Quantum Computing Inc. - FORM 10-Q

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EX-32.2 - CERTIFICATION - Quantum Computing Inc.	f10q0321ex32-2_quantum.htm
EX-32.1 - CERTIFICATION - Quantum Computing Inc.	f10q0321ex32-1_quantum.htm
EX-31.2 - CERTIFICATION - Quantum Computing Inc.	f10q0321ex31-2_quantum.htm
EX-31.1 - CERTIFICATION - Quantum Computing Inc.	f10q0321ex31-1_quantum.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-56015

QUANTUM COMPUTING INC.

(Exact name of registrant as specified in its charter)

Delaware

82-4533053

(State or other jurisdiction

of incorporation)

(IRS Employer

Identification No.)

215 Depot Court SE, Suite 215

Leesburg, VA 20175

(Address of principal executive offices)

(703) 436-2121

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		None		None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller Reporting Company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 12, 2021, there were 28,855,702 shares outstanding of the registrant’s common stock.

QUANTUM COMPUTING INC.

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Balance Sheets as of March 31, 2021 and December 31, 2020	F-2
	Unaudited Statement of Operations for the Three Months Ended March 31, 2021 and 2020	F-3
	Unaudited Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2021 and 2020	F-4
	Unaudited Statement of Cash Flows for the Three Months Ended March 31, 2021 and 2020	F-6
	Notes to the Unaudited Financial Statements	F-7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6
Item 4.	Controls and Procedures	6

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	7
Item 1A.	Risk Factors	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3.	Defaults Upon Senior Securities	7
Item 4.	Mine Safety Disclosures	7
Item 5.	Other Information	7
Item 6.	Exhibits	7

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Index to the Financial Statements

(Unaudited)

Description		Page

Unaudited Balance Sheets as of March 31, 2021 and December 31, 2020		F-2
Unaudited Statement of Operations for the Three Months Ended March 31, 2021 and 2020		F-3
Unaudited Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2020		F-4
Unaudited Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2021		F-5
Unaudited Statement of Cash Flows for the Three Months Ended March 31, 2021 and 2020		F-6
Notes to the Unaudited Financial Statements		F-7

F-1

QUANTUM COMPUTING INC.

Balance Sheets

(Unaudited)

	March 31,			December 31
	2021			2020
ASSETS

Current assets
Cash and cash equivalents	$	13,765,848		$	15,196,322
Prepaid Expenses		291,582			40,773
Lease right-of-use		-			-
Fixed Assets (net of depreciation)		32,983			30,956
Total assets	$	14,090,413		$	15,268,051

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities
Accounts payable	$	246,961		$	366,706
Accrued Expenses		134,821			108,130
Lease Liability		-			-
Derivative Liability		-			-
Loans Payable		218,371			218,371
Convertible promissory notes – related party		-			-
Convertible promissory notes		-			-
Total liabilities		600,153			693,207

Stockholders’ equity (deficit)
Common stock, $0.0001 par value, 250,000,000 shares authorized; 28,730,702 and 27,966,096 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		2,873			2,797
Additional paid-in capital		47,824,736			47,744,803
APIC-Beneficial Conversion Feature in Equity		4,898,835			4,898,835
APIC-Stock Based Compensation		17,650,797			15,423,644
Subscription Receivable		-			-
Accumulated deficit		(56,886,981	)		(53,495,235	)
Total stockholders’ equity (deficit)		13,490,260			14,574,844
Total liabilities and stockholders’ equity (deficit)	$	14,090,413		$	15,268,051

The accompanying notes are an integral part of these Unaudited financial statements.

F-2

QUANTUM COMPUTING INC.

Statement of Operations

(Unaudited)

	Three Months Ended
	March 31,
	2021			2020
Total revenue	$	-		$	-
Cost of revenue		-			-
Gross profit		-			-
Salaries		245,512			164,823
Consulting		303,470			76,162
Research & Development		625,445			344,682
Stock Based Compensation		1,977,170			1,012,351
Related Party Marketing		-			-
Selling General & Administrative -Other		241,532			140,374
Operating expenses		3,393,129			1,738,392

Loss from Operations		(3,393,129	)		(1,738,392	)
					-
Other Income and Expense
Interest Income – Money Market		1,383			25
Misc. Income – Legal Settlements		-			425,000
Interest Expense – Promissory Notes		-			(26,644	)
Interest Expense - Beneficial Conversion Feature					(100,000	)
Interest Expense –Warrant repricing					237,124
Interest Expense – Derivatives mark to market		-			504,708
Net Other income (expense)		1,383			1,040,213

Federal income tax expense		-			-

Net loss	$	(3,391,746	)	$	(698,179	)

Weighted average shares - basic and diluted		28,730,702			7,764,046
Loss per share - basic and diluted	$	(0.12	)	$	(0.09	)

The accompanying notes are an integral part of these Unaudited financial statements.

F-3

QUANTUM COMPUTING INC.

Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 2020

(Unaudited)

	Common Stock				Additional Paid			Accumulated
	Shares		Amount		in Capital			Deficit			Total

BALANCES, December 31, 2019		7,362,046	$	736	$	25,947,926		$	(28,760,955	)	$	(2,812,293	)

Issuance of shares for cash		287,000		28		430,472			-			430,500
Beneficial Conversion Feature						100,000						100,000
Subscription Receivable						-			-			-
Derivative Mark to Market						(237,124	)		-			(237,124	)
Stock Options						783,100			-			783,100
Stock based compensation		115,000		12		229,238			-			229,250
Net loss		-		-		-			(698,179	)		(698,179	)
BALANCES, March 31, 2020		7,764,046	$	776	$	27,253,612		$	(29,459,134	)	$	(2,204,745	)

The accompanying notes are an integral part of these Unaudited financial statements.

F-4

QUANTUM COMPUTING INC.

Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 2021

(Unaudited)

	Common Stock				Additional Paid		Accumulated
	Shares		Amount		in Capital		Deficit			Total

BALANCES, December 31, 2020		27,966,096	$	2,797	$	68,067,282	$	(53,495,235	)	$	(14,574,844	)

Issuance of shares for cash		55,000		6		79,994		-			80,000
Issuance of shares for debt conversion		-		-		-					-
Issuance of shares for services		709,606		70		933,259		-			933,329
Beneficial Conversion Feature		-		-		-		-			-
Subscription Receivable		-		-		-		-			-
Derivatives & Warrants		-		-		-		-			-
Stock Options						1,293,832-		-			1,300,168
Stock based compensation		-		-		-		-			-
Net loss		-		-		-		(3,391,746	)		(3,391,746	)
BALANCES, December 31, 2020		28,730,702	$	2,873	$	70,374,368	$	(56,886,981	)	$	13,490,260

The accompanying notes are an integral part of these Unaudited financial statements.

F-5

QUANTUM COMPUTING INC.

Statement of Cash Flows

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

	Three Months Ended
	March 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,391,746	)	$	(698,179	)
Adjustments to reconcile net income (loss) to net cash
Prepaid Expenses		(250,809	)		7,228
Depreciation		2,016			1,581
Accounts Payable		(119,744	)		(10,807	)
Accrued Expenses		26,690			60,950
Derivative Mark to Market		-			(504,708	)
Stock Based Compensation		2,227,162			1,012,350
Warrant Expense		-			(237,124	)
Beneficial Conversion Feature		-			100,000
CASH USED IN OPERATING ACTIVITIES		(1,506,431	)		(268,709	)

CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets – Computer Software and Equipment		(4,043	)		(3,258	)
CASH USED IN INVESTING ACTIVITIES		(4,043	)		(3,258	)

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance (repayment/conversion) of Convertible Promissory Notes		-			(60,302	)
Proceeds from loans		-			-
Subscription Receivable		-			-
Proceeds from stock issuance		80,000			430,500
CASH PROVIDED BY FINANCING ACTIVITIES		80,000			370,198

Net increase (decrease) in cash		(1,430,474	)		98,231

Cash, beginning of period		15,196,322			101,100

Cash, end of period	$	13,765,848		$	199,331

SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-
NON-CASH INVESTING ACTIVITIES
Subscription receivable created from issuance of note payable	$	-		$	-

NON-CASH FINANCING ACTIVITIES
Common stock issued for compensation		2,227,162			229,250

The accompanying notes are an integral part of these financial statements.

F-6

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies:

Organization:

Quantum Computing Inc., formerly known as Innovative Beverage Group Holdings, Inc. a Delaware corporation (the “Company”) was the surviving entity as the result of a merger between Ticketcart, Inc. and Innovative Beverage Group, Inc., both Nevada corporations. Innovative Beverage Group, Inc. was the surviving entity as the result of a merger between Kat-A-Tonic Distributing, Inc., a Texas corporation and United European Holdings, Ltd., a Nevada Corporation.

History

Quantum Computing Inc. (“QCI” or the “Company”), was incorporated in the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017, one of IBGH’s shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1) fraud; and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.” Mr. Alessi’s complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted, causing injury to the Company and its shareholders. Mr. Alessi sought damages of $30,000 for each claim, plus reimbursement of filing costs of $1,000, and the appointment of a Receiver for the Company.

On August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative Beverage Group Holdings, Inc. was (i) to issue to the Plaintiff 18,500,000 shares of free-trading stock without registration under Section 3(a)(10) of the Securities Act of 1933, as amended, (ii) issue 100,000,000 shares of stock to Innovative Beverage Group Holdings, Inc.’s treasury, and (iii) that the receivership be terminated upon any change of control, and that any and all claims against Innovative Beverage Group Holdings, Inc. that were not submitted to the Receiver as of September 16, 2017, were disallowed. On October 4, 2017 the Receiver filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company, (“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, redomiciled to North Carolina.

On January 22, 2018, while the Company was in receivership, the Company (acting through the court-appointed receiver in her capacity as CEO and sole Director of the Company) sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group (“CRG” or “Convergent Risk”), an entity owned and operated by the Company’s Chief Executive Officer, Robert Liscouski, for $155,000. On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski (the Chief Executive Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of Directors. Mr. Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take the necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February 21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the name changed to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate of Conversion in Delaware to convert to a Delaware corporation with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February 23, 2018.

F-7

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Company

The Company is focused on providing software tools and applications for quantum computers. We believe there is significant business opportunity in the quantum computing industry, and that the quantum computer has the potential to disrupt several global industries. Independent of when quantum computing delivers compelling performance advantage over classical computing, the software tools and applications necessary for accelerating real-world problems must be developed to deliver on quantum computing’s full promise.

Quantum computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum hardware. The pool of people with those skills today is limited and in high demand.

In order to address the steep learning curve and highly particular skillset associated with quantum computing, the Company is developing “quantum ready” software applications and solutions for commercial and government entities looking to leverage the expected future performance of quantum computing. We are focused on being an enabler – creating software that provide the advantages of advanced computing hardware for forward thinking clients.

By reducing the barriers to adoption for commercial and government entities in using quantum computing technologies to solve their most complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed with artificial intelligence. To this end, we are leveraging our collective expertise in finance, computing, mathematics and physics to develop a suite of applications that may enable global industries to utilize quantum computers, quantum annealers and digital simulators to improve their processes, profitability, and security.

F-8

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

The Company’s technical leadership intends to leverage industry expertise and innovative methods to develop quantum computer application solutions capable of solving increasingly complex problems in a more rapid and thorough manner. The Company will initially focus on addressing computational problems in the financial services, and cybersecurity quantum-secure encryption markets, followed later by addressing problems in the AI and genetics marketplaces.

The Company’s fiscal year end is December 31.

Basis of Presentation:

The accompanying Balance Sheet as of March 31, 2021, which was derived from audited financial statements, and the unaudited interim financial statements of the Company, has been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2021, and the cash flows and results of operations for the three and three months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for subsequent periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements contained in the Company’s 2020 Form 10-K, filed with Securities and Exchange Commission, and it is suggested that these financial statements be read in conjunction therewith.

Accounting Changes

Except for the changes discussed below, Quantum has consistently applied the accounting policies to all periods presented in these unaudited financial statements. The Company has evaluated all recently implemented accounting standards and concluded that none currently apply to the Company.

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.

Property and Equipment

Property and equipment are 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.

F-9

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Note 2 – Federal Income Taxes:

The Company has made no provision for income taxes because there have been no operations to date causing income for financial statements or tax purposes.

The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards Number 109 (“SFAS 109”). “Accounting for Income Taxes”, which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

	March 31,
	2021			2020
Net operating loss carry-forwards	$	3,209,535		$	1,379,919
Valuation allowance		(3,209,535	)		(1,379,919	)
Net deferred tax assets	$	-		$	-

At March 31, 2021, the Company had net operating loss carry forwards of approximately $3,209,535.

The Company experienced a change in control during the 2018, 2019 and 2020 calendar years and therefore no more than an insignificant portion of this net operating allowance will ever be used against future taxable income.

In early 2020, an outbreak of the novel strain of coronavirus (COVID-19) emerged globally. In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, which continues to spread throughout the United States. Subsequently, federal, state and local authorities issued mandates for social distancing and working from home to delay the spread of the coronavirus, resulting in an overall decline in economic activity. The ultimate impact of COVID-19 on the Company is not reasonably estimable at this time. Management is currently evaluating the recent introduction of the COVID-19 virus vaccines and the related government mandates, and their impact on the software industry and has concluded that while it is reasonably possible that the virus and the associated government mandates restricting activity could have a negative effect on the ability of the Company to meet with potential customers and to raise additional capital, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty, and the Company has not recorded any reserves relating to potential COVID-19 financial impacts.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (the "SBA") as a response to the economic uncertainty resulting from COVID-19. Congress amended the CARES Act on December 27, 2020. The CARES Act established the Paycheck Protection Program (the “PPP”) to loan money to small businesses to enable them to continue to meet payroll obligations in the face of business interruptions and loss of revenue due to COVID-19 related restrictions. The CARES Act also includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense deductions, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, referred to herein as the U.S. Tax Act, for qualified improvement property. The CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of March 31, 2021, the Company expects that the carryback of NOL's will not have an impact on its current tax attributes.

F-10

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

The Company elected not to implement the payroll tax deferral program under the CARES Act, but did apply for a PPP loan. On May 6, 2020, the Company executed an unsecured promissory note (the “Note”) with BB&T/Truist Bank N.A. to evidence a loan to the Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”) established under the CARES Act.

In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs and employee benefits. Interest will accrue on the outstanding balance of the Note at a rate of 1.00% per annum. The Company expects to apply for forgiveness of up to the entire amount of the Note. Notwithstanding the Company’s eligibility to apply for forgiveness, no assurance can be given that the Company will obtain forgiveness of all or any portion of the amounts due under the Note. The amount of forgiveness under the Note is calculated in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act, subject to limitations and ongoing rule-making by the SBA and the maintenance of employee and compensation levels.

Subject to any forgiveness granted under the PPP, the Note is scheduled to mature two years from the date of first disbursement under the Note. The Note may be prepaid at any time prior to maturity with no prepayment penalties. The Note provides for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, and significant changes in ownership. The occurrence of an event of default may result in the required immediate repayment of all amounts outstanding and/or filing suit and obtaining judgment against the Company. The Company’s obligations under the Note are not secured by any collateral or personal guarantees.

Note 3 – Financial Accounting Developments:

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. The Company has evaluated the recently implemented accounting standards and concluded that none currently apply to the Company.

F-11

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Note 4 – Subscription Receivable

The Company assumed a promissory note from one of the Initial Investors to Convergent Risk Group, LLC (see Note 9 – Related Parties) in the amount of $100,000, which is payable by the Initial Investor on or before December 31, 2020. The promissory note was issued in payment for a promissory note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory note was paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note would convert and shares will be issued. If the promissory note was not paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note held by this investor would be cancelled, and no shares would be issued.

In 2019 the Company engaged the Initial Investor as a consultant to provide advisory services for a one-year period. Upon satisfactory completion of the agreed services in July 2020, the Company deemed the services to be sufficiently valuable that in lieu of cash payment of invoice submitted the Company offset the invoice against the balance of the promissory note, which has been deemed paid in full. The Initial Investor converted the full $100,000 of its Convertible Promissory Note into 1,000,000 shares of common stock as of December 31, 2020.

Note 5 – Property and Equipment

	March 31,		December 31,
Classification	2021		2020
Hardware & Equipment	$	44,369	$	40,326
Software		0		0
Total cost of property and equipment		44,369		40,326
Accumulated depreciation		11,386		9,370
Property and equipment, net	$	32,983	$	30,956

The Company made Property and Equipment acquisitions of $4,043 during the three months ended March 31, 2021. The Company depreciates computer equipment over a period of five years.

Note 6 – Convertible Promissory Notes and Loans

In June 2019, the Company refunded $26,000 to a convertible promissory note investor. The accrued interest on that promissory note was written off by agreement with the investor.

In August 2019 the Company converted $1,994,500 principal amount of Convertible Promissory Notes convertible at $1.00 plus $124,997 of accrued interest into 2,119,525 restricted shares of common stock per the terms of the Convertible Note subscription agreements the Company entered into in 2018 with 59 accredited investors. Accrued interest on the Notes was rounded up to the next whole dollar so the Company did not issue fractional shares. Also, in August, the Company converted $21,000 principal amount of Convertible Promissory Notes (non-interest bearing) convertible at $0.10 into 210,000 shares of common stock

In October 2019 the Company entered into a Securities Purchase Agreement (the “SPA”), dated October 14, 2019 and effective October 16, 2019 (the “Issuance Date”), by and between the Company and Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which Auctus purchased from the Company, for a purchase price of $500,000 (the “Purchase Price”): (i) a Convertible Promissory Note in the principal amount of $500,000.00 (the “Auctus Note”); (ii) a common stock purchase warrant permitting Auctus to purchase up to 500,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $2.75 per share (the “First Warrant”); (iii) a common stock purchase warrant permitting Auctus to purchase up to 350,000 shares of the Company’s Common Stock at an exercise price of $3.75 per share (the “Second Warrant”); and (iv) a common stock purchase warrant permitting Auctus to purchase up to 275,000 shares of the Company’s Common Stock at an exercise price of $4.75 per share (the “Third Warrant” and together with the First Warrant and the Second Warrant, the “Warrants”, and together with the Note, the “Securities”).

F-12

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

The Auctus Note accrues interest at a rate of ten percent (10%) per annum and matures on October 14, 2020 (the “Maturity Date”). If the Company prepays the Auctus Note, the Company shall pay all of the principal and interest, together with a prepayment penalty ranging from 125% to 150% depending upon the date of such prepayment. The Auctus Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, all outstanding obligations owing under the Auctus Note will become immediately due and payable in cash or Common Stock at Auctus’ election. Any outstanding obligations owing under the Auctus Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum.

The Auctus Note is convertible into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion Price”) shall equal the lesser of: (i) $1.50, and (ii) 50% multiplied by the lowest trading price for the Common Stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date (representing a discount rate of 50%). Notwithstanding anything contained in the Auctus Note to the contrary, prior to the occurrence of an Event of Default, the Conversion Price shall not be less than $1.50 per share (the “Floor Price”). The Floor Price is subject to adjustment at the six (6) and nine (9) month anniversary of the Issuance Date. In the event that the Floor Price as of such dates is less than 70% multiplied by the volume weighted average price (VWAP) of the Common Stock during the five (5) trading day period immediately prior to such dates, the Floor Price is adjusted to such lesser amount.

Under the terms of the SPA, subject to certain conditions, upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) registering all of the shares of Common Stock underlying the Auctus Note and the Warrants, Auctus agreed to provide the Company with an additional investment of up to $1,000,000 through the issuance of an additional note or notes, as applicable (the “Additional Notes” together with the Note, the “Notes”).

The Auctus Notes and Warrants were not registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and/or Regulation D of the Securities Act. The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, the investor had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since the investor agreed to, and received, the securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.

In connection with the SPA, the Company entered into a Registration Rights Agreement (the “RRA”) pursuant to which it committed (i) use its best efforts to file with the Commission the Registration Statement within ninety (90) days of the Issuance Date; and (ii) have the Registration Statement declared effective by the Commission within one hundred fifty (150) days of the Issuance Date. The Company filed a Registration Statement with the Commission in November 2019 and it was declared effective in December 2019, registering 1,625,000 shares.

In January 2020 the Auctus Fund LLC exercised its option to convert $21,305 of the principal of its Convertible Note and accrued interest and fees of $8,695 (a total of $30,000) into 20,000 shares of the Company’s common stock. The principal balance remaining on the Note following this conversion was $478,695.

In February 2020 the Auctus Fund LLC exercised its option to convert $138,998 of the principal of its Convertible Note and accrued interest and fees of $11,002 (a total of $150,000) into 100,000 shares of the Company’s common stock. The principal balance remaining on the Note following this conversion was $339,698.

F-13

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

In February 2020, the Company entered into an agreement with the Auctus Fund LLC to reduce the exercise price of the $2.75 per share Warrants to $1.50 per share. No other changes were made to the terms of the Warrants or the Convertible Note held by the Auctus Fund. In February, the Auctus Fund LLC exercised 167,000 warrants at $1.50 per share, resulting in total proceeds to the Company of $250,500.

In February 2020, the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $5,000,000 at a conversion price of $1.50 per share (the “2020 Convertible Note Offering”). The Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date. In connection with the 2020 Convertible Note Offering, the Company has received funds of $100,000 as of June 30, 2020. The Board closed the 2020 Convertible Note Offering to further investment in June 2020.

On May 8, 2020 the Company repaid the outstanding principal balance of the Auctus convertible note, including accrued interest and prepayment penalty interest, for a total of $462,691.

Oasis Securities Purchase Agreement

On May 6, 2020 (the “Issuance Date”), Quantum Computing Inc., a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “SPA”) by and between the Company and Oasis Capital, LLC, a Puerto Rico limited liability company (“Oasis”), pursuant to which Oasis purchased from the Company, for a purchase price of $500,000 (the “Purchase Price”): (i) a Convertible Promissory Note in the principal amount of $563,055.00 (the “Note”); and (ii) a common stock purchase warrant (the “Warrant” and together with the Note, the “Securities”) permitting Oasis to purchase up to 187,685 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $1.50 per share (the “Exercise Price”). The Company received the Purchase Price on May 8, 2020.

The Note accrues interest at a rate of eight percent (8%) per annum and matures on the nine (9) months anniversary of the Issuance Date (the “Maturity Date”). In the event that the Company prepays the Note, the Company shall pay all of the principal and interest, together with a prepayment penalty ranging from 105% to 135% depending upon the date of such prepayment. The Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, all outstanding obligations owing under the Note will become immediately due and payable in cash or Common Stock at Oasis’ election. Any outstanding obligations owing under the Note which are not paid when due shall bear interest at the rate of eighteen percent (18%) per annum.

The Note is convertible into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion Price”) per share shall be (i) $1.50 during the six month period immediately following the Issuance Date, and (ii) after the six month period immediately following the Issue Date, the lower of: (a) $1.50, and (b) 70% multiplied by the lowest volume weighted average price for the Common Stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date (representing a discount rate of 30%).

The Warrant is exercisable for a term of five-years from the date of issuance. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. Until such time as there no longer an outstanding balance on the Note, if the Company shall, at any time while the Warrant is outstanding, sell any shares of Common Stock or securities entitling any person or entity to acquire shares of Common Stock at a price per share that is less than the Exercise Price (a “Dilutive Issuance”), than the Exercise Price shall be reduced to equal the Base Share Price (as defined in the Warrant) and the number of shares of Common Stock issuable under the Warrant shall be increased such that the aggregate exercise price payable under the Warrant, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.

On May 7, 2020, in connection with its entry into the Securities Purchase Agreement, the Company issued 37,537 Inducement Shares (as defined in the Securities Purchase Agreement) to Oasis.

F-14

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Oasis Equity Purchase Agreement

On May 6, 2020 (the “Execution Date”), the Company entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) and a Registration Rights Agreement (“Registration Rights Agreement”) with Oasis. Under the terms of the Equity Purchase Agreement, Oasis agreed to purchase from the Company up to $10,000,000 of the Company’s Common Stock upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) and subject to certain limitations and conditions set forth in the Equity Purchase Agreement.

Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have the discretion to deliver put notices to Oasis and Oasis will be obligated to purchase shares of the Company’s Common Stock based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to Oasis in each put notice shall not exceed the lesser of $500,000 or two hundred and fifty percent (250%) of the average daily trading volume of the Company’s Common Stock during the ten (10) trading days preceding the put notice. Pursuant to the Equity Purchase Agreement, Oasis and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to Oasis that would result in Oasis’s beneficial ownership of the Company’s outstanding Common Stock exceeding 9.99%. The price of each put share shall be equal to ninety percent (90%) of the Market Price (as defined in the Equity Purchase Agreement). Puts may be delivered by the Company to Oasis until the earlier of (i) the date on which Oasis has purchased an aggregate of $10,000,000 worth of Common Stock under the terms of the Equity Purchase Agreement; (ii) April 26, 2023; or (iii) written notice of termination delivered by the Company to Oasis, subject to certain equity conditions set forth in the Equity Purchase Agreement.

On May 7, 2020, in connection with its entry into the Equity Purchase Agreement and the Registration Rights Agreement, the Company issued 133,334 Commitment Shares (as defined in the Equity Purchase Agreement) to Oasis.

The Registration Rights Agreement provides that the Company shall (i) file with the Commission the Registration Statement by June 1, 2020; and (ii) use its best efforts to have the Registration Statement declared effective by the Commission at the earliest possible date (and in any event, within sixty (60) days of the Execution Date).

In July 2020 the Company converted $100,000 principal amount of Convertible Promissory Notes convertible at $0.10 into 1,000,000 restricted shares of common stock per the terms of the Convertible Note subscription agreement the Company entered into in 2018 the accredited investor, currently a member of the Company’s Board of Directors.

In December 2020, Oasis converted the principal balance of its promissory note plus accrued interest into 596,869 shares of common stock.

Paycheck Protection Program Loan

On May 6, 2020, Quantum Computing Inc. (the “Company”) executed an unsecured promissory note (the “Note”) with BB&T/Truist Bank N.A. to evidence a loan to the Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (the "SBA").

In accordance with the requirements of the CARES Act, the Company expects to use the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, mortgage interest, rent and utility costs. Interest will accrue on the outstanding balance of the Note at a rate of 1.00% per annum. The Company expects to apply for forgiveness of up to the entire amount of the Note. Notwithstanding the Company’s eligibility to apply for forgiveness, no assurance can be given that the Company will obtain forgiveness of all or any portion of the amounts due under the Note. The amount of forgiveness under the Note is calculated in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act, subject to limitations and ongoing rule-making by the SBA and the maintenance of employee and compensation levels.

F-15

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

On May 8, 2020, the Company entered into an agreement with the Auctus Fund LLC to reduce the exercise price of the Amended First Warrants from $1.50 per share to $1.00 per share, and to reduce the exercise price of the Second Warrants from $3.75 to $2.50 per share. No other changes were made to the terms of the Warrants or the Convertible Note held by the Auctus Fund. In May, the Auctus Fund LLC exercised 50,000 warrants at $1.00 per share, resulting in total proceeds to the Company of $50,000. In June, the Auctus Fund LLC exercised 183,000 warrants at $1.00 per share, resulting in total proceeds to the Company of $183,000.

In April 2020 the Company applied to the US Small Business Administration (the “SBA”) for a loan under the Economic Injury Disaster Loan (EIDL) program. In May the SBA informed the Company that the EIDL loan application had been declined, but that the SBA would provide a $10,000 forgivable advance under the EIDL program.

In May 2020 the Company raised $30,000 from three stockholders in the form of short term, non-interest bearing, promissory notes, each in the amount of $10,000. The promissory notes were repaid by the Company prior to the December 31, 2020 maturity date.

As of December 31, 2020, all of the Warrants held by Auctus and Oasis have been exercised, resulting in total proceeds to the Company of $1,458,500.

In December 2020, two of the Company’s Initial Investors converted the remaining principal balance of their promissory notes, $159,000, into 1,590,000 shares of the Company’s common stock at $0.10 per share. In addition, one of the investors in the 2018 Convertible Note Offering converted the principal balance of his note plus accrued interest into 893,000 shares of the Company’s common stock.

Note 7 – Capital Stock:

In June 2020, the Company entered into twelve month Lock Up – Leak Out agreements with fifty holders of approximately 2 million shares of restricted stock in exchange for 443,273 incentive shares. Under the Lock Up-Leak Out agreements the stockholders are precluded from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of their shares until June 11, 2021 and after that date they agreed to limit daily sales to no more than ten percent (10%) of the average daily trading volume of the Company’s stock for the previous three trading days. Two additional holders of a total of 50,000 shares also entered into 12-month LockUp-Leak Out agreements, however, due to an administrative oversight, the Company did not issue their incentives shares, totaling 10,000 shares, until September 2020.

On June 10, 2020 the Board authorized a private placement of common stock with fifty percent (50%) warrant coverage at an exercise price of $2.00 in the aggregate amount up to $3,000,000 at a stock price of $1.00 per share (the “2020 Units Offering”). In connection with the 2020 Units Offering, the Company received funds of $342,000 as of August 24, 2020, and issued 342,000 shares of Common Stock and Warrants to purchase 171,000 shares of Common Stock. The Board closed the 2020 Units Offering to further investment in August 2020.

In June 2020 the Company issued 300,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.

On July 24, 2020, the Company entered into Restricted Stock Agreements (the “Restricted Stock Agreements”) with certain of its senior managers, including certain directors and officers, listed in the table below (each, a “Grantee” and together, the “Grantees”), pursuant to the 2019 Quantum Computing Inc. Equity and Incentive Plan (the “Incentive Plan”). Pursuant to the terms of the Restricted Stock Agreements, the stock grants are one hundred percent (100%) vested as of the date of grant, but are subject to the Company’s right to recoup or “clawback” a portion of the shares if the Grantee terminates their employment prior to the second anniversary of the date of grant, in accordance with the following schedule: (i) the Company can recoup 100% of the shares until May 31, 2021, and (ii) the Company can recoup 50% of the shares between June 1, 2021 and May 31, 2022. As of June 1, 2022, the Company has no further recoupment rights to the shares. The stock grants are also subject to LockUp agreements for three years from the Grantee’s date of employment. The Lock Up Agreements preclude the Grantees from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of the shares in the Restricted Stock Agreements. In the aggregate the Company issued 2,000,000 shares to its senior managers, including the directors and officers listed below. The shares were granted at $3.16 per share.

F-16

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Name of Grantee	Position	Number of Shares
Robert Liscouski	Chairman, Chief Executive Officer, President	400,000
Christopher Roberts	Chief Financial Officer, Director	400,000

In August 2020 the Board authorized a private placement of common stock in the aggregate amount up to $4,500,000 at a stock price of $1.00 per share (the “2020 $1.00 Equity Offering”). The Company entered into Stock Purchase Agreements (the “SPA”) with approximately 94 accredited investors (the “Investors”), whereby the Investors purchased from the Company shares of the Company’s common stock in an aggregate amount of 4,237,500 (the “Shares”), for a purchase price of $1.00 per share (the “Per Share Purchase Price”) resulting in gross proceeds to the company of $4,237,500.

Under the terms of the SPA, the Investors shall have piggy-back registration rights to have the shares issued pursuant to the SPA included as part of any registration of securities filed by the Company (other than pursuant to Form S-4, Form S-8, or any equivalent form).

In connection with the Offering the Company issued an advisor 100,000 shares of the Company’s common stock and warrants to purchase an additional 325,000 shares of the Company’s common stock, at an initial exercise price) of $3.40- per share, subject to adjustment (the “Warrants”). Warrants will expire on September 11, 2025. The Board closed the 2020 Units Offering to further investment in September, 2020.

In September 2020 the Company issued 20,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.

In September 2020 the Company issued 50,000 shares of common stock and warrants to purchase an additional 150,000 shares of the Company’s common stock, at an initial exercise price of $1.00 per share, subject to adjustment (the “Warrants”), to Bridgewater Capital Corp, a financial and business strategy consulting firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Bridgewater Capital in August 2020. The Warrants will expire on September 11, 2025.

In October 2020 the Board authorized a private placement of common stock in the aggregate amount up to $12,500,000 at a stock price of $2.50 per share (the “2020 $2.50 Equity Offering”). As of December 31, 2020, the Company has raised approximately $14.4 million in the 2020 $2.50 Equity Offering. The Board closed the 2020 $2.50 Equity Offering to further investment effective December 31, 2020.

In connection with the 2020 $2.50 Equity Offering the Company issued an advisor 367,678 shares of the Company’s common stock and warrants to purchase an additional 367,678 shares of the Company’s common stock, at an initial exercise price) of $3.00 per share, subject to adjustment (the “Warrants”). Warrants will expire on December 23, 2025.

In December 2020 the Company issued 10,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.

In December 2020 the Company issued 170,000 shares of common stock to Bridgewater Capital Corp, a financial and business strategy consulting firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Bridgewater Capital in October, 2020.

In December 2020 the Company issued 250,000 shares each to its two independent directors as compensation for their services on the Company’s Board of Directors from September 2018 through December 2020.

F-17

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

In January 2021 the Company issued 10,000 shares of common stock to Axis Partners, Inc., an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Axis Partners, Inc. in January 2021.

In January 2021 holders of warrants for 842,678 shares of common stock requested a cashless exercise of their warrants, resulting in the issuance of 616,273 shares of common stock.

In February 2021 the Company issued 5,556 shares of common stock to a consultant as compensation for business development services pursuant to an agreement the Company entered into in January 2021.

In February 2021 the Company issued options for 450,000 shares of common stock, vesting over twelve months, to two investor relations consultants pursuant to agreements the Company entered into in February 2021.

In February 2021 an advisor exercised options to purchase 30,000 shares of the Company’s common stock at $1.00 per share, resulting in proceeds to the Company of $30,000.

In February 2021 an investor exercised warrants for 25,000 shares of the Company’s common stock at $2.00 per share, resulting in proceeds to the Company of $50,000.

Note 8 – Related Party Transactions

Convergent Risk Group, LLC

To finance the acquisition of the control block of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent) $275,000, in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total amount of $275,000. Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory Notes” in the total amount of $275,000 and certain liabilities (the “Liabilities”). The Liabilities and the Promissory Notes are collectively the “Convergent Liabilities.” The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019. The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019. All of the Initial Investors have converted their Convertible Promissory Notes to the Company’s common stock as of December 31, 2020.

REMTC, Inc.

To provide the Company with a highly secure development environment and intra-company data management and communication system, the Company contracted with REMTC, Inc. (“REMTC”), an entity wholly owned by Richard Malinowski, who was the Company’s Chief Technology and Operations Officer at the time, to acquire the necessary hardware and software, configure and install the REMTC proprietary security system, known as “PASS.” The total cost of the PASS System was approximately $670,000 which the Company paid to REMTC. In November 2018, Mr. Richard Malinowski informed the Company of his decision to resign as Chief Technology and Operations Officer and the Board accepted his resignation and that of Mr. Thomas Kelly. The Company and REMTC have unwound the PASS agreement and the Company expects to receive approximately $670,000 back from Mr. Malinowski and REMTC. The Company determined that the PASS System was unusable and therefore impaired, and wrote off the remaining undepreciated value of the PASS system as of December 31, 2018. In March 2019 the Company commenced litigation in New Jersey state court against REMTC, Mr. Malinowski and Mr. Kelly to recover the cost of the PASS System. In January 2020 the Company entered into a settlement of its claims against REMTC, Mr. Malinowski and Mr. Kelly and the litigation in New Jersey was dismissed.

F-18

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

JLS Ventures

To provide the Company with advertising and marketing services, the Company verbally contracted with JLS Ventures LLC. (“JLS”), an entity wholly owned by Justin Schreiber, a member of the Company’s board of directors, to procure and manage the advertising services. The agreement with JLS was terminated in October 2020 and no further expenses are anticipated under this contract. During the year ending December 31, 2020 the Company paid JLS $140,698 for advertising services.

Note 9 – Employee Benefits:

The Company offers a health and welfare benefit plan to current full time employees that provides medical, dental, vision, life and disability benefits. The Company also offers a 401K retirement savings plan to all full time employees. There are no unpaid liabilities under the Company’s benefit plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired employees.

Note 10 – Subsequent Events:

In April 2021 an investor exercised warrants for 125,000 shares of the Company’s common stock at $2.00 per share, resulting in proceeds to the Company of $250,000.

In April 2021 the Company entered into employment agreements with two executive officers, Mr. Robert Liscouski and Mr. Christopher Roberts, listed in the table below (each, a “Officer” and together, the “Officers”). Pursuant to the terms of the Employment Agreements, the Officers were granted options to purchase shares of the Company’s common stock. The options were granted at $6.40 per share.

Name	Position	Number of Options
Robert Liscouski	Chairman, Chief Executive Officer, President	400,000
Christopher Roberts	Chief Financial Officer, Director	400,000

There are no other events of a subsequent nature that in management’s opinion are reportable.

F-19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,

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

Products and Products in Development

Qatalyst

Qatalyst (formerly Mukai) is our answer to the current state of the quantum computing industry. As the industry’s first publicly available Quantum Application Accelerator, Qatalyst enables developers to create and execute quantum-ready applications on conventional computers, while being ready to run on quantum computers where those systems achieve performance advantage. Qatalyst performs the complex problem transformations necessary to be executed on a variety of quantum platforms today, and users can call upon the same Qatalyst APIs (Application Programming Interfaces) to achieve optimization performance advantages on conventional computers using our cloud-based solution.

Qatalyst dramatically reduces the time-to-quality results and the associated costs for both conventional and quantum computers. Unlike more common toolsets that require deep level quantum expertise to build new quantum problems and workflows, Qatalyst is not a tool kit, but a complete platform. It accelerates performance and results on classic and quantum computers, with no additional quantum programming or quantum computing expertise required. This is why it is unique in its approach to the quantum computing industry. Instead of invoking a team of quantum specialists to transform an optimization problem, an SME or programmer submits their current problem via a software API to the Qatalyst cloud-based platform. Qatalyst manages the workflow, optimizations, and results, without any further intervention by the user. Qatalyst provides a unique advantage to reduce applications development risks and costs by eliminating the need for scarce high-end quantum programmers.

Qatalyst is integrated with the Amazon Cloud BRAKET API, offering access to multiple Quantum Processing Units (“QPUs”) including DWave, Rigetti, and IonQ. Qatalyst also integrates directly with IBM’s QPUs.

By using Qatalyst, application developers can run their applications on any or all of the available QPUs by merely selecting which QPU they prefer to run on based on the desired performance results of the application. We believe this provides a substantial advantage over any other toolkit or platform in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.

Qatalyst also eliminates the need for the low-level hardware programming expertise required by toolkits. This programming is time consuming and must be updated constantly as QPUs evolve and change, resulting in significant development costs. Qatalyst automatically optimizes the same problem submitted by a SME for multiple Quantum and Conventional Processors. The SME or programmer selects one, or many, processing resources and the problem will be submitted by Qatalyst. This is an enormous advantage over any tool set in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.

The Company’s innovative Qatalyst software masks the complexity of quantum programming via the Q API, a powerful six call API that users can learn in a day. Instead of spending months or years developing new applications and workflows requiring complex and extremely low-level coding, users, workflows or applications can immediately submit a problem to Qatalyst within a day, using the same familiar constructs they use right now, via the Q API. Users have utilized Qatalyst’s simple API and familiar constructs to solve their first complex problem within a week, as compared to the 6-12 months associated with quantum software toolkits.

Qatalyst Features

Today, SMEs can leverage the power of Qatalyst to solve high-value discrete optimization problems present in finance, bio/pharma, and cybersecurity. Currently, Qatalyst offers the following features:

●

Quantum-ready engines tuned for complex computations. These engines automatically optimize, submit, and iterate to return excellent, diverse results for supply chain and other constrained optimization problems.

●

Transparent abstraction from quantum hardware variance. Qatalyst eliminates the need to write low-level, assembly-type code to support different vendors’ quantum hardware architectures, such as D-Wave, Rigetti, IBM and ION-Q. The same problem can run seamlessly across all quantum types and architectures.

●

Qatalyst Core: an engine that utilizes sophisticated mathematics, quantum transformation and iterative processing to find highly optimal answers across both classic and quantum computers. For example, LaGrange multipliers, which work to compress and simplify the problem prior to constraint optimization. The Core applies these advanced mathematical techniques, based on the type of problem and processing required.

●

Q Graph: a powerful transformation engine that empowers SMEs to submit and analyze graph models as part of their complex optimizations. Q Graph accepts familiar graph models and functions including Clique Cover, Community Detection and Partitioning.

●

Qontrol: a portal that provides administrative management tools for user administration, request control, statuses and alerts. Qontrol also enables system administrators and users to import Qatalyst results into popular analysis applications such as Excel or Tableau.

Results of Operations

Three Months Ended March 31, 2021 vs. March 31, 2020

Revenues

	For the Three Months Ended March 31, 2021					For the Three Months Ended March 31, 2020
(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 three months ended March 31, 2021 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 sold any products or services to any customers.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2021 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 sold any products or services.

Gross Margin

Gross margin for the three months ended March 31, 2021 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet sold any products or services.

Operating Expenses

Operating expenses for the three months ended March 31, 2021 were $3,393,129 as compared with $1,738,392 for the comparable prior year period, an increase of $1,654,676, or 95%. The increase in operating expenses is due in large part to the $964,819 increase in stock-based compensation, a $280,763 increase research and development expenses, partially offset by a $31,073 decrease in legal fees in the first three months of 2021 compared with the comparable period in 2020. In addition, changes in the number and composition of staff resulted in a $80,689 increase in salary and benefit expenses, and a $227,308 increase in consulting expenses, primarily related to increased sales and marketing efforts, compared to the comparable prior year period.

Net Income (Loss)

Our net loss for the three months ended March 31, 2021 was $3,391,746 as compared with a net loss of $698,179 for the comparable prior year period, an increase of $2,693,568 or 644%. The increase in net loss is primarily due to the increase in operating expenses, noted above, plus a $615,188 decrease in interest expense largely associated with the mark to market repricing of a convertible promissory note derivative, granting warrants, and repricing existing warrants, and other financing related expenses recorded in the prior year period compared to the current year period. In addition, during the comparable prior year period, the net loss from operations was offset in part by $425,000 in other income from a legal settlement.

Liquidity and Capital Resources

Since commencing operations as Quantum Computing in February 2018, the Company has raised $19,259,904 through private placement of equity and $5,133,000 through private placements of Convertible Promissory Notes for a total of $24,392,904 in new investment. The Company has one SBA PPP bank loan in the amount of $218,371 but no bank lines of credit, and no long-term debt obligations. As of March 31, 2021, the Company had cash and equivalents of $13,765,848 on hand.

The following table summarizes total current assets, liabilities and working capital at March 31, 2021, compared to December 31, 2020:

	March 31, 2021		December 31, 2020		Increase/ (Decrease)
Current Assets	$	14,057,430	$	15,237,095	$	(1,179,665	)
Current Liabilities	$	600,153	$	693,207	$	(93,055	)
Working Capital (Deficit)	$	13,457,277	$	14,543,888	$	(1,086,610	)

At March 31, 2021, we had working capital of $13,457,277 as compared to working capital of $14,543,888 at December 31, 2020, a decrease of $1,086,610. The decrease in working capital is primarily attributable to in the use of cash to pay for operating expenses and capital investments.

Net Cash

Net cash used in operating activities for the three months ended March 31, 2021 and 2020 was $1,506,431 and $268,709, respectively. The net loss for the three months ended March 31, 2021 and 2020, was $3,391,746 and $698,179, respectively.

Net cash used in investing activities for the twelve months ended March 31, 2021 and 2020 were $4,043 and $3,258, respectively representing a $785 increase in investments for computer equipment in 2021 compared with the first three months of 2020.

Net cash provided by financing activities for the three months ended March 31, 2021 was $80,000 and cash flows provided in the same period of 2020 was $370,198. Cash flows provided in financing activities during the first thee-month period in 2021 were primarily attributable to issuance of common stock for the exercise of options and the exercise of warrants. The cash flow used in financing activities during the first three months of 2020 were related to the sale of a convertible promissory note, the conversion of convertible promissory notes to common stock and the exercise of warrants to purchase common stock.

Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities. During the first three months of 2021, we have funded our operations through the use of cash on hand, coupled with funds received from the exercise of options and warrants. As of May 7, 2021, we had cash on hand of approximately $13,545,102. We have approximately $6,743 in monthly lease and other mandatory payments, not including payroll, employee benefits 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.

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.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our audited financial statements for the year ended December 31, 2020. Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.

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

Use of Estimates:

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.

Property and 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.

Off Balance Sheet Arrangements

During the three months ended March 31, 2021 and for fiscal 2020, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the controls evaluation, our Principal Executive Officer and Principal Financial Officer concluded that as of the date of their evaluation, our disclosure controls and procedures were not effective to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our Chief Executive Officer and President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 18, 2021, other than the following:

We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.

Our business could be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments could cause disruption to our operations and sales activities. Our third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions which could adversely affect our business, operations and customer relationships. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In January 2021, the Company issued 616,273 shares upon the cashless exercise of warrants issued to two advisory firms. The Company also issued 2,778 shares to a consultant as payment for business development services.

In February 2021, the Company issued 10,000 shares as compensation to a consultant for investor relations services and 40,000 shares to legal advisors as compensation for services and issued 2,778 shares to a consultant as payment for business development services. In addition, the Company issued 30,000 shares upon exercise of options granted to an advisor. The Company received proceeds of $30,000 upon exercise of the options.

In March 2021, the Company issued 25,000 shares upon exercise of warrants issued to an investor in 2020. The Company received proceeds of $50,000 upon exercise of the warrants. The Company also issued 37,777 shares to two consultants as payment for business development services.

Item 3. Defaults upon Senior Securities

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

There is no other information required to be disclosed under this item which has not been previously reported.

Item 6. Exhibits

		Incorporated by
Exhibit		Reference		Filed or Furnished
Number	Exhibit Description	Form	Exhibit	Filing Date	Herewith
10.1**	Form Director Agreement	8-K	10.1	02/23/2021
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350.				X
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350.				X
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Linkbase Document.				X
101.CAL	XBRL Taxonomy Calculation Linkbase Document.				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.				X
101.LAB	XBRL Taxonomy Label Linkbase Document.				X
101.PRE	XBRL Taxonomy Presentation Linkbase Document.				X

**	Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

	QUANTUM COMPUTING INC.

Dated: May 13, 2021	By:	/s/ Robert Liscouski
		Robert Liscouski
		Principal Executive Officer

	By:	/s/ Christopher Roberts
		Christopher Roberts
		Principal Financial Officer and Principal Accounting Officer

Quantum Computing Inc. - FORM 10-Q - May 13, 2021

Attached files

Quantum Computing Inc. Reports