Why Quantum Computing Inc. QUBT Is Not a Good Stock

Our recent piece on Robinhood pointed out how the company makes the majority of their money right now peddling extremely risky financial products to beginner investors (half of their client base). The company says that this is “democratizing the distribution of wealth,” but we beg to differ.

The single most important quality a financial services provider has is their integrity. The half of our audience who are experienced investors, many institutional, understand how easy newbie investors can be fleeced. We have a responsibility to point inexperienced investors in the right direction. Down the road, they will realize you helped them, and they will return the favor. It’s with this in mind that we’re going to cover a quantum computing company aptly called Quantum Computing Inc. (QUBT).

About Quantum Computing Inc. QUBT Stock

Last month, we sat down with our premium subscribers to talk about how we analyze stocks, particularly in how we look for red flags. There is no shortage of tech stocks out there to vet, so when we come across red flags, we walk away. We don’t invest in stocks with no revenues, or stocks with a market cap of less than a billion dollars. Quantum Computing Inc. is a $220 million stock with no revenues, so that should be the end of the story.

Credit: Yahoo Finance

Turns out that Quantum Computing Inc., a company that just migrated from the over-the-counter (OTC) exchange to Nasdaq, is waving more red flags than a Chinese military parade. The remainder of this piece is simply highlighting information the company has willingly made available to the SEC in this latest 10-K filing which anyone can read for themselves. Why this company is worth $220 million is simply inexplicable when you consider that they have almost no assets aside from around $15 million in cash on their books.

Red Flags for QUBT Stock

We’ve spent what amounts to several hours reading the 10-K and pulling out red flags, some of which we’ve listed below. The more you dig into firms like this, the more red flags you’ll find.

Issuing Shares Like They’re Going Out of Style

The company is authorized to issue up to 250 million shares, and they’re off to a great start already. The speed at which they’re issuing shares to dilute existing shareholders is nothing short of remarkable.

  • Dec 31st, 2018 – 4,724,161 shares outstanding
  • Dec 31st, 2019 – 7,362,046 shares outstanding
  • Dec 31st, 2020 – 27,966,096 shares outstanding
  • March 17, 2021 – 28,667,925 shares outstanding

Some of you might not be familiar with the effects of dilution, so we’ll tease this out for you.

Credit: Yahoo Finance

On December 31st, 2018, shares of QUBT closed at $2.85 per share for an implied market cap of around $13.46 million. Based on the number of outstanding shares today, those shares you held back then aren’t worth $2.85 a share. Instead, they’re worth about 47 cents a share because of dilution, having lost -83.5% of their value. So why on God’s green earth are shares trading at $7.62 per share instead?

Hiring Numerous Investor Relations Firms

Unsurprisingly, QUBT has been employing the services of investor relations firms by issuing shares left and right – over a million shares over the past several years.

  • In March 2019 the Company issued 25,000 shares of common stock to Lyons Capital, LLC, an investor relations firm
  • In June 2020 the Company issued 300,000 shares of common stock to Capital Market Access, LLC, an investor relations firm
  • In September 2020 the Company issued 20,000 shares of common stock to Capital Market Access, LLC, an investor relations firm
  • In December 2020 the Company issued 10,000 shares of common stock to Capital Market Access, LLC, an investor relations firm
  • In January 2021 the Company issued 10,000 shares of common stock to Axis Partners, Inc., an investor relations firm
  • In February 2021, the Company issued 10,000 shares as compensation to a consultant for investor relations services
  • In February 2021 the Company issued options for 650,000 shares of common stock, vesting over twelve months, to two investor relations consultants pursuant to agreements the Company entered into in February 2021

At QUBT’s last closing price of $7.62 a share, that comes out to be about $7.8 million spent on investor relations firms. Anytime we see a company handing out shares so quickly to investor relations firms, that’s a huge red flag. It also may help explain why the company increased their outstanding shares over 6X in the past several years while still managing to increase the share price in the face of extreme dilution.

Incestuous Relationships

If you’re a company executive at a publicly traded firm, you’d probably never want to put yourself in a compromising position by appearing to scratch your own back. Or you can just say “screw it,” and list out all your suspicious interactions in the 10-K.

For Quantum Computing Inc., that starts back in 2018 when their Chief Technology Officer (at the time) decided they needed “a highly secure development environment and intra-company data management and communication system.” Fair enough, but instead of going out to the marketplace and looking for vendors to provide such a system, they paid $670,000 to “an entity wholly owned” by the CTO. If you think that’s bad, the dude then resigned, and months later they realized it “was unusable and therefore impaired, and wrote off the remaining undepreciated value.” They later took the guy to court, the outcome of which is unknown because they entered into an undisclosed settlement. As of their latest 10-Q, Quantum Computing Inc. has yet to replace their CTO, a critically important position for a technology company to have filled. (UPDATE 18/08/2021: Several people commented that a new CTO was announced in a 2019 press release, yet nowhere is the new CTO role or the CTO’s name mentioned in the latest 10-Q or 10-K. We can only presume that’s because the CTO is not an executive officer, which raises a big concern. Why is one of the most critically important functions for a technology company not an executive officer? It’s just another red flag of many.)

If you’re the CEO of a company, and you hire a CTO that does bull crap like that, why should we have any confidence in your ability to steer the ship? That question holds even more significance when you learn that the CEO also has his own “wholly owned entity,” and that there are even more cases of executives scratching their own backs.

Last year, QUBT paid “an entity wholly owned” by a member of the Company’s board of directors, $140,698 “to procure and manage advertising services.” This is the same fellow who in a previous life “ran a consulting business that provided investor relations, advisory services and capital raising solutions to small publicly traded companies.” Didn’t they learn the first time around that’s a bad idea?

More Red Flags

We haven’t even started talking about how these executives are loading themselves down with compensation and shares while diluting the crap out of their shareholders. We could easily write another 1,000 words as to why this firm should be avoided like the plague, but the question we’re asking instead is this. Why, when there are a multitude of other promising stocks out there to examine, would we want our analysts spending any more time shooting holes into this absolute dog of a stock?

As is always the case, people will come around to make snarky comments because we’re pointing out the truth they don’t want to hear. (We’re absolutely not claiming these people work for certain investor relations firms. We would never make that claim.) One of the things they always accuse us of is being short, or accuse of being paid to say bad things about someone (insert your own conspiracy theory here).

Credit: Nanalyze Twitter feed

We’re investors, not speculators. We never short stocks for a reason best articulated by someone on Reddit who correctly stated, “we can stay retarded longer than you can stay solvent.” The stupidity of newbie investors almost always outweighs your margin limits. When you see stocks like Quantum Computing Inc., you don’t get involved with the whole hot mess, you just walk the other way.

Conclusion

Whether or not a company’s management team is incompetent or acting in a malicious manner is irrelevant. Just because the CEO of Quantum Computing previously resided over a firm that went bankrupt, or hired the world’s worst CTO in his present job, doesn’t mean he will necessarily continue failing.

Everyone involved in this firm is trying to do what every business must do – survive. They can’t be faulted for that. But in the long run, the outcome of companies like this is always the same. Long-term shareholders always become bag holders. We never invest in OTC stocks, even when they uplist to Nasdaq. Odds are, they’ll eventually end up right back where they came from.

Want to know what 30 tech stocks we own right now? Want to know which ones we think are too risky to hold? Become a Nanalyze Premium member and find out today!

11 thoughts on “Why Quantum Computing Inc. QUBT Is Not a Good Stock
  1. What the boss says:
    “Clearly, we’re in a position that as we demonstrate promise, we would be attractive to ‘a Google,’” Quantum Computing CEO has said. “I’m not suggesting that’s our goal, but that’s clearly how that works.”

    1. What the boss ought to talk about is why he’s diluted the crap out of shareholders over the past several years, or why he’s made such crummy hiring decisions, or why he’s focused so much of the company’s resources on investor relations instead of R&D.

      You bring up a good point here. Their management has said a lot of things that make us roll our eyes – like that “partnership” with Splunk which appears to be a big nothing burger. Or the “expanding number of market leaders” they’re working with that (in their words) “are guiding us to our most significant near-term revenue opportunities.” Just when can we expect to see these revenues? Ask the management team that question, then hold their feet to the fire so that they deliver on it.

      Or you can just look at the red flags raised in this article and realize that this company represents nothing but massive risk for anyone who holds out hope that it isn’t like every other OTC stock out there which waves these same red flags and approaches zero slowly over time.

      Here’s a document that details the red flags we look for and why: https://www.nanalyze.com/nanalyze-premium-articles/

    2. And no, we’re not going to let you post the shareholder update letter the CEO wrote. He has his own platform to tell his story. This platform is focused on finding red flags. If you, or anyone else, can help explain away the red flags detailed above contained within the company’s own SEC filings, we’re all ears.

    1. We will have to ask you to stop posting page-long press releases, company updates, company letters, etc. in the comments section please. People can go to the Quantum Computing Inc. website and read that stuff any time. What we’re discussing here are the factual items presented above. None of the pages of content you are posting do anything to address the above red flags. Thank you!

    1. All of the information used for this article was obtained from the company’s two most recent regulatory filings at the time the piece was written, neither of which mention any current CTO or any individual named Michael Booth. We just checked their latest 10-Q and 10-K which you can check yourself. That’s a very good question to pose to the company for those that care to.

      You can refer to the below as well:

      Item 401 of Regulation S-K requires the disclosure by executive officers, directors and director nominees of their business experience so that investors and stockholders can evaluate the management of a public company and provide them with relevant information to make informed investment and voting decisions relating to corporate governance and the election of directors.

      https://www.law.cornell.edu/cfr/text/17/229.401

  2. Does that apply when they were an OTC stock? They recently got listed on NASDAQ. I understand listing requirements aren’t as stringent; will check on this.

  3. You only reviewed SEC filings? Really? If you are going to put out such a negative article, I would expect you to do more research than just reading their SEC filings. I like your website and articles, so it is disappointing to see you put out such a poorly researched report.

    No intelligent investor would limit their investigation of a company to just SEC filings. They would look at the website (and seen the current CTO there) and contacted the company with the serious questions you pose. Looks like you did none of this. Makes me wonder why?

    You should also know that when it comes to the disclosure of executive officers in SEC filings that it is only required that a company report those officers who have a ‘policy making’ function, which is often referred to as an ‘executive officer.’

    Clearly, this CTO has not been granted this function by the company’s board, or else I am sure the company’s SEC law firm would have required they make this required disclosure. This is not uncommon for public companies to have non-executive officers. You can learn more about this here: https://www.williamsmullen.com/news/who-are-your-section-16-officers See definition of non-executive officer here: https://www.lawinsider.com/dictionary/non-executive-officer

    1. Yes, really. You’re not a regular reader because then you would know that’s exclusively how we analyze publicly traded companies. We only look at SEC filings because that is where a company discloses the most important and relevant information. At least that’s where it’s supposed to exist. If it doesn’t, then that’s a huge problem. You can read more about how we analyze companies here: https://www.nanalyze.com/nanalyze-premium-articles/

      So, your point of contention is a single sentence that says they didn’t replace the CTO? We added an update that raises an equally important concern. Why is one of the most important roles for a technology company not made an executive officer?

      Do you have any concerns surrounding the red flags raised in this piece? Issuing shares left and right? Paying excessive amounts of money for investor relations? The prior CTO being an absolute tool and fleecing shareholders? Does any of that stuff worry you? These are things that cannot be overlooked in favor of whatever glossy press releases are being spouted by the company. If you do not share the concerns we’ve raised here, that makes us wonder why.

Leave a Reply

Your email address will not be published. Required fields are marked *