Notes
to Financial Statements
March
31, 2018
(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”
or “QCI,” “we,” “us,” or “our”) 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
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. to better reflect its business operations at the time which was beverage
distribution and product development. In 2013, Innovative Beverage Group Holdings, Inc. ceased operations. On May 22, 2017, one
of Innovative Beverage Group Holdings, Inc.’s. shareholders, a North Carolina resident (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.” The 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. Plaintiff
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. 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, Inc.
redomiciled to North Carolina.
On
January 22, 2018, while the Company was in receivership, the Company sold 500,000 shares (the “CRG Shares”) of its
common stock to Convergent Risk Group (“CRG”), 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.
Business
The
Company’s business focuses on quantum computing software development. The Company intends to develop heterogeneous software
that can run on the platforms that are under development by the quantum computer hardware industry. The Company’s initial
focus will be on the security and financial services sectors. Other potential markets for quantum computing include artificial
intelligence (“AI”), machine learning, genetics and pharmaceuticals. The Company intends to be a leading provider
of software that can run on multiple quantum platforms.
Initially,
the Company is focused on two main development efforts. First, we plan to focus on the development of quantitative financial related
products such as financial portfolio optimization. The financial services industry has used quantitative financial software applications
for several decades with some success. However, those existing products are limited in their performance due to the lack of computing
power to solve these classes of optimization problems, which are known as “NP Complete Problems”. NP Complete Problems
are a class of mathematical problems that can be solved in polynomial increments of time using a non-deterministic method. These
NP Complete Problems require complex calculations, which cannot currently be performed in reasonable amounts of time using conventional,
binary computer systems, with the exception of simple cases. These problems are intractable because of the inability of bit-based
systems to handle complex non-deterministic problems. The recent developments in quantum annealing and other quantum hardware
suggests that these problems will soon be solvable using these new technologies. The Company’s goal is to develop and implement
quantum related algorithms to provide solutions to these NP Complete Problems in the area of financial optimization. Optimization
algorithms are ideally suited to run on a class of quantum computers, known as “annealers,” that are currently becoming
made available in the market by various manufacturers.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Notes
to Financial Statements
(Unaudited)
The
Company’s secondary market focus will be the field of cybersecurity, specifically encryption and decryption algorithms.
Current encryption algorithms, such as DES (widely used in banking transactions), use codes based on the product of two very large
prime numbers. To decrypt the message requires finding the factors of a very large number, which can be done with current computers,
but takes unacceptably long amounts of time. The factorization process can be performed much more rapidly using algorithms running
on a quantum computer. The other aspect of cybersecurity that we will work on is development of encryption algorithms that are
either “quantum resistant”, i.e. difficult for quantum computer to crack, or “quantum based”, i.e., that
use principals of quantum physics to create a quantum based code that is difficult for both conventional and quantum computers
to break. Information security has a number of components, of which encryption is an important tool. Encryption is vital to e-commerce,
banking, cellular communication, and protecting email, websites and online identities because unprotected data can be stolen and
misused.
Business
Strategy
The
Company plans to enter the market for high performance computers and software applications, specifically focusing on what are
known as “quantum computers”. The Company has assembled a team of experienced engineers in super computing technology
and quantum mathematics, which will focus on design and development of several quantum software applications that target solutions
to problems including non-deterministic polynomial applications.
The
Company has hired physicists, applied mathematicians (algorithm developers) and software developers to support the technical team
in developing and designing quantum software applications. Applied mathematicians develop the algorithms and algorithm/software
developers design software solutions utilizing the algorithms provided to them by mathematicians. Software engineers test the
algorithm code to ensure reliable and accurate performance of the software product.
In
addition, the Company has retained outside leading industry experts from well-known institutions from the financial services industry
and leading financial institutions, and expects to retain additional advisors from cybersecurity firms and government agencies
to serve as technical advisors to the Company. We have formed an advisory board of additional subject matter experts, which is
expected to assist us to shape our business strategy and direction as well as work with us to establish our market approach. QCI
is also pursuing US Government initiatives in quantum computing and AI, including grants and funding, that are fostering U.S.
innovation in those domains.
The
Company does not currently intend to be a hardware manufacturer. However, due to the cutting-edge nature of quantum computing
and the high cost and limited availability of quantum computers, as well as limitations on the capabilities of existing quantum
simulators, we may find it necessary over the next two years to develop our own quantum simulators upon which we can develop and
test our quantum software products. If such development becomes necessary, our simulators are expected to emulate the characteristics
and capabilities of a quantum computer such as superposition and quantum entanglement. Our plan is to license our software as
a cloud based service, but we are not ruling out selling turn-key hardware systems that would incorporate and support our own
quantum inspired computing solutions.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, 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, 2019, which was derived from audited financial statements, and the unaudited interim
financial statements of the Company have 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, 2019, and the cash flows
and results of operations for the three months then ended. Such adjustments consisted only of normal recurring items. The results
of operations for the three months ended March 31 are not necessarily indicative of the results for the full year. 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 2018 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.
Adoption
of ASC 842
On
January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires
the recognition of the right-of-use assets and relating operating and finance lease liabilities on the balance sheet. As permitted
by ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the consolidated
balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases (“ASC 840”),
which did not required the recognition of operating lease liabilities on the balance sheet, and is therefore not comparative.
Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance
leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded
entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating
expenses and an implied interest component is recorded in interest expense. The expense recognition for operating leases and finance
leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in our results
of operations presented in our consolidated income statement and consolidated statement of comprehensive income for each period
presented.
We
adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had
a minor impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use assets
and the liability for operating leases. The accounting for finance leases (capital leases) was substantially unchanged. Accordingly,
upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842,
and we recorded an adjustment of $2,491 to operating lease right-of-use asset and the related lease liability. The lease liability
is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental
borrowing rate at the effective date of January 1, 2019. As permitted under ASC 842, we elected several practical expedients that
permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether
previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not
have a significant impact on the measurement of the operating lease liability. As of December 31, 2018 and March 31, 2019 we had
no finance leases.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Notes
to Financial Statements
(Unaudited)
The
impact of the adoption of ASC 842 on the balance sheet at December 31, 2018 was:
|
|
As
Reported December 31, 2018
|
|
|
Adoption
of ASC 842 Increase (Decrease)
|
|
|
Revised
Balance January 1, 2019
|
|
Other Current Assets
|
|
|
1,767,080
|
|
|
|
|
|
|
|
1,767,080
|
|
Operating Lease right-of-use assets
|
|
|
-
|
|
|
|
2,491
|
|
|
|
2,491
|
|
Total assets
|
|
|
1,797,156
|
|
|
|
2,491
|
|
|
|
1,799,647
|
|
Other current liabilities
|
|
|
3,314,102
|
|
|
|
|
|
|
|
3,314,102
|
|
Lease Liability-current
|
|
|
-
|
|
|
|
2,491
|
|
|
|
2,491
|
|
Long-term Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities and equity
|
|
|
1,797,156
|
|
|
|
2,491
|
|
|
|
1,799,647
|
|
We
lease substantially all our office space used to conduct our business. We adopted ASC 842 effective January 1, 2019. For contracts
entered into on or after the effective date, at the inception of a contract we assess whether the contract is, or contains, a
lease. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain
the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the
right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component
based on its relative stand-alone price to determine the lease payments. Leases entered into prior to January 1, 2019 are accounted
for under ASC 840 and were not reassessed.
Leases
are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following
criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option
to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful
life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the
asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating
leases are comprised of office space leases and as of December 31, 2018 and March 31, 2019 we had no finance leases.
For
all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents
the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under
the lease.
The
right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any
initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use
assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted
using the interest rate implicit in the lease, or if that rate cannot be readily determined, our secured incremental borrowing
rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured incremental
borrowing rate. For our finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the
implicit lease rate cannot be determined.
Lease
payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments
for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination
options unless it is reasonably certain the lease will not be terminated early.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Notes
to Financial Statements
(Unaudited)
Lease
expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and
is recognized on a straight-line basis over the lease term.
Adoption
of ASU 2018-02
On
January 1, 2019, we adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income: Reclassification of Certain
Tax effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which requires the reclassification from
accumulated other comprehensive income to retained earnings for the stranded tax effects arising from the reduction of the U.S.
federal statutory income tax rate from 35% to 21%, effective January 1, 2018. ASU 2018-02 modifies ASC 740, Income Taxes (“ASC
740), which requires businesses to adjust the value of deferred tax assets and liabilities upon a change in the tax law. ASC 740
specifies that changes in tax assets and liabilities related to the tax rate change must be presented in earnings, even when the
corresponding deferred taxes relate to items initially recognized in accumulated other comprehensive income such as pension adjustments,
gains or losses on cash flow hedges, foreign currency translation adjustments and unrealized gains or losses on available-for-sale
securities. The Company had no deferred tax assets or liabilities as of December 31, 2017, accordingly there were no stranded
tax effects to reclassify and the adoption of ASU 2018-02 had no impact on the Company’s financial statements.
Adoption
of ASU 2018-07
On
January 1, 2019, we adopted ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”),
which aligns the accounting for share-based payments to nonemployees for goods and services with the requirements for accounting
for share-based payments to employees under ASC 718 Compensation - Stock Compensation. ASU 2018-07 provides that nonemployee share-based
payments are measured at the grant date at the fair value of the equity instruments to be provided to the nonemployee when the
goods or services have been delivered. Prior to ASU 2018-07 nonemployee share-based payments were measured at the fair value of
the consideration received or the fair value of the equity instruments issued, whichever could be more reliably measured.
We
adopted ASU 2018-07 using a modified retrospective approach with a cumulative effect adjustment to retained earnings as of the
implementation date for all nonemployee share-based payments that (1) have not been settled as of the adoption date and (2) nonemployee
share-based payments for which a measurement date has not been established. We made no adjustment to retained earnings as a result
of adopting ASU 2018-07.
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 is 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.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, 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,
|
|
|
|
2019
|
|
|
2018
|
|
Net operating loss carry-forwards
|
|
$
|
797,941
|
|
|
$
|
99,508
|
|
Valuation allowance
|
|
|
(797,941
|
)
|
|
|
(99,508
|
)
|
Net deferred tax
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At
March 31, 2019, the Company had net operating loss carry forwards of approximately $797,941.
The
Company experienced a change in control during the 2018 calendar year and therefore no more than an insignificant portion of this
net operating allowance will ever be used against future taxable income.
Note
3 –
Going Concern
The
Company’s financial statements have been prepared on the basis that it is a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company has earned no revenue from operations in the three-month periods ended March 31, 2019 and 2018, and has an accumulated
deficit of $21,015,540 and $10,921,622 respectively. The Company’s ability to continue as a going concern is dependent upon
its ability to develop additional sources of capital or ultimately acquire an entity which the Company hopes will become profitable
at some time in the near future. The accompanying financial statements do not include any adjustments that might result from the
outcome of these uncertainties. Management is seeking additional capital to finance the operations of the Company.
Note
4 –
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.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Notes
to Financial Statements
March
31, 2019
(Unaudited)
Note
5 –
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 June 30, 2019. 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 is paid in full on or before June 30, 2019, the Company’s Convertible Promissory
Note will convert and shares will be issued. If the promissory note is not paid in full on or before June 30, 2019, the Company’s
Convertible Promissory Note held by this investor will be cancelled, and no shares will be issued.
Note
6 –
Property and Equipment
|
|
March 31,
|
|
|
December 31,
|
|
Classification
|
|
2019
|
|
|
2018
|
|
Hardware & Equipment
|
|
$
|
7,014
|
|
|
$
|
7,014
|
|
Software
|
|
|
0
|
|
|
|
0
|
|
Total cost of property and equipment
|
|
|
7,014
|
|
|
|
7,014
|
|
Accumulated depreciation
|
|
|
468
|
|
|
|
117
|
|
Property and equipment,
net
|
|
$
|
6,546
|
|
|
$
|
6,897
|
|
The
Company made Property and Equipment acquisitions of $0 during the three months ended March 31, 2019. The Company depreciates computer
equipment over a period of five years.
Note
7 –
Convertible Promissory Notes
In
March 2018 the Board authorized the Company to issue non-interest bearing convertible promissory notes at a conversion price of
$0.10 per share to the Initial Investors and others and $500,000 of these convertible notes have been issued, for which only $225,000
has been received by the Company in cash.
On
May 24, 2018 the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $15,000,000
at a conversion price of $1.00 per share (the “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 $1.00 Convertible Note Offering, the Company received funds of $3,495,500
as of December 31, 2018. The Board terminated the Convertible Note Offering in October, 2018.
In
total, the Company has issued convertible promissory notes of principal value $3,995,500, for which the Company has received a
total of $3,720,500 in funds.
The
convertible promissory notes were issued at different times during the year, and the difference between the conversion prices
of the notes and the fair market value of the Company’s common stock at the date of the investment, as measured by the closing
price on the OTC Markets, was recorded as a Beneficial Conversion Feature interest expense.
Note
8 –
Capital Stock:
On
March 1, 2018 the Board authorized the Company to raise up to $500,000 of equity capital at price of $0.40 per share of common
stock (the “Initial Raise”). In connection with the Initial Raise, the Company received subscriptions for $75,000,
and issued shares of restricted common stock pursuant to the Subscription Agreements. On September 5, 2018 the Board formally
concluded the Initial Raise and ceased accepting investments.
On
April 13, 2018, The Company’s board of directors authorized a 1:200 reverse stock split on the shares of the Company’s
common stock. Accordingly, all references to numbers of common shares and per-share data in the accompanying financial statements
have been adjusted to reflect the stock split on a retroactive basis. The Board and the majority stockholder also amended the
Company’s Articles of Incorporation to increase the authorized capital of the company to 260,000,000 shares, consisting
of 250,000,000 shares of common stock and 10,000,000 shares of preferred stock.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Notes
to Financial Statements
March
31, 2019
(Unaudited)
In
September 2018, the Company issued 4,800,000 shares of restricted common stock to key management and technical personnel, pursuant
to their respective employment agreements which were entered into and executed in July 2018 and made effective as of March 1,
2018, the date employment with the Company commenced. The terms of the employee stock grants are spelled out in Restricted Stock
Agreements and Lock Up Agreements (the “Stock Agreements”), which the Company entered into with each employee.
The Stock Agreements specify that the stock grants are subject to restrictions spelled out in a restrictive legend, and that the
grants vest in full upon the first date of employment. However, if the employee terminates their employment prior to the
third anniversary of his/her date of hire, the Company has a right to recoup a portion of the stock grant. Specifically,
the Company can recoup two thirds of the stock grant until the second anniversary date, and one third of the stock grant between
the second and third anniversary dates. After the third anniversary date, the Company has no further recoupment rights.
Thus, the requisite service period under ASC 718 is the three year period starting with the first date of employment.
The employee is also subject to the Lock Up Agreement for three years from the date of employment. The
Lock Up Agreement precludes the employee from selling, granting, lending, pledging, offering or in any way, directly or indirectly
disposing of the shares granted by the Company. Because the restricted stock grants vested in full upon the Effective
Date, in accordance with ASC 718 we determined that the full amount of the fair market value of the shares should be recognized
as compensation expense as of the date of the grant, rather than recognizing the stock based compensation expense pro rata over
the requisite service period.
The
Company recognized stock based compensation expense of $24.2 million in connection with the grants of stock to key management
and technical personnel, pursuant to ASC 718. The expense amount was calculated based on the closing price of the Company stock
on the OTC Markets on the date the grants were executed. In November 2018, two of the key management employees resigned from the
Company and returned all of their stock grants to the Company, for a total of 4,000,000 shares. The return of the stock grants
was treated as a forfeiture under ASC 718 and accordingly the Company reversed $20.16 million of the stock based compensation
expense after the shares were returned to the Company and cancelled.
In
October 2018 the Company converted $725,000 principal amount of Convertible Promissory Notes, plus $16,711 of accrued interest,
into 1,510,377 shares of common stock. The Company also issued 130,000 shares of common stock to CNLT, LLC, pursuant to an anti-dilution
provision associated with the shares held by CNLT.
In
December 2018 the Company converted $100,000 principal amount of Initial Investor promissory notes, plus accrued interest of $2,422,
into 1,002,422 shares of common stock.
In
March 2019 the Company issued 25,000 shares of common stock to Lyons Capital, LLC, an investor relations firm, as compensation
for services pursuant to the terms of an agreement the Company entered into with Lyons Capital in December 2018.
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Notes
to Financial Statements
March
31, 2019
(Unaudited)
Note
9 –
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. While the conversion of the Convertible Promissory
Notes is mandatory at the maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The
Company has no obligation to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory
Notes will result in dilution of other shareholders once the Initial Investors convert their notes into the Company’s common
stock.
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, among other fees.
Note
10 –
Reclassifications:
Certain
reclassifications have been made to the prior period financial statements to conform to the current period financial statement
presentation. Specifically, the Beneficial Conversion Feature expense relating to the offering of Convertible Promissory Notes
in 2018 has been allocated to the periods in which the Promissory Notes were issued. These reclassifications had no effect on
net earnings or cash flows as previously reported for calendar year 2018.
Note
11 –
Subsequent Events:
There
are no other events of a subsequent nature that in management’s opinion are reportable.