as converted basis). In the event all options and cash warrants were to be exercised, the Company would receive roughly an additional $48 million in cash.

Subsequent Financial Developments:

• From October 1, 2023, through November 10, 2023, the Company repaid $1.5 million of principal and accrued interest on the Company's unsecured note for a cumulative total repayment of $6.25 million. As of November 10, 2023, the Company's remaining principal and accrued interest on the unsecured short-term promissory notes totals approximately $2.8 million.

Third Quarter 2023 Operational Highlights

Leadership Appointments:

• Dr. Javad Shabani, a recognized expert and thought leader in quantum materials and devices at the forefront of product development, was appointed as the fourth member to the QCi Technical Advisory Board. He joins U.S. intelligence community veteran and technology strategist The Honorable James Simon, Jr., (Advisory Board chair), cryptography expert Dr. Brian LaMacchia, and disruptive technology specialist Lewis Shepherd to guide strategic and effective commercialization of QCi product rollouts. Dr. Shabani is an associate professor of physics and Director of the Center for Quantum Information Physics at New York University. Previously he conducted postdoctoral research at California NanoSystems Institute which led to his position as Project Scientist, where Dr. Shabani worked closely with Microsoft research on hybrid semiconductors and superconductors heterostructures to study topological superconductivity. Dr. Shabani is well published and an inventor with several U.S. patents focused on qubit architecture and fabrication. Dr. Shabani received his B.S. in Physics and Engineering from Sharif University of Technology, M.Sc. in Electrical Engineering from UC Santa Cruz, M.A. and Ph.D. in Electrical Engineering from Princeton University, and a Postdoctoral Research Fellow in Physics at Harvard University. Dr. Shabani is also an active member of quantum education and workforce development in the New York area.

Contract Announcement: 

• During July 2023, the Company received a NASA Ames subcontract award from Bay Area Environmental Research Institute (BAERI) to build and test an innovative photonic sensor instrument that provides accurate measurement of atmospheric particulates such as clouds, aerosols, smoke flume, volcanic ashes, etc. to identify physical properties including size, shape and chemical composition. This award represents the third distinct task order from NASA in four months and is the second research center within NASA to subcontract with the Company. Under the nine-month subcontract, QCi will deliver a compact system, programmed to process a substantial amount of data that can support standalone operations for days, and designed to be powered by a 12-volt battery that consumes no more than 30 watts of power. The possible long-term objective of this engagement is to position these instruments for field deployment to create a monitoring network.

New Product Launch:

• During July 2023, the Company expanded its commercially available product line to include its first-in-a-series Quantum Photonic Vibrometer, a proprietary, powerful instrument for remote vibration detection, sensing and inspection. This device is the first quantum accelerated photonics vibrometer available in the market today and offers significant advancements in sensitivity, speed and resolution. The Quantum Photonic Vibrometer is capable of discerning – for the first time – highly obscured and non-line-of-sight objects. Military and commercial applications are numerous in the areas of material recognition, enhanced surveillance, infrastructure integrity and preventive industrial maintenance – all at safe distances and requiring minimal energy/optical power. During September 2023, the Company successfully validated the vibrometer's (called QpDAR for military applications) unprecedented ability to detect landmines and unexploded ordnances from surface level to depths up to 30-inches.

Patent Award:

• On July 25, 2023, the Company's Chief Quantum Officer (inventor), the Company's Director of Quantum Hardware (inventor), and the Trustees of the Stevens Institute of Technology (assignee) were named on a patent that was granted U.S. approval. Quantum Computing Inc. has perpetual, exclusive rights to utilize the patent. The patent, which was previously granted early 2023 in Europe and China, addresses unconditional network security, including a method for quantum authentication. This breakthrough patent fills a critical security breach vulnerability by offering a way to effectively protect information in a zero-trust environment and thereby safeguarding an entire network at all points of slippage. Designed to be compatible with existing fiber-based communication infrastructure and satellite-based networks, the patent is a broad use award based on a fundamental methodology for secure networking among multiple parties, uniquely combining authentication and encryption in a single step.

Collaboration:

• In September 2023, the Company entered into a sales and teaming agreement with AI-empowered cybersecurity assessment, continuous detection, and mitigation company, Assured Cyber Protection Ltd ("Recyber"). This initiative is a key step in the QCi product roadmap to achieve a Zero-Trust network environment using quantum authentication and Post Quantum Cryptography solutions. To launch the relationship, the companies have initially identified 13 sales opportunities with large, well-known international organizations within the healthcare, education, government, and banking sectors, and have advanced cross-sector discussions with several longstanding relationships. Recyber, based in London and Geneva, is a privately held cybersecurity company that combines automation, artificial intelligence, and advanced technology to reduce a business' cybersecurity risk by analyzing and modifying organizational and human behavior patterns and processes. Recyber, through its partnership with QCi, will become one of the first companies in Europe to offer quantum authentication and encryption solutions as part of its portfolio of cybersecurity technology offerings. QCi has developed and created a unique "Zero-Knowledge Proof Quantum Communication Protocol" that addresses authentication vulnerability security.
  
  
• September 2023, The Company's federal subsidiary, Qi Solutions (QIS), signed a five-year Overarching Cooperative Research and Development Agreement (OCRADA) with U.S. Special Operations Command (USSOCOM) to develop quantum technology applications in support of USSOCOM programs.  USSOCOM is the premier entity of the U.S. Department of Defense that deploys the world's latest technology to conduct global special operations and activities as part of the Joint Force, in concert with the U.S. government interagency, allies, and partners.  QIS will work with USSOCOM's Science & Technology Directorate on the development of advanced quantum solutions for use by Special Operations Forces in their unique mission roles. 

Commercial Proof of Concepts, Beta Tests and System Users Update:

• QCi is offering Cloud access to its Dirac-1 and Dirac-2 Entropy Quantum Computers to parties who are working on large quadratic binary and integer optimization problems and use cases for critical applications. This "concierge" program enables end users to develop operational uses in cooperation with a QCi Application Scientist before converting to a subscription. Since onboarding our first end user in the second quarter 2023, six additional have been onboarded in the 3rd and 4th quarters, with more expected before the end of 2023.
  
  
• The Company expanded its 2021 CRADA with Los Alamos National Laboratory (LANL) to include the use of Dirac-1 Entropy Quantum Computer to test a suite of use cases. This expansion permits LANL to evaluate use cases at a problem size and complexity that has previously only been demonstrable using classical computers. 
  
  
• One of the largest U.S. insurance carriers took part in experiments to determine whether QCi's photonic quantum computing could detect and/or predict variations in its systems that could compromise its network, impairing its customer service and operational efficiency. That same carrier is now engaged in testing a use case related to optimizing advertising expenses. 
  
  
• QCi's Dirac-1 system successfully identified optimal time, speed and route through varying obstructions for drone aircraft for Virginia Innovation Partnership Corporation.  QCi is currently working to expand this program toward a field demonstration using QCi's Dirac-1 system with Unmanned Aerial Vehicles.
  
  
• The Company is continuously engaged in a number of beta test use cases to demonstrate the effectiveness of its computing capabilities, including:
  
  • Inventory purchase optimization in supply chain
  • Machine learning models to classify substances using spectroscopy data
  • Intrusion detection within security networks, vehicle routing and payload optimization

Manufacturing Expansion and Chip Foundry Developments:

• The Company selected ASU Research Park in Tempe, Arizona as the location for its new quantum photonic chips foundry to produce Thin Film Lithium Niobate chips. QCi's goal is to accelerate its research and development in nanophotonics and to fabricate optical chips for use in its high-performance computing, machine learning, cyber security, sensing, and imaging products. Lithium niobate nanophotonic circuits (quantum chips) deliver heightened scalability and performance advantages such as speed, accuracy, and ultra low electric power consumption. Expansion into Arizona represents a strategic initiative for the Company due to the State's leadership in the field of optics, its early recognition of the importance of advanced photonic research, and the presence of numerous State and U.S. Government entities interested in exploring mission-ready quantum computing and related technologies The location QCi chose for its new facility is on five acres within the extensive 320-acre research park hosted by ASU, a global leader in academic microelectronics research. To date, QCi has placed deposits for the procurement of critical long-lead equipment and paid other related expenses of approximately $2 million. The Company begins the buildout of the facility during fourth quarter 2023, a portion of which will be funded by the landlord. In addition, the Company qualifies for multiple funding initiatives through state and federal grants and ultra low interest rate loans, including the $113.2 billion CHIPS and Science Act of 2022. QCi anticipates that its chip manufacturing will commence first half of 2024, initially with singly purposed chips, followed by mass-producing quantum photonics chips with complex nanophotonic circuits in late 2024/early 2025. In addition to use in QCi's products, the Company is assessing plans to sell chips via distributors for general sale to the market as well. The PUF and EOM chips market opportunity is significant, and it is the company's expectation that it will generate sales of both chips in 2024.

Subsequent Operational Developments and Outlook

Contract and Purchase Order Announcements: 

• On October 31, 2023, the Company announced its first hardware sale by securing multiple orders for its state-of-the-art Reservoir Computer and Quantum Random Number Generator to its partners Assured Cyber Protection Ltd and AI firm millionways to enhance their AI capabilities. These sales kick off the Company's commercial delivery of its computing technologies. The QCi Reservoir Computer is a first-to-market portable device with technology inspired by the power of quantum mechanics. The device can perform complex computational tasks with unprecedented speed and efficiency (consuming 80% to 95% less energy than traditional computers) to facilitate data analysis, machine learning and artificial intelligence. Its minimal size, weight, power, and cost factors make it particularly suitable for use as an edge computing tool. Additionally, the QCi Quantum Random Number Generator (QRNG) enables true randomness for applications in cryptography, secure communications, and data encryption. By integrating QCi's Reservoir Computer and QRNG into security algorithms, Assured Cyber Protection Ltd aims to enhance its ability to detect and respond to cyberattacks in real-time. The addition of QCi's Reservoir Computer to millionways' assessment process is expected to significantly boost machine learning efficiency (particularly in assessing audio files), dramatically reduce the power consumption, and materially accelerate the "training" of machine learning models.

Product Demonstration and Validation:

• On October 3, 2023, the Company's federal subsidiary, Qi Solutions, announced that it demonstrated unprecedented ability to detect landmines up to 2.5 feet below dense underground surface. The successful validation of Quantum Photonic Detection and Ranging (QpDAR) VX3, conducted over several days in September in a field environment, mimicking real-world conditions – showed the ability of the VX3 sensor to harness Quantum Single Photon Detection to detect landmines and unexploded ordnances from surface level to depths up to 30-inches. Landmines are a pervasive legacy of war that kill thousands of innocent civilians every year. According to United Nations News, there are currently approximately 70 countries and territories contaminated by roughly 110 million landmines. In many of the most affected areas of the world, where agriculture is the mainstay of the economy, landmines were planted in fields, forests, around wells, water sources and hydroelectric installations, making the farmland unusable or usable only at great risk. NATO, Department of State humanitarian programs, and multiple countries in Europe and Southeast Asia have commenced engagements to bring this technology to the field immediately.

Guidance:

• To date, the Company has announced five products, secured initial testing contracts with Government agencies, engaged in a growing number of proof of concepts, established collaborations and sales teaming agreements and, just last week, received its first hardware sales with product delivery scheduled in the fourth quarter. The Company anticipates a gradual revenue increase for the remainder of the year, accelerating into heightened growth starting in early 2024.

For additional information on the company's suite of solutions, please visit our website or contact our team directly.

About Quantum Computing Inc. (QCi)

Quantum Computing Inc. (QCi) (Nasdaq: QUBT) is an innovative, quantum optics and nanophotonics technology company on a mission to accelerate the value of quantum computing for real-world business solutions, delivering the future of quantum computing, today. The company provides accessible and affordable solutions with real-world industrial applications, using nanophotonic-based quantum entropy that can be used anywhere and with little to no training, operates at normal room temperatures, low power and is not burdened with unique environmental requirements. QCi is competitively advantaged delivering its quantum solutions at greater speed, accuracy, and security at less cost. QCi's core nanophotonic-based technology is applicable to both quantum computing as well as quantum intelligence, cybersecurity, sensing and imaging solutions, providing QCi with a unique position in the marketplace. QCi's core entropy computing capability, the Dirac series, delivers solutions for both binary and integer-based optimization problems using over 11,000 qubits for binary problems and over 1000 (n=64) qubits for integer-based problems, each of which are the highest number of variables and problem size available in quantum computing today. Using the Company's core quantum methodologies, QCi has developed specific quantum applications for AI, cybersecurity and remote sensing, including its Reservoir Photonic Computer series (intelligence), reprogrammable and non-repeatable Quantum Random Number Generator (cybersecurity) and LiDAR and Vibrometer (sensing) products.  For more information about QCi, visit www.quantumcomputinginc.com.

About Qi Solutions (QIS)

Qi Solutions, a wholly owned subsidiary of Quantum Computing Inc., is a supplier of quantum technology solutions and services to the government and defense industries. With a team of qualified and cleared staff, QIS delivers a range of solutions from entropy quantum computing to quantum communications and sensing, backed by expertise in logistics, manufacturing, R&D and training. The company is exclusively focused on delivering tailored solutions for partners in various government departments and agencies.

Important Cautions Regarding Forward-Looking Statements

This press release contains forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  By their nature, forward-looking statements and forecasts involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the near future.  Those statements include statements regarding the intent, belief or current expectations of QCi and members of its management as well as the assumptions on which such statements are based.  Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. 

QCi undertakes no obligation to update or revise forward-looking statements to reflect changed conditions.  Statements in this press release that are not descriptions of historical facts are forward-looking statements relating to future events, and as such all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995.  Statements may contain certain forward-looking statements pertaining to future anticipated or projected plans, performance and developments, as well as other statements relating to future operations and results. Words such as "may," "will," "expect," "believe," "anticipate," "estimate," "intends," "goal," "objective," "seek," "attempt," "aim to," or variations of these or similar words, identify forward-looking statements.  These risks and uncertainties include, but are not limited to, those described in Item 1A in QCi's Annual Report on Form 10-K and other factors as may periodically be described in QCi's filings with the U.S. Securities and Exchange Commission.

*** Financial Statements Follow ***

SOURCE Quantum Computing Inc.

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