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The four-year old quantum computing wannabe that never got anywhere with its software
Quantum Computing Inc (QUBT) was established in 2018 after former homicide detective and current CEO Robert Liscouski bought a beverage company out of receivership (for $155,000), then turned it into a quantum computing software business.
The company’s main product is Qatalyst: software that makes quantum computer programming easier and connects to multiple hardware providers — such as IonQ and D-Wave — without the need for programming changes. Demand for Qatalyst has been poor. QUBT reported zero sales for the 2018-2021 period. Liscouski announced that QUBT would subsidize some early customers in August 2021. This strategy fell flat as QUBT booked sales of $96,724 in the first half of this year, of which ~86% had not been collected at the end of June.
We believe most of these sales come from OTC-listed staffing company Quad-M Solutions. The company said at the start of this year that Quad-M was its first consulting customer. But it failed to mention that Liscouski has been serving as a Quad-M director since August last year. QUBT may never collect the money. The staffing company reported just $1m cash against $16.2m of liabilities due in the next 12 months.
Bulls think QUBT will ultimately benefit from the quantum computing revolution. The nascent industry still faces daunting scientific and engineering challenges, according to experts. Commercial viability will take many more years if it ever happens.
QUBT has to deal with tough competition too. Its playbook — to connect quantum computing and non-experts — is similar to cloud leaders such as Amazon and Google who plan to offer both hardware and software solutions:
- IBM, which has more quantum computing patents than any other company, launched a 127-qubit processor in late 2021. The company has put money into software-focused firms such as Quantinuum — a joint venture between Honeywell Quantum Solutions and Cambridge Quantum.
- Amazon opened a new quantum computing center in October 2021. Its focus is to develop more powerful computing hardware and find new ways to use quantum technologies. The tech giant also has patents that include cloud-based quantum simulation and a development environment for programming quantum computers.
- Google wants to own the entire stack of quantum technologies. It is building its own computers, software, and end-user products.
QUBT has only spent $7.1m on R&D since its quantum business started in 2018.
Furthermore, only one out of six QUBT managers have had any experience with quantum computing: chief quantum officer Huang Yuping, who joined QUBT on 14 June 2022.
Acquisition of QPhoton: $85m for little substance and huge dilution for shareholders
QUBT’s original intent was to focus on software alone. But poor performance seemingly led management to change its mind and invest in hardware. QUBT acquired QPhoton in an ~$85m stock-for-stock deal on 16 June 2022. As a result of the transaction, Huang Yuping emerged as QUBT’s largest shareholder (13.86% or 4,699,786 of total outstanding shares), and was named chief quantum officer.
QPhoton, according to QUBT, is a ‘development stage company commercializing quantum photonic technology and devices to provide innovative and practical quantum solutions for critical challenges facing big data, cyber, remote sensing, and healthcare industries’.
The $85m price tag is puzzling:
- QPhoton was incorporated on 23 January 2020. Only two employees are referenced on LinkedIn.
- All of QPhoton’s technology has been licensed from the Stevens Institute of Technology. The institute was paid around $160,000 plus 9% of QPhoton’s equity in December 2020, as part of this 30-year agreement. Stevens will also receive $28,000 every year, along with royalties of 3.5% of net sales, if QUBT ever sells anything.
- From its beginning in January 2020 to the end of June 2022, total operating expenses came to barely $2.3m, indicating little R&D. QPhoton has not made a single sale.
- Its minimalist website: a password field.
Source: QPhoton website
- Former QPhoton financier BV Advisory Partners sued QUBT, QPhoton, and several of the company’s directors and officers, around two months post-acquisition. BV claims that QPhoton breached a note purchase agreement; and a binding letter of intent with Barksdale Global Holdings LLC and Inference Ventures LLC. Barksdale is controlled by BV’s CEO Keith Barksdale while Inference is controlled by Michael Kotlars, QPhoton’s ex-COO.
The acquisition of QPhoton raises questions but one thing is certain: the all-stock deal will heavily dilute shareholders. Huang and former QPhoton shareholders got warrants as part of the deal to acquire QPhoton, which lets them buy up to 7,028,337 QUBT shares for just $700. The warrants can be exercised at any time for $0.0001.
Liscouski: The harbinger of value destruction
In the not so distant past, QUBT’s COO William McGann and him ran Implant Sciences Corporation, a company that produced explosive detection systems. Liscouski was president. McGann was CEO. Implant Sciences filed for bankruptcy in October 2016. Historical financials from FY12 to FY16 show the company fell apart under the weight of its debt. It did not turn any profit.
Liscouski was an independent director at Viscount Systems — another OTC-listed company — from September 2011 to November 2015. Viscount’s last 10-K before its shares were deregistered in October 2016 showed financial difficulties. Its current liabilities were $10.2m as of 31 December 2015. Total cash and short term investments stood at just ~$300,000.
Liscouski is currently a director at Quad-M as mentioned above. The QUBT customer has a weak balance sheet. Its end-June cash position was just $1m while current liabilities were $16.2m.
Cash burn and a toxic lender
We estimate that the company’s cash balance is now around $11m, after it issued an $8.25m, 10% unsecured promissory note to Streeterville Capital, LLC on 23 September 2022. The discounted note matures in 18 months.
This buys the company around eight months before it needs more funding. Liscouski and co have spent ~$32m on operations, of which $23m went out from 2018-2021, and another $8.6m was incinerated in the first six months of this year.
John M. Fife runs Streeterville, and according to an ongoing SEC lawsuit. He is a toxic lender whose modus operandi is to charge borrowers high interest rates and purchase their convertible debt. Borrowers’ stock prices eventually plummet as Fife converts the debt, then dumps the shares on the market. The SEC complaint describes Fife as a ‘recidivist violator of the federal securities laws’ who has ‘violated, and continue to violate, the mandatory dealer registration requirements of the federal securities laws’.
We expect any further capital to be raised on dilutive terms. QUBT’s outstanding share count has soared over 600% to 33.9 million compared to 4.7 million at the end of FY18.
QUBT failed to sell its software and we do not expect it to be any better at selling hardware, its latest venture. Beyond the constant PR hype, the truth is that QUBT is poorly capitalized, and has to compete with companies with far more resources. The past of some executives makes it hard for investors to have any confidence. Shareholders can also expect heavy dilution as QUBT won’t last for more than 10 months without raising fresh capital.
We are short QUBT and we expect the stock to drop to zero.
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