Quantum Computing Inc. Reports Second Quarter and First Half 2023 Financial Results

Quantum Computing Inc. initiates commercialization during first half of 2023 and commenced multiple product launches year-to-date, including:

• Dirac Series Entropy Quantum computer.
• Zero-Trust Cyber Security Protection solution.
• Non-repeatable Quantum Random Number Generator.
• Reservoir Photonics computing (machine learning/predictive) – AI enhancing.
• Quantum Sensing products including QLiDAR and the Photonic Vibrometer – first to market to discern highly obscured and non-line-of-sight objects.

LEESBURG, Va., Aug. 14, 2023 /PRNewswire/ -- Quantum Computing Inc. ("QCi", "we", "our" or the "Company") (Nasdaq: QUBT), a first-to-market nanophotonic-based quantum technology company, today announced its financial results for the three and six-months periods ended June 30, 2023. 

"The conclusion of the second quarter 2023 marks the one-year anniversary of our merger with QPhoton.  I am pleased to report that the full integration with QPhoton has been successfully completed.  In one year's time we have seamlessly doubled the size of the Company in terms of personnel, facilities, assets, and scope of our business.  Together, combining QCi's quantum software platform and data scientist expertise with QPhoton's highly sophisticated quantum hardware intellectual property, we have redefined ourselves as a nanophotonic-based quantum technology company, focused on the democratization of quantum technologies.  In one year, we have laid the foundation for our core technology, designed advanced quantum photonic chips to miniaturize key product components, and have begun commercialization with the release of certain first-to-market, photonic-based, quantum-enabled products and services," commented Robert Liscouski, co-Founder, CEO & Chairman of QCi.

"The second quarter report illustrates that we have consistently maintained tight financial controls during a significant consolidation period, while rolling out a business development, marketing and sales plan to facilitate a multi-product release effort. To sum up, QCi has in one year accomplished what it has taken industry participants several years to achieve, and we believe we deliver greater quantum capability.  To produce this high level of activity, we are fortunate to have secured cost-effective funding sources, entering the third quarter with sufficient cash on our balance sheet to ensure continuous funding of our operations, expanding of our business plan and fulfillment of our financing obligations. We have attracted accomplished thought leaders, scientists, engineers and financial experts to our management and professional staff, Board of Directors, Technical Advisory Board, and Advisory Team.  We anticipate during the second half of 2023 that we will deliver the Company's first meaningful revenue."

Second Quarter and First Half 2023 Financial Highlights

P&L

Revenue:

• Second quarter 2023 revenues totaled approximately $112,000 (54.4% gross margin) compared to $65,000 (92.0% gross margin) generated in the second quarter 2022 and $121,000 (53.3% gross margin) revenue for the first quarter 2023. The increase in revenues is primarily due to changes in the number and size of active customer contracts and the level of completion accomplished. As the Company's gross margin is mainly a function of direct labor cost, revenue generated on current projects required higher skill-sets, reducing the gross margin level from the previous year. While the company's revenue will include the sale of hardware and the rendering of professional services, revenue during the first half of the year was driven by professional services provided to multiple government and commercial customers under multi-month contracts.
  
  
• For the six months of 2023, revenues totaled approximately $233,000, an increase of 141% over prior year's six-month period. As the Company has only recently entered its commercialization phase, revenues were expected to be minimal during the first half of 2023; however, as contracted testing and a backlog of proof-of-concept projects demonstrate positive results, the Company anticipates increasing revenue sequentially as the year progresses and into 2024.

Operating Expenses:

• Second quarter 2023 operating expenses totaled $3.9 million compared to the previous year's second quarter operating expenses of $4.9 million and $7.9 million for the first quarter 2023. The roughly $1.0 million year-over-year decrease in expenses is due in large part to the $2.4 million decrease in other SG&A costs driven by QPhoton merger-related expenditures for legal expenses and intangible asset adjustments, partly offset by an increase of $734,000 in R&D for additional technical labor and parts required to design and test new hardware products, and an increase of $795,000 in overall compensation expense. The increase in compensation expenses is partly offset by reduced reliance on consulting and professional services as the Company shifts core responsibilities in-house.
  
  
• Operating expenses for the six months ended June 30, 2023, totaled $11.8 million, an increase of approximately $175,000 over prior year's six-month period principally due to an increase in R&D of $1.2 million to design and test new hardware products partially offset by a $873,000 reduction in costs associated with the QPhoton merger.
  
  
• The Company's average monthly cash burn during second quarter 2023 was approximately $1.69 million, an increase of $106,000 over the prior year's second quarter results, or roughly 6.7%, and an increase of approximately $119,000, or 7.5%, compared to the average monthly cash burn for the first quarter 2023.  The increase in monthly cash burn is primarily due to additional quantum engineering hires and building out operational support for the increase in product launches.  The level of monthly cash expenditure is expected to hold relatively steady for the foreseeable future.

Net Results:

• The Company reported a net loss of $4.6 million, or $(0.07) per basic share for the second quarter of 2023, compared to a net loss of $5.1 million or $(0.17) per basic share for the same period of the previous year. The $462,000 year-over-year decrease is primarily due to a decrease in operating expenses offset by an increase of $487,000 in financings costs related to interest on the company's promissory notes and fees for At-the-Market (ATM) facility. The Company's second quarter losses declined approximately $3.9 million compared to first quarter 2023 due largely to adjustments related to the QPhoton acquisition, as well as the final payment of non-recurring, merger-related costs that occurred in the first quarter 2023.
  
  
• For the first six months of 2023, the net loss totaled $13.1 million, or $(0.20) per basic share, compared to a net loss of $12.2 million, or $(0.42) per basic share in the prior year's six-month period. The increase in net loss is largely due to the decreased operating expenses for QPhoton merger-related costs, offset by an increase of $781,000 in other expenses related predominately to interest on short-term promissory notes and an increase in financing costs related to first time use of the ATM facility. As of June 30, 2023, the Company's tax loss carry forwards was approximately $11.7 million.

Balance Sheet

Assets:

• As of June 30, 2023, cash and cash equivalents increased $1.9 million to $7.2 million from the beginning of 2023, which is net of the note receivable of approximately $505,000 invested to secure the Company's right of first refusal to potentially acquire millionways, Inc. ("millionways") and a reduction of $668,655 in account payable and accrued expenses. The net increase in cash and cash equivalents reflects the $14.7 million in capital secured from the Company's ATM offering during the first six months of 2023.
  
  
• Total assets declined $653,000 to $88.6 million on June 30, 2023, primarily driven by a reduction of Goodwill for forfeitures of QPhoton merger warrants totaling $3.6 million, offset by the $1.9 million net increase in cash and cash equivalents, the $505,000 investment in millionways, and net property and plant additions of $476,000.

Liabilities: 

• Total liabilities decreased $2.7 million to approximately $11.7 million compared to year-end 2022, driven by the Company's continued repayment of its debt, which began March 2023, as well as payment of final expenses related to the QPhoton merger. As of June 30, 2023, the Company held no long-term debt and approximately $6.5 million in unsecured short-term promissory notes.

Shareholders' Equity: 

• As of June 30, 2023, the Company had positive shareholder equity totaling $76.9 million, a 2.7% increase from December 31, 2022.

Capitalization:

• As of June 30, 2023, the Company had approximately 67.2 million shares of common stock outstanding, an increase of approximately 6.7 million shares during the second quarter.  This increase is attributed to the sale of shares through the ATM facility and shares issued as compensation for services related to the QPhoton merger. As of August 10, 2023, the Company has approximately $77.5 million remaining on its shelf registration that went effective November 8, 2022. The Company's current shares outstanding totals approximately 74.3 million shares of common stock outstanding. 
  
  
• As of June 30, 2023, the Company's fully diluted shares totaled approximately 88.9 million, which included 13.7 million stock options of which approximately 54% have vested (average exercise price $3.33), 1.6 million warrants (average exercise price $6.93), 4.9 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 that all options and cash warrants were to be exercised, the Company would receive an additional $56.7 million in cash.

Subsequent Financial Developments:

• The Company repaid $1.5 million of principal and accrued interest on the Company's unsecured Note for a cumulative total repayment of $4.0 million as of August 10, 2023. The Company's remaining principal and accrued interest on the Note totals approximately $4.9 million.
  
  
• In preparation for its entry into quantum chip manufacturing, the Company placed deposits totaling approximately $1.3 million to secure long-lead equipment for its planned fabrication facility in Arizona where it will produce Lithium Niobate optical chips for quantum information processing and other single photon detection and sensing applications. The purchase of these long lead items is expected to enable the Company to enter quantum chip manufacturing in the first half of 2024.
  
  
• The Company issued 1.5 million shares of restricted common stock with a five-year vesting period to five key technical staff employees as long-term incentive bonuses. These shares will vest in equal amounts over the 5-year term and are subject to the grantee continuing to perform services for the Company in the capacity in which the grant was received.
  
  
• The Company secured approximately $7.8 million in gross proceeds through the sale of common stock via its ATM facility at an average price of $1.40 during the period July 1, 2023 through August 9, 2023. As of August 10, 2023, the Company's cash and cash equivalents total approximately $10.1 million.

Second Quarter 2023 Operational Highlights

Leadership Appointments:

• The Company appointed Chris Boehmler as its Chief Financial Officer. Mr. Boehmler brings 20 years of extensive financial expertise and a strong background in strategic financial management, including investment banking, planning & analysis, accounting operations, financial and SEC reporting, systems integration and financial risks & controls.  Prior to joining QCi in early 2022 as the Company's Controller, Mr. Boehmler began his career at Credit Suisse and Booz Allen Hamilton, followed by holding various senior financial positions at technology companies and financial institutions, including Bridgewater Associates, LP and Intelsat, where he successfully drove financial strategy and managed complex financial operations in high-demand environments.  As CFO, Mr. Boehmler assumed a crucial role in overseeing the Company's financial operations, strategy, and planning as QCi enters material commercialization.  Mr. Boehmler received his BA (Economics) from the University of Chicago. He replaces Chris Roberts who remains a General Counsel and a strategic advisor to the Company as a consultant.
  
  
• Lewis Shepherd, an emerging and disruptive technologies specialist within both Silicon Valley (VMware, Microsoft) and government service (U.S. Department of Defense, Federal Communications Commission, Intelligence Committee of AFCEA International, Defense Intelligence Agency), joined the QCi Technical Advisory Board to provide industry advice, market intelligence, and QCi product visibility into his extensive network.

Contract Announcement: 

• In May 2023, the Company received an expansion to its subcontract award from SSAI to support NASA by using the Company's reservoir quantum computer to remove solar background noise (sunlight) from LiDAR image data sets, thereby enabling daytime operation of spaceborne LiDAR systems. Heretofore, high quality data was nearly impossible to achieve in daylight. Under the initial subcontract awarded February 2023, QCi was tasked to test and evaluate an existing LiDAR system designed to remotely measure the physical properties of different types of snowpacks, including the density, particle size and depth. With the additional award, NASA expanded the contract to include quantum machine learning processing of the data collected. Upon successful completion of this testing, NASA may authorize QCi to proceed with airborne testing with the ultimate goal to use the quantum LiDAR units on satellites.

New Product Launch:

• The Company announced its reprogrammable and non-repeatable Quantum Random Number Generator (QRNG), a patented technology that is crucial to mitigate security vulnerabilities and provides customers with trustworthy data, contributing more effective key production for encryption. The core QRNG technology provides arbitrary and correlated random number distribution which has unique advantages in cybersecurity and big data analyses. The QRNG is available through a cloud-based subscription on the Company website followed by an option to purchase the hardware later in 2023.
  
  
• The Company launched its first-in-a-series Reservoir Computer (RC), a type of machine learning edge device that is photonic-inspired, FPGA-based, and optimized for recurrent neural network applications. The QCi Reservoir Computer's advantage of being deployed at the edge of a computer network, allows data analysis to occur at the sensors or collection point, reducing latency, dependency on network connections, and allows for more real-time processing of data, thereby delivering superior performance in time dependent tasks, such as chaotic time series prediction, radar signal classification, and speech recognition. QCi's RC can address complex problems in fields of natural language processing, weather prediction, financial analysis, drug discovery, optimization, autonomous driving, enhancement of LiDAR capabilities, and a material boost to performance (speed, accuracy and data processing volume), affordability, and power-savings to the AI industry. The Company's current contract with NASA and its collaboration with millionways, both of which are the first to use the QCi RC, speak to its ability to solve complex machine learning problems across different application areas. QCi has begun accepting orders for the RC and will begin shipment during second half of 2023.

Collaboration:

• In April 2023, the Company entered into an MOU with artificial intelligence company millionways, Inc., creator of the world's first emotionally intelligent AI platform. The partnership represents an opportunity for QCi to demonstrate the significant advantages of applying quantum computing to AI. The collaboration would highlight the value of processing millionways' AI algorithms through QCi's existing reservoir computer that can uniquely assess audio files to produce an emotional scoring capability and demonstrate an enhanced capability for AI systems in general. If the data processing project is successful, the companies will develop a joint marketing and business development plan to pursue commercial opportunities.
  
  On May 22, 2023, the Company signed of a non-binding Letter of Intent to acquire up to 100% of millionways, Inc., pending the completion of due diligence by independent third-party valuation and fairness opinion firms.  According to the terms of the LOI, QCi will provide a series of bridge loans (one year term at 10% interest) to millionways starting at $125,000 and potentially aggregating up to $2,000,000, at QCi's discretion. Upon the completion of the first bridge loan, QCi will have the right of first refusal to purchase millionways for a one-year period. In the event an acquisition of millionways does not occur, the capital QCi has invested will be repaid. As of August 10, 2023, QCi has invested $500,000 in millionways bridge notes as the two companies continue their collaborative testing.

Commercial Proof of Concepts, Beta-tests and System Users Update:

• QCi has begun onboarding 3rd party users to its Dirac-1 and Dirac-2 Entropy Quantum Computers, who are working on large quadratic binary optimization problems and use cases for critical applications using CSample. This program enables end users to develop operational uses before converting to a subscription. The first end user was onboarded in the second quarter, three additional have been added in the third quarter, and six more are expected by the end of 2023.
  
  
• One of the largest US 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. Currently the insurance carrier is considering additional use case experiments. 
  
  
• 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.
  
  
• QCi's Dirac-1 fraud detection capabilities successfully demonstrated four separate machine learning applications for Rabobank.  QCi is now evaluating additional use cases to support a variety of financial services applications for banking customers.
  
  
• The Company is continuously engaged in a number of beta-tests use cases to demonstrate the effectiveness of its computing capabilities, including:
  
       - Inventory purchase optimization in supply chain
       - Optimizing advertising spend across different media channels
       - Machine learning models to classify voice recording data
       - Intrusion detection within security networks, vehicle routing and payload optimization 

Consortium Membership Invitation:

• QI Solutions, a wholly owned subsidiary of QCi focused on federal government projects, joined the Center for Quantum Technologies (CQT). CQT is a National Science Foundation sponsored initiative with engineers and scientists from Purdue University, Indiana University, the University of Notre Dame, and Indiana University Purdue University Indianapolis (IUPUI). QI Solutions and these four universities are joined by industry leaders, such as Air Force Research Laboratory, Amazon Web Services, Eli Lilly, Cummins, Toyota, Northrup Grumman, and IBM Quantum, to explore novel quantum technologies that address industry and defense challenges.

Subsequent Operational Developments and Outlook

Contract Announcement: 

• The Company received a subcontract award from Bay Area Environmental Research Institute (BAERI) to build and test an innovative photonic sensor instrument to provide accurate measurement of atmospheric particulates such as clouds, aerosols, smoke flume, volcanic ashes, etc. for NASA Ames. The photon sensor instrument will be designed to identify physical properties including size, shape and chemical composition. This award represents the third distinct task order from NASA 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:

• 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.

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 approval in the United States. 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.

Guidance:

• The Company has transitioned to commercializing applications through its various product lines, while seamlessly completing the integration of its QPhoton acquisition and greatly expanding the scope of its business. During the first half of 2023, the Company has released several products, secured initial testing contracts with Government agencies, and has engaged in a growing number of proof of concepts that it believes will potentially evolve into contracts in the coming months. The Company anticipates a gradual revenue increase during the remainder of the year, developing into heightened growth towards late 2023 and beyond as management expects to achieve positive results from several early testing engagements in addition to other initiatives the Company is pursuing in distribution partnerships as well as government grants.

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. is a quantum hardware and software 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 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, reprogrammable and non-repeatable Quantum Random Number Generator and LiDAR products.  For more information about QCi, visit www.quantumcomputinginc.com.

About QI Solutions, Inc. (QiS)

QI Solutions, Inc., 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 Quantum Computing Inc. (the "Company"), 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. 

The Company 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. Any statements in this press release that are not statements of historical fact may be considered to be forward-looking statements. 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 the Company's Annual Report on Form 10-K, which is expressly incorporated herein by reference, and other factors as may periodically be described in the Company's filings with the SEC.

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SOURCE Quantum Computing Inc.