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on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. ☒
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Act registration statement number of the earlier effective registration statement for the same offering. ☐
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Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
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If an emerging growth company, indicate
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RISK FACTORS
An investment in our Common Stock involves
a high degree of risk. Before deciding whether to invest in our Common Stock, you should consider carefully the risks
described below, together with all of the other information set forth in this prospectus and the documents incorporated by reference
herein, and in any free writing prospectus that we have authorized for use in connection with this offering. If any
of these risks actually occurs, our business, financial condition, results of operations or cash flow could be harmed. This
could cause the trading price of our Common Stock to decline, resulting in a loss of all or part of your investment. The
risks described below and in the documents referenced above are not the only ones that we face. Additional risks not
presently known to us or that we currently deem immaterial may also affect our business.
Risks Related to Our Business
WE
HAVE A LIMITED OPERATING HISTORY.
The Company was incorporated under the
laws of the State of Delaware on February 22, 2018 and has engaged in limited operations to date. Accordingly, the Company has
only a limited operating history with which you can evaluate its business and prospects. An investor in the Company must consider
its business and prospects in light of the risks, uncertainties and difficulties frequently encountered by early-stage companies,
including limited capital, delays in product development, possible marketing and sales obstacles and delays, inability to gain
customer and merchant acceptance or inability to achieve significant distribution of our products and services to customers. The
Company cannot be certain that it will successfully address these risks. Its failure to address any of these risks could have a
material adverse effect on its business.
WE HAVE A HISTORY OF ACCUMULATED
DEFICITS, RECURRING LOSSES AND NEGATIVE CASH FLOWS FROM OPERATING ACTIVITIES. WE MAY BE UNABLE TO ACHIEVE OR SUSTAIN PROFITABILITY
OR CONTINUE AS A GOING CONCERN.
To date, we have not yet recorded revenues
from the sale of our products. If we are unable to generate revenues, we will not be able to achieve and maintain profitability.
Beyond this, we may incur significant losses in the future for a number of reasons including other risks described in this document,
and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not
ever be able to achieve profitability. We incurred negative cash flows from operating activities and recurring net losses in fiscal
years 2019 and 2018. As of December 31, 2019, and 2018, our accumulated deficit was $28,760,955 and $20,379,867, respectively.
These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements
included in this prospectus do not include any adjustments that might result from the outcome of this uncertainty. In order for
us to remove substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive
cash flows from operating activities and obtain necessary debt or equity funding. If we are unable to increase revenues or obtain
additional financing, we will be unable to continue the development of our products and services and we may have to cease operations.
In that event you could lose your entire investment.
Our consolidated financial statements have
been prepared on the assumption that we will continue as a going concern. Our independent registered public accounting firms have
included an explanatory paragraph in our consolidated financial statements for the fiscal years ended December 31, 2019 and 2018
stating that 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. To date,
it has been necessary to rely upon debt and the sale of our equity securities to sustain operations. Our management anticipates
that we will require additional capital to fund ongoing operations without taking into account the proceeds from this offering.
There can be no guarantee that we will
be able to obtain such funds, or obtain them on satisfactory terms, and that such funds would be sufficient. If such additional
funding is not obtained, we may be required to scale back or cease operations.
WE ARE NOT PROFITABLE
AND MAY NEVER BE PROFITABLE.
Since inception through the present, we
have been dependent on raising capital to support our working capital needs. During this same period, we have recorded net accumulated
losses and are yet to achieve profitability. Our ability to achieve profitability depends upon many factors, including its ability
to develop and commercialize our websites. There can be no assurance that we will ever achieve any significant revenues or profitable
operations.
OUR
OPERATING EXPENSES EXCEED OUR REVENUES AND WILL LIKELY CONTINUE TO DO SO FOR THE FORESEEABLE FUTURE.
We are in an early stage of our development
and we have not generated any revenues to offset our operating expenses. Our operating expenses will likely continue to exceed
our operating income for the foreseeable future, until such time as we are able to monetize our brands and generate substantial
revenues, particularly as we undertake payment of the increased costs of operating as a public company.
WE
WILL NEED ADDITIONAL CAPITAL, WHICH MAY BE DIFFICULT TO RAISE AS A RESULT OF OUR LIMITED OPERATING HISTORY OR ANY NUMBER OF OTHER
REASONS.
Without the proceeds of this offering, we expect that we will have adequate financing
for the next 3-4 months. However, in the event that we exceed our expected growth, we would need to raise additional capital. There
is no assurance that additional equity or debt financing will be available to us when needed, on acceptable terms or even at all.
Our limited operating history makes investor evaluation and an estimation of our future performance substantially more difficult.
As a result, investors may be unwilling to invest in us or such investment may be on terms or conditions which are not acceptable.
In the event that we are not able to secure financing, we may have to scale back our growth plans or cease operations.
WE
HAVE NOT ADOPTED VARIOUS CORPORATE GOVERNANCE MEASURES, AND AS A RESULT STOCKHOLDERS MAY HAVE LIMITED PROTECTIONS AGAINST INTERESTED
DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Recent Federal legislation, including the
Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity
of corporate management and the securities markets. Because our securities are not yet listed on a national securities exchange,
we are not required to adopt these corporate governance measures and have not done so voluntarily in order to avoid incurring the
additional costs associated with such measures. Among these measures is the establishment of independent committees of the Board
of Directors. However, to the extent a public market develops for our securities, such legislation will require us to make changes
to our current corporate governance practices. Those changes may be costly and time-consuming. Furthermore, the absence of the
governance measures referred to above with respect to our Company may leave our shareholders with more limited protection in connection
with interested director transactions, conflicts of interest and similar matters.
FAILURE TO IDENTIFY ERRORS IN THE
QUANTITATIVE MODELS WE UTILIZE TO MANAGE OUR BUSINESS COULD ADVERSELY IMPACT PRODUCT PERFORMANCE AND CLIENT RELATIONSHIPS.
We employ various quantitative models.
Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business and
reputation.
WE MAY BE UNABLE TO DEVELOP NEW PRODUCTS
AND SERVICES AND THE DEVELOPMENT OF NEW PRODUCTS AND SERVICES MAY EXPOSE US TO ADDITIONAL COSTS OR OPERATIONAL RISK.
Our financial performance depends, in part,
on its ability to develop, market and manage new products and services. The development and introduction of new products and services
require continued innovative efforts and may require significant time and resources as well as ongoing support and investment.
Substantial risk and uncertainties are associated with the introduction of new products and services, including the implementation
of new and appropriate operational controls and procedures, shifting client and market preferences, the introduction of competing
products or services and compliance with regulatory requirements.
OUR
PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO CLAIMS FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
OR MAY BE INFRINGED OR MISAPPROPRIATED BY OTHERS.
We rely, and may rely in the future, upon
a combination of license agreements, confidentiality policies and procedures, confidentiality provisions in employment agreements,
confidentiality agreements with third parties and technical security measures to maintain the confidentiality, exclusivity and
trade secrecy of our proprietary information. We also rely, and most likely will rely in the future, on trademark and copyright
laws to protect our intellectual property rights in the United States and abroad. Despite our protective measures and intellectual
property rights, we may not be able to adequately protect against theft, copying, reverse engineering, misappropriation, infringement
or unauthorized use or disclosure of our intellectual property, which could have an adverse effect on our competitive position.
WE
MAY BECOME SUBJECT TO LEGAL PROCEEDINGS THAT COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS.
From time to time and in the ordinary course
of our business, we and certain of our subsidiaries may become involved in various legal proceedings. All such legal proceedings
are inherently unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming and disruptive
to our operations and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts,
injunctive relief or other equitable relief that may affect how we operate our business. Similarly, if we settle such legal proceedings,
it may affect how we operate our business. Future court decisions, alternative dispute resolution awards, business expansion or
legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial noneconomic
remedies or punitive damages may be sought. Although we maintain liability insurance coverage, there can be no assurance that such
coverage will cover any particular verdict, judgment or settlement that may be entered against us, that such coverage will prove
to be adequate or that such coverage will continue to remain available on acceptable terms, if at all. If we incur liability that
exceeds our insurance coverage or that is not within the scope of the coverage in legal proceedings brought against us, it could
have an adverse effect on our business, financial condition and results of operations.
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Certification, licensing or regulatory requirements with regard to the technology we expect to develop relating to financial and cybersecurity applications;
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Unexpected changes in regulatory requirements such as the National Quantum Initiative Act or other federal or state laws that may require us to take certain actions; and
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Changes to or reduced protection of intellectual property rights in some countries which may affect or ability to protect and maintain intellectual property rights relating to our applications.
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WE
INTEND TO CONTINUE EXPLORING STRATEGIC BUSINESS ACQUISITIONS AND OTHER COMBINATIONS, WHICH ARE SUBJECT TO INHERENT RISKS.
In order to expand our solutions, services,
and grow our market and client base, we may continue to seek and complete strategic business acquisitions and other combinations
that we believe are complementary to our business. Acquisitions have inherent risks which may have a material adverse effect on
our business, financial condition, operating results or prospects, including, but not limited to: 1) failure to successfully integrate
the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to maintain
uniform standard controls, policies and procedures; 2) diversion of management’s attention from other business concerns;
3) entry into markets in which we have little or no direct prior experience; 4) failure to achieve projected synergies and performance
targets; 5) loss of clients or key personnel; 6) incurrence of debt or assumption of known and unknown liabilities; 7) write-off
of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; 8) dilutive issuances
of equity securities; and, 9) accounting deficiencies that could arise in connection with, or as a result of, the acquisition of
an acquired company, including issues related to internal control over financial reporting and the time and cost associated with
remedying such deficiencies. If we fail to successfully integrate acquired businesses or fail to implement our business strategies
with respect to these acquisitions, we may not be able to achieve projected results or support the amount of consideration paid
for such acquired businesses.
IF
WE ARE UNABLE TO MANAGE OUR GROWTH IN THE NEW MARKETS IN WHICH WE OFFER SOLUTIONS OR SERVICES, OUR BUSINESS AND FINANCIAL RESULTS
COULD SUFFER.
Our future financial results will depend
in part on our ability to profitably manage our business in the new markets that we enter. Difficulties in managing future growth
in new markets could have a significant negative impact on our business, financial condition and results of operations.
WE
RELY HEAVILY ON OUR MANAGEMENT, AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS.
Our success is highly dependent upon the
continued services of our management including our Chief Executive Officer, Robert Liscouski, and our Chief Financial Officer,
Mr. Christopher Roberts. The loss of Mr. Liscouski’s and/or Mr. Roberts’ services would have a material adverse effect
on the Company and its business operations.
OUR CHIEF FINANCIAL OFFICER IS NOT
A FULL-TIME EMPLOYEE.
Our Chief Financial Officer, Mr. Christopher
Roberts, is an independent contractor and shares time with other clients. The inability to retain a full-time Chief Financial Officer,
Principal Financial Officer or governor of the financial responsibilities of the Company may impair our ability to meet our reporting
obligations and implement financial controls to protect the Company.
WE MAY NOT BE ABLE TO IMPLEMENT OUR
GROWTH AND MARKETING STRATEGY SUCCESSFULLY OR ON A TIMELY BASIS OR AT ALL.
Our future success depends, in large part,
on our ability to implement our growth strategy of expanding distribution and sales of our product portfolio, attracting new consumers
and introducing new product lines and product extensions.
Our sales and operating results will be
adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves
unsuccessful.
CYBER SECURITY RISKS AND THE FAILURE
TO MAINTAIN THE INTEGRITY OF DATA BELONGING TO OUR COMPANY COULD EXPOSE US TO DATA LOSS, LITIGATION AND LIABILITY, AND OUR REPUTATION
COULD BE SIGNIFICANTLY HARMED.
We may from time to time collect and retain
large volumes of data relating to our business and from our customers for business purposes, including for transactional and promotional
purposes, and our various information technology systems enter, process, summarize and report such data. The integrity and protection
of this data is critical to our business. Maintaining compliance with the evolving regulations and requirements applicable to data
security and information privacy protection could be difficult and may increase our expenses. In addition, a penetrated or compromised
data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent
or unlawful use of data relating to our company or our employees, independent distributors or preferred customers, which could
harm our reputation, disrupt our operations, or result in remedial and other costs, fines or lawsuits.
COMPUTER MALWARE, VIRUSES, HACKING,
PHISHING ATTACKS AND SPAMMING COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
Computer malware, viruses, physical or
electronic break-ins and similar disruptions could lead to interruption and delays in our services and operations and loss, misuse
or theft of data. Computer malware, viruses, computer hacking and phishing attacks against online networking platforms have become
more prevalent and may occur on our systems in the future.
Any attempts by hackers to disrupt our
internal systems, if successful, could harm our business, be expensive to remedy and damage our reputation or brand. Our network
security business disruption insurance may not be sufficient to cover significant expenses and losses related to direct attacks
on our website or internal systems. Efforts to prevent hackers from entering our computer systems are expensive to implement and
may limit the functionality of our services. Though it is difficult to determine what, if any, harm may directly result from any
specific interruption or attack, any failure to maintain performance, reliability, security and availability of our products and
services and technical infrastructure may harm our reputation, brand and our ability to attract customers. Any significant disruption
to our website or internal computer systems could result in a loss of customers and could adversely affect our business and results
of operations.
We have previously experienced, and may
in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure
changes, third-party service providers, human or software errors and capacity constraints. If our mobile application is unavailable
when customers attempt to access it or it does not load as quickly as they expect, customers may seek other services.
Our platform functions on software that
is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in
our software code may only be discovered after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our
code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or
difficultly maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage
to our reputation or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial
results.
We expect to continue to make significant
investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products.
To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our
technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results
may be harmed.
GROWING OUR CUSTOMER BASE DEPENDS
UPON THE EFFECTIVE OPERATION OF OUR APPLICATIONS WITH OPERATING SYSTEMS, NETWORKS AND STANDARDS THAT WE DO NOT CONTROL.
We will be dependent on the interoperability
of our applications with operating systems that we do not control, and any changes in such systems that degrade our potential products’
functionality or give preferential treatment to competitive products could adversely affect the usage of our applications on mobile
devices. Additionally, in order to deliver high quality products, it is important that our products work well with a range of mobile
technologies, systems, networks and standards that we do not control. We may not be successful in developing relationships with
key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks
or standards.
WE MAY NEVER SUCCESSFULLY COMMERCIALIZE
ANY PRODUCTS.
We have invested a substantial amount of
our time and resources in developing various new products and computing technologies. Commercialization of these products will
require additional development, clinical evaluation, beta testing, significant marketing efforts and substantial additional investment
before they can provide us with any revenue. Despite our efforts, these products may not become commercially successful products
for a number of reasons, including but not limited to:
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our products or technologies may not prove to be effective in trials;
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we may experience delays in our development program;
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any products or technologies that are approved may not be accepted in the marketplace;
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we may not have adequate financial or other resources to complete the development or to commence the commercialization of our products or will not have adequate financial or other resources to achieve significant commercialization of our products;
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we may not be able to manufacture any of our products in commercial quantities or at an acceptable cost;
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rapid technological change may make our products obsolete;
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we may be unable to effectively protect our intellectual property rights or we may become subject to claims that our activities have infringed the intellectual property rights of others; and
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we may be unable to obtain or defend patent rights for our products or technologies.
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THE MARKET OPPORTUNITY FOR OUR PRODUCTS
AND TECHNOLOGIES MAY NOT DEVELOP IN THE WAYS THAT WE ANTICIPATE.
The demand for our products and technologies
can change quickly and in ways that we may not anticipate because the market in which we operate is characterized by rapid, and
sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements,
changes in customer requirements and a limited ability to accurately forecast future customer orders. Our operating results may
be adversely affected if the market opportunity for our products and services does not develop in the ways that we anticipate or
if other technologies or products become more accepted or standard in our industry or disrupt our technologies and products.
WE FACE SIGNIFICANT COMPETITION AND
MANY OF OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO.
Some of our product offerings and technologies
compete and will compete with other similar products from our competitors. These competitive products could be marketed by well-established,
successful companies that possess greater financial, marketing, distributional, personnel and other resources than we possess.
In certain instances, competitors with greater financial resources also may be able to enter a market in direct competition with
us offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features
that our target end users may find attractive.
OUR INABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY COULD IMPAIR OUR COMPETITIVE ADVANTAGE, REDUCE OUR REVENUE, AND INCREASE OUR COSTS.
Our success and ability to compete depends
and will depend in part on our ability to obtain and maintain the proprietary aspects of our technologies and products. We intend
to rely on a combination of trade secrets, patents, copyrights, trademarks, confidentiality agreements, and other contractual provisions
to protect our intellectual property, but these measures may provide only limited protection. We may not always be able to enforce
these agreements and may fail to enter into any such agreement in every instance when appropriate. We may from time to time license
from third party’s their brands or certain technology used in and for our products. These third-party licenses are granted
with restrictions; therefore, such third-party technology may not remain available to us on terms beneficial to us. Our failure
to enforce and protect our intellectual property rights or obtain from third parties the right to use necessary technology could
have a material adverse effect on our business, operating results, and financial condition. In addition, the laws of some foreign
countries do not protect proprietary rights as fully as do the laws of the United States.
Patents may not issue from the patent applications
that we may file in the future. Our issued patents may be challenged, invalidated, or circumvented, and claims of our patents may
not be of sufficient scope or strength, or issued in the proper geographic regions, to provide meaningful protection or any commercial
advantage. We plan to register certain of our trademarks in the United States and other countries. We cannot assure you that we
will obtain registrations of principal or other trademarks in key markets in the future. Failure to obtain registrations could
compromise our ability to protect fully our trademarks and brands, and could increase the risk of challenge from third parties
to our use of our trademarks and brands.
WE MAY NOT BE ABLE TO PROTECT OUR
SOURCE CODE FROM COPYING IF THERE IS AN UNAUTHORIZED DISCLOSURE OF SOURCE CODE.
Source code, the detailed program commands
for our operating systems and other software programs, is critical to our business. Although we license portions of our application
and operating system source code to several licensees, we take significant measures to protect the secrecy of large portions of
our source code. If a significant portion of our source code leaks, we might lose future trade secret protection for that source
code. It may become easier for third parties to compete with our products by copying functionality, which could adversely affect
our revenue and operating margins.
OUR FAILURE TO KEEP PACE WITH RAPID
TECHNOLOGY CHANGES COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION AND FINANCIAL RESULTS.
The markets for our products and services
are characterized by rapid technological developments and frequent changes in customer requirements. We must continually improve
the performance, features and reliability of our products and services, particularly in response to competitive offerings, to keep
pace with these developments. We must ensure that our products and services address evolving operating environments, devices, industry
trends, certifications and standards. We also may need to develop products that are compatible with new operating systems while
remaining compatible with existing, popular operating systems. Our business could be harmed by our competitors announcing or introducing
new products and services that could be perceived by customers as superior to ours. We spend considerable resources on technology
research and development, but our research and development resources are more limited than many of our competitors.
Our failure to introduce new or enhanced
products on a timely basis, to keep pace with rapid industry, technological or market changes or to gain customer acceptance for
our new and existing products and services, such as mobile device data protection, could have a material adverse effect on our
business, financial condition and financial results.
IMPROVEMENTS TO PUBLIC KEY CRYPTOGRAPHY
TECHNOLOGY COULD REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES AND COULD NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND
FINANCIAL RESULTS.
Our business will employ encryption technologies
to encrypt and decrypt sensitive data. The security afforded by encryption depends on the integrity of the private key, which is
predicated on the assumption that it is very difficult to mathematically derive the private key from the related public key with
conventional computers. Our business plan calls for the development and marketing of quantum based encryption and decryption technologies,
which are based on different mathematical principals than public key encryption and should be more difficult to break. Successful
decryption of intercepted encrypted email, or public reports of successful decryption, whether or not true, could reduce demand
for our products and services. If new methods or technologies, make it easier to derive the private key from the related public
key, or to break quantum encryption algorithms, the security of encryption services could be impaired and our products and services
could become less marketable. That could require us to make significant changes to our services, which could increase our costs,
damage our reputation, or otherwise harm our business. Any of these events could reduce our revenues, increase our expenses and
materially adversely affect our business, financial condition and financial results.
WE FACE STRONG COMPETITION, WHICH
COULD NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FINANCIAL RESULTS.
The markets in which we compete are characterized
by rapid change and converging technologies and are very competitive. There is strong competition for encryption products and services.
Our business competes with products and services offered by companies such as ID Quantique (Switzerland), MagiQ Technologies (US),
Nucrypt (US), Infineon Technologies (Germany), Qutools (Germany), Quintessence Labs (Australia), Riggetti (US), Crypta Labs (UK),
PQ Solutions (U), Zapata (US) and Qubitekk (US). These companies currently offer quantum cryptography solutions to commercial clients
around the world. Strong competition requires us to develop new technology solutions and service offerings to expand the functionality
and value that we offer to our customers. Our competitors may develop products and services that are perceived by customers as
equivalent to, or having advantages over, our products and services. Competitors could capture a significant share in our markets,
causing our sales and revenue to decline or grow more slowly. Barriers to entry are relatively low, and new ventures are often
formed that create products competitive with our products. Competitive pressures could lead to price discounting or to increases
in expenses such as advertising and marketing costs. Increased competition could also decrease demand for our products and services.
Competition could reduce our revenues and net income and materially adversely affect our business, financial condition and financial
results.
GOVERNMENTAL RESTRICTIONS ON THE
SALE OF OUR PRODUCTS AND SERVICES IN NON-U.S. MARKETS COULD NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FINANCIAL RESULTS.
Exports of software solutions and services
using advanced encryption technology such as ours are generally restricted by the U.S. government. Although we are confident that
we can obtain U.S. government approval to export our solutions to almost all countries, the list of countries to which we (and
our distributors) cannot export our products and services could be expanded in the future. In addition, some countries impose restrictions
on the importation and use of encryption solutions and services such as ours. The cost of compliance with U.S. and other export
laws, or our failure to obtain governmental approvals to offer our products and services in non-U.S. markets, could affect our
ability to sell our products and services and could impair our international expansion. We face a variety of other legal and compliance
risks. If we or our distributors fail to comply with applicable law and regulations, we may become subject to penalties, fines
or restrictions that could materially adversely affect our business, financial condition and financial results.
WE MAY FAIL TO RECRUIT AND RETAIN
KEY PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO MEET KEY OBJECTIVES.
Our success depends on our ability to attract
and retain highly-skilled technical, managerial, sales, and marketing personnel. Changes in key personnel may be disruptive to
our business. It could be difficult, time consuming and expensive to replace key personnel. Integrating new key personnel may be
difficult and costly. Volatility, lack of positive performance in our stock price or changes to our overall compensation program
including our stock incentive program may adversely affect our ability to retain key employees, many of whom are compensated, in
part, based on the performance of our stock price. The loss of services of any of our key personnel, the inability to retain and
attract qualified personnel in the future or delays in hiring required personnel could make it difficult to meet key objectives.
Any of these impairments related to our key personnel could negatively affect our business, financial condition and financial results.
To remain competitive in our industries,
we must attract, motivate and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including
executives, consultants, programmers and systems architects skilled in quantum computing, computing, and the technical environments
in which our solutions, devices and services are needed. Competition for such personnel in our industries is intense in both the
United States and abroad. Our failure to attract additional qualified personnel to meet our needs could have a material adverse
effect on our prospects for long-term growth. In addition, we invest significant time and expense in training our associates, which
increases their value to clients and competitors who may seek to recruit them and increases the cost of replacing them. Our success
is dependent to a significant degree on the continued contributions of key management, sales, marketing, consulting and technical
personnel. The unexpected loss of key personnel could have a material adverse impact on our business and results of operations,
and could potentially inhibit development and delivery of our solutions, devices and services and market share advances.
IF WE FAIL TO ESTABLISH AND MAINTAIN
AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR PREVENT FRAUD. ANY INABILITY
TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE
OF OUR COMMON STOCK.
Effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely
affect our financial condition, results of operations and access to capital.
OUR BUSINESS DEPENDS ON OUR ABILITY
TO ATTRACT AND RETAIN TALENTED EMPLOYEES.
Our performance relies upon successfully
attracting and retaining talented employees representing diverse backgrounds, and skill sets. Our future success depends on our
continuing ability to identify, hire, motivate, develop, and retain highly skilled individuals for all areas of our organization.
The market for highly skilled workers and leaders in our nascent industry is extremely competitive. Maintaining and improving our
corporate culture, in addition to our diverse and inclusive work environment that enables all our employees to thrive, are salient
factors in our ability to recruit and retain employees. In addition, our compensation arrangements, such as our equity award programs,
may not always be successful in attracting new employees and retaining and motivating our existing employees. Our continued ability
to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
We are also limited in our ability to recruit
internationally by restrictive domestic immigration laws. Changes to U.S. immigration policies that restrain the flow of technical
and professional talent may inhibit our ability to adequately staff our research and development efforts. If we are less successful
in our recruiting efforts, or if we cannot retain highly skilled workers and key leaders, our ability to develop and deliver successful
products and services may be adversely affected. Effective succession planning is also important to our long-term success. Failure
to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and
execution. How employment-related laws are interpreted and applied to our workforce practices may result in increased operating
costs and less flexibility in how we meet our workforce needs.
THE QUANTUM COMPUTING INDUSTRY IS
IMMATURE AND VOLATILE, AND IF IT DOES NOT DEVELOP, IF IT DEVELOPS MORE SLOWLY THAN WE EXPECT, IF IT ENCOUNTERS NEGATIVE PUBLICITY
OR IF OUR SOLUTION DOES NOT DRIVE COMMERCIAL ENGAGEMENT, THE GROWTH OF OUR BUSINESS WILL BE HARMED.
With respect to our quantum computing application
services, the quantum computing industry is relatively new and unproven, and it is uncertain whether it will achieve and sustain
high levels of demand, consumer acceptance and market adoption. Our success will depend to a substantial extent on the willingness
of our potential customers to use, and increase their utilization of, our solution, as well as on our ability to demonstrate the
value of quantum computing to their respective organization, government agencies, and other purchasers of quantum computing offerings.
Negative publicity concerning our solution or the quantum computing industry as a whole could limit market acceptance of our solution.
If our clients and partners do not perceive the benefits of our solution, or if our solution does not drive member engagement,
then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual and industry concerns
or negative publicity regarding technophobic views in the context of quantum computing could limit market acceptance of our quantum
computing services. If any of these events occur, it could have a material adverse effect on our business, financial condition
or results of operations.
RAPID TECHNOLOGICAL CHANGE IN OUR
INDUSTRY PRESENTS US WITH SIGNIFICANT RISKS AND CHALLENGES.
The quantum computing market is characterized
by rapid technological change, changing user requirements, uncertain product lifecycles and evolving industry standards. Our success
will depend on our ability to enhance our solution with next-generation technologies and to develop or to acquire and market new
services to access new consumer populations. There is no guarantee that we will possess the resources, either financial or personnel,
for the research, design and development of new applications or services, or that we will be able to utilize these resources successfully
and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of
our competitors or future competitors will not results in present or future applications and services becoming uncompetitive or
obsolete.
Risks Related to Our Common Stock
OUR STOCK PRICE MAY BE VOLATILE OR
MAY DECLINE REGARDLESS OF OUR OPERATING PERFORMANCE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Unaudited Consolidated Financial Statements
Report of Independent Registered Public
Accounting Firm
To the shareholders and the board of directors
of Quantum Computing, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance
sheets of Quantum Computing, Inc. (the "Company") as of December 31, 2019 and 2018, the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable
basis for our opinion.
Substantial Doubt about the Company’s
Ability to Continue as a Going Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the
Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company's auditor
since 2019.
Lakewood, CO
March 27, 2020
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Balance Sheets
(Audited)
|
|
December 31,
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
101,100
|
|
|
$
|
1,767,080
|
|
Prepaid Expenses
|
|
|
21,549
|
|
|
|
23,179
|
|
Lease right-of-use
|
|
|
-
|
|
|
|
-
|
|
Fixed Assets (net of depreciation)
|
|
|
25,596
|
|
|
|
6,897
|
|
Total assets
|
|
$
|
148,245
|
|
|
$
|
1,797,156
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
218,261
|
|
|
$
|
54,018
|
|
Accrued Expenses
|
|
|
152,547
|
|
|
|
89,584
|
|
Lease Liability
|
|
|
-
|
|
|
|
-
|
|
Derivative Liability
|
|
|
980,730
|
|
|
|
-
|
|
Convertible promissory notes – related party
|
|
|
100,000
|
|
|
|
100,000
|
|
Convertible promissory notes
|
|
|
1,509,000
|
|
|
|
3,070,500
|
|
Total liabilities
|
|
|
2,960,538
|
|
|
|
3,314,102
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 250,000,000 shares authorized; 7,362,046 and 4,724,161 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively
|
|
|
736
|
|
|
|
472
|
|
Additional paid-in capital
|
|
|
17,002,297
|
|
|
|
10,935,029
|
|
APIC-Beneficial Conversion Feature in Equity
|
|
|
4,798,835
|
|
|
|
3,995,500
|
|
APIC-Stock Based Compensation
|
|
|
4,246,794
|
|
|
|
4,031,920
|
|
Subscription Receivable
|
|
|
(100,000
|
)
|
|
|
(100,000
|
|
Accumulated deficit
|
|
|
(28,760,955
|
)
|
|
|
(20,379,867
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(2,812,293
|
)
|
|
|
(1,516,946
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
148,245
|
|
|
$
|
1,797,156
|
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Operations
(Audited)
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Salaries
|
|
|
495,143
|
|
|
|
520,327
|
|
Consulting
|
|
|
361,102
|
|
|
|
322,278
|
|
Research & Development
|
|
|
891,126
|
|
|
|
250,640
|
|
Stock Based Compensation
|
|
|
214,884
|
|
|
|
4,182,014
|
|
Selling General & Administrative -Other
|
|
|
585,397
|
|
|
|
523,694
|
|
Operating expenses
|
|
|
2,547,652
|
|
|
|
5,798,953
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(2,547,652
|
)
|
|
|
(5,798,953
|
)
|
|
|
|
|
|
|
|
-
|
|
Interest Income – Money Market
|
|
|
8,810
|
|
|
|
-
|
|
Interest Expense – Promissory Notes
|
|
|
(151,185
|
)
|
|
|
(87,307
|
)
|
Interest Expense - Beneficial Conversion Feature
|
|
|
(803,335
|
)
|
|
|
(3,995,500
|
)
|
Interest Expense – Promissory Notes
|
|
|
(4,887,726
|
)
|
|
|
(87,307
|
)
|
Asset Impairment Charge
|
|
|
-
|
|
|
|
(625,333
|
)
|
Other income (expense)
|
|
|
(5,833,436
|
)
|
|
|
(4,708,140
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,381,088
|
)
|
|
$
|
(10,507,093
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
7,362,046
|
|
|
|
4,724,161
|
|
Loss per share - basic and diluted
|
|
$
|
(1.14
|
)
|
|
$
|
(2.22
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Stockholders’ Deficit
For the Twelve Months Ended December 31,
2018
(Audited)
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2017
|
|
|
943,735
|
|
|
$
|
94
|
|
|
$
|
9,871,180
|
|
|
$
|
(9,872,774
|
)
|
|
$
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
2,980,426
|
|
|
|
298
|
|
|
|
1,063,849
|
|
|
|
-
|
|
|
|
1,064,147
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
3,995,500
|
|
|
|
|
|
|
|
3,995,500
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(100,000
|
)
|
Stock based compensation
|
|
|
800,000
|
|
|
|
80
|
|
|
|
4,031,920
|
|
|
|
|
|
|
|
4,032,000
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,507,093
|
)
|
|
|
(10,507,093
|
)
|
BALANCES, December 31, 2018
|
|
|
4,724,161
|
|
|
$
|
472
|
|
|
$
|
18,862,449
|
|
|
$
|
(20,379,867
|
)
|
|
$
|
(1,516,946
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Stockholders’ Deficit
For the Twelve Months Ended December 31,
2019
(Audited)
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2018
|
|
|
4,724,161
|
|
|
$
|
472
|
|
|
$
|
18,862,449
|
|
|
$
|
(20,379,867
|
)
|
|
$
|
(1,516,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
2,529,525
|
|
|
|
253
|
|
|
|
2,160,273
|
|
|
|
-
|
|
|
|
2,160,526
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
803,335
|
|
|
|
|
|
|
|
803,335
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivatives & Warrants
|
|
|
|
|
|
|
|
|
|
|
3,906,996
|
|
|
|
-
|
|
|
|
3,906,996
|
|
Stock based compensation
|
|
|
108,360
|
|
|
|
11
|
|
|
|
214,873
|
|
|
|
-
|
|
|
|
214,884
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,381,088
|
)
|
|
|
(8,381,088
|
)
|
BALANCES, December 31, 2019
|
|
|
7,362,046
|
|
|
$
|
736
|
|
|
$
|
18,862,449
|
|
|
$
|
(28,760,955
|
)
|
|
$
|
(2,812,293
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Cash Flows
For the Twelve Months Ended December 31,
2019 and 2018
(Audited)
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,381,088
|
)
|
|
$
|
(10,507,093
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
Prepaid Expenses
|
|
|
1,630
|
|
|
|
(23,180
|
)
|
Loan from Officer
|
|
|
-
|
|
|
|
-
|
|
Depreciation
|
|
|
2,640
|
|
|
|
117
|
|
Accrued Expenses
|
|
|
62,963
|
|
|
|
89,584
|
|
Stock Based Compensation
|
|
|
214,874
|
|
|
|
4,032,000
|
|
Accounts payable
|
|
|
164,243
|
|
|
|
52,518
|
|
Warrant Expense
|
|
|
3,906,996
|
|
|
|
-
|
|
Note Derivative Liability
|
|
|
980,730
|
|
|
|
-
|
|
Beneficial Conversion Feature
|
|
|
803,335
|
|
|
|
3,995,500
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,243,677
|
)
|
|
|
(2,360,554
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Fixed Assets – Computer Software and Equipment
|
|
|
(21,339
|
)
|
|
|
(7,014
|
)
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
(21,339
|
)
|
|
|
(7,014
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance (repayment/conversion) of Convertible Promissory Notes
|
|
|
(1,561,500
|
)
|
|
|
3,070,500
|
|
Proceeds from stock issuance
|
|
|
2,160,536
|
|
|
|
1,064,148
|
|
Note Receivable
|
|
|
-
|
|
|
|
-
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
599,036
|
|
|
|
4,134,648
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(1,665,980
|
)
|
|
|
1,767,080
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,767,080
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
101,100
|
|
|
$
|
1,767,080
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
NON-CASH INVESTING ACTIVITES
|
|
|
|
|
|
|
|
|
Subscription receivable created from issuance of note payable
|
|
$
|
-
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITES
|
|
|
|
|
|
|
|
|
Note payable issued in exchange for a Subscription receivable
|
|
|
-
|
|
|
|
100,000
|
|
Common stock issued for compensation
|
|
|
(214,874
|
)
|
|
|
4,032,000
|
|
Convertible Promissory Notes issued as Compensation – related party
|
|
$
|
-
|
|
|
$
|
175,000
|
|
Conversion of Convertible Promissory Notes to Common Stock
|
|
|
(2,035,500
|
)
|
|
|
|
|
The accompanying notes are an integral
part of these financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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”), 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
Business
Quantum Computing Inc. (OTCQB: QUBT) is
a technology company that is an emerging leader in the development of “quantum-ready” software application and solutions
for companies looking to leverage the capabilities of quantum computing and quantum computing-inspired processing capabilities.
We plan to leverage our collective expertise in finance, computing, mathematics, physics, and software development to develop a
suite of quantum software applications that may enable global industries to utilize quantum computers and simulators to improve
their processes, profitability, and security. We believe the quantum computer holds the potential to disrupt several global industries,
and may be one of the most significant technological advances in processing capability.
The Company has adopted a “two-division”
development strategy for quantum computing applications:
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Software Applications to solve high value compute-intensive problems, and
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Software Stack that enables the Software Applications to run on a variety of quantum computers, including annealers and gate quantum computers.
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The initial focus for our Software Application
division is the financial services sector. We anticipate other potential markets for quantum computing applications include industries
in the field of machine learning, logistics, healthcare, and cybersecurity.
We intend to be a leading provider of software
that run on quantum computers. we are focused on being an enabler – creating software that will realize the advantages of
advanced computing hardware for clients aiming to be “Quantum Ready”.
The first commercial market for which we
are developing a software product to be adopted is in the financial technology or “FinTech” market, for which we are
developing quantitative financial related products such as a financial portfolio optimizer. The portfolio optimizer is designed
to help financial advisors and investment managers allocate their capital across multiple asset classes or investment options (stocks
bonds, commodities, ETFs, etc.) so as to achieve the highest return with the lowest expected aggregate risk. The finance industry
has used quantitative finance software applications for several decades. However, existing products have been limited in their
performance due to the lack of computing power needed to solve the relevant classes of optimization problems.
Our longer-term software development plan
targets the optimization problems known as NP-complete problems, which are a class of mathematical problems that
can in principle be solved by conventional computers but the solution requires time that grows exponentially with the size of the
problem. These NP-complete problems require complex calculations, which cannot currently be performed in reasonable amounts of
time for problem sizes relevant to many industrial uses using conventional computer systems. These problems are intractable because
of the inability of classical bit-based systems to handle combinatorial problems at scale. The recent developments in quantum annealing
and other quantum hardware suggests that these new technologies may soon deliver computational benefit.
Additional application markets we intend
to explore beyond FinTech include Big Data, Artificial Intelligence, Healthcare, and Cybersecurity. We believe these are natural
markets for quantum computing, due to the immense computer power required to process large data sets, which have experienced exponential
growth in size and complexity in recent years. We are in the process of negotiating partnerships with Artificial Intelligence and
Big Data firms to develop algorithms to identify behavioral trends and characteristics based on commercially available signals
and geo-location data. We believe our focus and expertise have positioned the Company to pursue contract opportunities in the US
government and commercial sectors based on our experience in specific areas of counterterrorism and behavioral analysis.
To achieve these goals, we have assembled
a team with deep expertise in financial services, quantitative and applied mathematics, high-performance computing, quantum physics,
and machine learning fields. We plan to file patents for new technology we may develop over the coming months based on our current
progress, but we cannot guarantee this timeline or that we will be awarded any such patents in the future.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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. The Company 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
December 31, 2019
(Audited)
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 December
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 audited, financial statements contain all adjustments necessary to present
fairly the financial position of the Company as of December 31, 2019, and the cash flows and results of operations for the twelve
months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the twelve months ended
December 31 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 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 require 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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 December 31, 2019 we had no finance leases.
The impact of the adoption of ASC 842 on
the balance sheet at December 31, 2018 was:
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As Reported December 31, 2018
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Adoption of ASC 842 Increase (Decrease)
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Revised Balance January 1, 2019
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Other Current Assets
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1,767,080
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1,767,080
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Operating Lease right-of-use assets
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2,491
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2,491
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Total assets
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1,797,156
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2,491
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1,799,647
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Other current liabilities
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3,314,102
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3,314,102
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Lease Liability-current
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2,491
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2,491
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Long-term Liabilities
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Total Liabilities and equity
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1,797,156
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2,491
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1,799,647
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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 December 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 Company is
currently leasing space on a month-to-month basis while we evaluate alternatives for expansion facilities. Accordingly, no right-or-use
asset or lease liability are currently recognized.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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.
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 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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.
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December 31,
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2019
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2018
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Net operating loss carry-forwards
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$
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1,294,728
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$
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310,755
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Valuation allowance
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(1,294,728
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)
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(310,755
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Net deferred tax assets
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$
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-
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$
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At December 31, 2019, the Company had net
operating loss carry forwards of approximately $1,294,728.
The Company experienced a change in control
during the 2018 and 2019 calendar years 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 twelve-month periods ended December 31, 2019 and 2018, and has an accumulated deficit of $28,760,955 and $20,379,867
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
December 31, 2019
(Audited)
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 December 31, 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 $0.10 per share. If the promissory note
is paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note will convert and shares will be
issued. If the promissory note is not paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note
held by this investor will be cancelled, and no shares will be issued.
Note 6 – Property and Equipment
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December 31,
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December 31,
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Classification
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2019
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2018
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Hardware & Equipment
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$
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28,353
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$
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7,014
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Software
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0
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0
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Total cost of property and equipment
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28,353
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7,014
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Accumulated depreciation
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2,757
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117
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Property and equipment, net
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$
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25,596
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$
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6,897
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The Company made Property and Equipment
acquisitions of $21,339 during the twelve months ended December 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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”).
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”).
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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.
On January 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 “Second 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 $1.50 Second Convertible Note Offering, the Company received funds of $100,000 as of March 27,2020.
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
December 31, 2019
(Audited)
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 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.
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. In addition, 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 one hundred
percent (100%) of the shares vest on the first day of employment, the employee has all of the rights of a shareholder including
the ability to receive dividends and vote the shares. 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.
To properly account for the compensation
expense associated with the stock grants under ASC 718, we first analyzed whether there was a “requisite service period”
associated with the stock grants. Because the shares vest immediately, we determined that there was no requisite service period,
and the employees received taxable compensation as of the date of grant. We also examined whether there were conditions associated
with the employee stock grants that would affect recording of compensation expense. We determined that the Company’s recoupment
or “clawback” right constitutes a contingent feature of a stock grant such as a clawback feature that should be accounted
for if, and when, the contingent event occurs, Moreover, while the company has a legal right to recoup shares under certain conditions,
in practice there are a number of procedural hurdles we would have to overcome to actually get the shares back if the terminated
employee does not voluntarily surrender the certificate, and there is no guarantee we would succeed. Therefore, because the restricted
stock grants vested in full upon the Effective Date, and the clawback right is a contingent condition, 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 three year period of the contingent
clawback feature.
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 the non-dilution covenant directed by the 2017 North
Carolina court order. The shares were issued under Section 3(a)(10) of the Securities Act.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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.
In June 2019 the Company converted $20,000
principal amount of Convertible Promissory Notes into 200,000 shares of common stock. The Company also issued 350,000 shares of
common stock to CNLT, LLC, pursuant to the non-dilution covenant directed by the 2017 North Carolina court order. The shares were
issued under Section 3(a)(10) of the Securities Act.
In May 2019 the Company terminated an employee
who had received a grant of 400,000 shares of restricted stock in September 2018 pursuant to an employment agreement. In August
2019 the Company exercised its rights under the Restricted Stock Agreement to recoup a portion of the original grant. The Company
received back 266,640 shares of common stock from the former employee and the partial return of the stock grant was treated as
a forfeiture under ASC 718 and accordingly the Company reversed $1,343,866 of the stock-based compensation expense previously recorded,
after the shares were returned to the Company and cancelled. This is consistent with ASC 718 and the Company’s prior practice,
as detailed above.
In August 2019 the Company converted $2,015,500
principal amount of Convertible Promissory Notes plus $124,997 of accrued interest into 2,329,525 restricted shares of common stock.
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. 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
December 31, 2019
(Audited)
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:
In January 2020, the Company entered into
a settlement agreement with RETMC, Mr. Richard Malinowski and Mr. Thomas Kelly to settle all claims against the parties. Upon receipt
of the settlement payment the Company dismissed its litigation against REMTC, Mr. Malinowski and Mr. Kelly in the New Jersey State
Courts.
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.
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 options at $1.50 per share, resulting in total proceeds to the company of $250,500.
In February 2020, the Company raised $100,000
through the sale of convertible promissory notes, convertible to common stock at $1.50 per share.
In March 2020, the Company issued 115,000
shares of common stock under the Company’s incentive compensation plan to four employees as a bonus for their performance
during 2019.
On March 26, 2020, the Company filed a
Form 8-K to announce that it had entered into a Technology Alliance Partnership Agreement with Splunk, Inc. (the “TAP Agreement”)
to perform research and develop analytics using the Company’s Mukai software platform. No funds will be exchanged pursuant
to the TAP Agreement.
There are no other events of a subsequent
nature that in management’s opinion are reportable.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Balance Sheets
(Unaudited)
|
|
March 31,
|
|
|
December 31
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
199,331
|
|
|
$
|
101,100
|
|
Prepaid Expenses
|
|
|
14,321
|
|
|
|
21,549
|
|
Lease right-of-use
|
|
|
,
|
|
|
|
-
|
|
Fixed Assets (net of depreciation)
|
|
|
27,273
|
|
|
|
25,596
|
|
Total assets
|
|
$
|
240,925
|
|
|
$
|
148,245
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
207,453
|
|
|
$
|
218,261
|
|
Accrued Expenses
|
|
|
213,497
|
|
|
|
152,547
|
|
Lease Liability
|
|
|
-
|
|
|
|
-
|
|
Derivative Liability
|
|
|
476,022
|
|
|
|
980,730
|
|
Convertible promissory notes – related party
|
|
|
100,000
|
|
|
|
100,000
|
|
Convertible promissory notes
|
|
|
1,448,698
|
|
|
|
1,509,000
|
|
Total liabilities
|
|
|
2,445,670
|
|
|
|
2,960,538
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 250,000,000 shares authorized; 7,934,917 and 7,362,046 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
|
|
|
776
|
|
|
|
736
|
|
Additional paid-in capital
|
|
|
17,195,645
|
|
|
|
17,002,297
|
|
APIC-Beneficial Conversion Feature in Equity
|
|
|
4,898,835
|
|
|
|
4,798,835
|
|
APIC-Stock Based Compensation
|
|
|
5,259,132
|
|
|
|
4,246,794
|
|
Subscription Receivable
|
|
|
(100,000
|
)
|
|
|
(100,000
|
|
Accumulated deficit
|
|
|
(29,459,133
|
)
|
|
|
(28,760,955
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(2,204,745
|
)
|
|
|
(2,812,293
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
240,925
|
|
|
$
|
148,245
|
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Operations
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Salaries
|
|
|
164,823
|
|
|
|
115,646
|
|
Consulting
|
|
|
76,162
|
|
|
|
77,025
|
|
Research & Development
|
|
|
344,682
|
|
|
|
151,290
|
|
Stock Based Compensation
|
|
|
1,012,350
|
|
|
|
71,250
|
|
Selling General & Administrative -Other
|
|
|
140,375
|
|
|
|
167,928
|
|
Operating expenses
|
|
|
1,738,392
|
|
|
|
583,139
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,738,392
|
)
|
|
|
(583,139
|
)
|
Interest Income – Money Market
|
|
|
25
|
|
|
|
2,875
|
|
Interest Expense – Promissory Notes
|
|
|
(26,644
|
)
|
|
|
(55,410
|
)
|
Interest Expense - Beneficial Conversion Feature
|
|
|
(100,000
|
)
|
|
|
0
|
|
Interest Expense – Warrant Repricing
|
|
|
237,124
|
|
|
|
-
|
|
Interest Expense – Derivative Mark to Market
|
|
|
504,708
|
|
|
|
-
|
|
Misc Income-Legal Settlement
|
|
|
425,000
|
|
|
|
-
|
|
Other income (expense)
|
|
|
1,040,213
|
|
|
|
(52,535
|
)
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(698,179
|
)
|
|
$
|
(635,673
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
7,934,917
|
|
|
|
4,749,161
|
|
Loss per share - basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.13
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Stockholders’ Deficit
For the Three Months Ended March 31, 2019
(Unaudited)
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2018
|
|
|
4,724,161
|
|
|
$
|
472
|
|
|
$
|
18,862,449
|
|
|
$
|
(20,379,867
|
)
|
|
$
|
(1,516,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
25,000
|
|
|
|
3
|
|
|
|
71,247
|
|
|
|
-
|
|
|
|
71,250
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(635,673
|
)
|
|
|
(635,673
|
)
|
BALANCES, March 31, 2019
|
|
|
4,749,161
|
|
|
$
|
475
|
|
|
$
|
18,933,696
|
|
|
$
|
(21,015,540
|
)
|
|
$
|
(2,081,369
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Stockholders’ Deficit
For the Three Months Ended March 31, 2020
(Audited)
|
|
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
|
|
|
7,934,917
|
|
|
$
|
776
|
|
|
$
|
27,253,612
|
|
|
$
|
(29,459,134
|
)
|
|
$
|
(2,204,745
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Statement of Cash Flows
For the Three Months Ended March 31, 2020
and 2019
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(698,179
|
)
|
|
$
|
(635,673
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
Prepaid Expenses
|
|
|
(7,228
|
)
|
|
|
8,606
|
|
Depreciation
|
|
|
1,581
|
|
|
|
351
|
|
Accounts Payable
|
|
|
(10,807
|
)
|
|
|
54,061
|
|
Accrued Expenses
|
|
|
60,950
|
|
|
|
67,061
|
|
Derivative Mark to Market
|
|
|
(504,708
|
)
|
|
|
-
|
|
Stock Based Compensation
|
|
|
1,012,350
|
|
|
|
71,250
|
|
Warrant Repricing
|
|
|
(237,124
|
)
|
|
|
-
|
|
Beneficial Conversion Feature
|
|
|
100,000
|
|
|
|
-
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(268,709
|
)
|
|
|
(434,344
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Fixed Assets – Computer Software and Equipment
|
|
|
(3,258
|
)
|
|
|
-
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
(3,258
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Convertible Promissory Notes
|
|
|
(60,302
|
)
|
|
|
-
|
|
Proceeds from stock issuance
|
|
|
430,500
|
|
|
|
-
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
370,198
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
98,231
|
|
|
|
(434,344
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
101,100
|
|
|
|
1,767,080
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
199,331
|
|
|
$
|
1,332,735
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Note payable issued in exchange for a Subscription receivable
|
|
|
-
|
|
|
|
-
|
|
Common stock issued for compensation
|
|
|
229,250
|
|
|
|
71,250
|
|
Convertible Promissory Notes issued as Compensation – related party
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral
part of these financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
March 31, 2019
(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”), 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
Business
Quantum Computing Inc. (OTCQB: QUBT) is
a technology company that is an emerging leader in the development of “quantum-ready” software application and solutions
for companies looking to leverage the capabilities of quantum computing and quantum computing-inspired processing capabilities.
We plan to leverage our collective expertise in finance, computing, mathematics, physics, and software development to develop a
suite of quantum software applications that may enable global industries to utilize quantum computers and simulators to improve
their processes, profitability, and security. We believe the quantum computer holds the potential to disrupt several global industries,
and may be one of the most significant technological advances in processing capability.
The Company has adopted a “two-division”
development strategy for quantum computing applications:
|
-
|
Software Applications to solve high value compute-intensive problems, and
|
|
-
|
Software Stack that enables the Software Applications to run on a variety of quantum computers, including annealers and gate quantum computers.
|
The initial focus for our Software Application division is the
financial services sector. We anticipate other potential markets for quantum computing applications include industries in the field
of machine learning, logistics, healthcare, and cybersecurity.
We intend to be a leading provider of software
that run on quantum computers. we are focused on being an enabler – creating software that will realize the advantages of
advanced computing hardware for clients aiming to be “Quantum Ready”.
The first commercial market for which we
are developing a software product to be adopted is in the financial technology or “FinTech” market, for which we are
developing quantitative financial related products such as a financial portfolio optimizer. The portfolio optimizer is designed
to help financial advisors and investment managers allocate their capital across multiple asset classes or investment options (stocks
bonds, commodities, ETFs, etc.) so as to achieve the highest return with the lowest expected aggregate risk. The finance industry
has used quantitative finance software applications for several decades. However, existing products have been limited in their
performance due to the lack of computing power needed to solve the relevant classes of optimization problems.
Our longer-term software development plan
targets the optimization problems known as NP-complete problems, which are a class of mathematical problems that
can in principle be solved by conventional computers but the solution requires time that grows exponentially with the size of the
problem. These NP-complete problems require complex calculations, which cannot currently be performed in reasonable amounts of
time for problem sizes relevant to many industrial uses using conventional computer systems. These problems are intractable because
of the inability of classical bit-based systems to handle combinatorial problems at scale. The recent developments in quantum annealing
and other quantum hardware suggests that these new technologies may soon deliver computational benefit.
Additional application markets we intend
to explore beyond FinTech include Big Data, Artificial Intelligence, Healthcare, and Cybersecurity. We believe these are natural
markets for quantum computing, due to the immense computer power required to process large data sets, which have experienced exponential
growth in size and complexity in recent years. We are in the process of negotiating partnerships with Artificial Intelligence and
Big Data firms to develop algorithms to identify behavioral trends and characteristics based on commercially available signals
and geo-location data. We believe our focus and expertise have positioned the Company to pursue contract opportunities in the US
government and commercial sectors based on our experience in specific areas of counterterrorism and behavioral analysis.
To achieve these goals, we have assembled
a team with deep expertise in financial services, quantitative and applied mathematics, high-performance computing, quantum physics,
and machine learning fields. We plan to file patents for new technology we may develop over the coming months based on our current
progress, but we cannot guarantee this timeline or that we will be awarded any such patents in the future.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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. The Company 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, 2020, 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, 2020, 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 2019 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 require 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, 2019 and March 31, 2020 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 ADC 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, 2019 and March 31, 2020 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 Company is
currently leasing space on a month-to-month basis while we evaluate alternatives for expansion facilities. Accordingly, no right-or-use
asset or lease liability are currently recognized.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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.
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,
|
|
|
|
2020
|
|
|
2019
|
|
Net operating loss carry-forwards
|
|
$
|
1,379,919
|
|
|
$
|
797,941
|
|
Valuation allowance
|
|
|
(1,379,919
|
)
|
|
|
(797,941
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At March 31, 2020, the Company had net
operating loss carry forwards of approximately $1,379,919.
The Company experienced a change in control
during the 2018 and 2019 calendar years and therefore no more than an insignificant portion of this net operating allowance will
ever be used against future taxable income.
On March 27, 2020, the United States enacted
the CARES Act as a response to the economic uncertainty resulting from COVID-19. The CARES Act includes modifications for net operating
loss carryovers and carrybacks, limitations of business interest expense for tax, 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, 2020, the Company expects that the carryback of NOL's will not have an impact on its current tax attribute
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, 2020 and 2019, and has an accumulated deficit of $29,459,134 and $21,015,540
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, 2020
(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 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
is paid in full on or before December 31, 2020, 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 December 31, 2020, 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
|
|
2020
|
|
|
2019
|
|
Hardware & Equipment
|
|
$
|
31,610
|
|
|
$
|
28,353
|
|
Software
|
|
|
0
|
|
|
|
0
|
|
Total cost of property and equipment
|
|
|
31,610
|
|
|
|
28,353
|
|
Accumulated depreciation
|
|
|
4,338
|
|
|
|
2,757
|
|
Property and equipment, net
|
|
$
|
27,273
|
|
|
$
|
25,596
|
|
The Company made Property and Equipment
acquisitions of $3,258 during the three months ended March 31, 2020. 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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”).
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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.
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 options 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 March 31, 2020.
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, 2020
(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 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.
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. In addition, 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 one hundred
percent (100%) of the shares vest on the first day of employment, the employee has all of the rights of a shareholder including
the ability to receive dividends and vote the shares. 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.
To properly account for the compensation
expense associated with the stock grants under ASC 718, we first analyzed whether there was a “requisite service period”
associated with the stock grants. Because the shares vest immediately, we determined that there was no requisite service period,
and the employees received taxable compensation as of the date of grant. We also examined whether there were conditions associated
with the employee stock grants that would affect recording of compensation expense. We determined that the Company’s recoupment
or “clawback” right constitutes a contingent feature of a stock grant such as a clawback feature that should be accounted
for if, and when, the contingent event occurs, Moreover, while the company has a legal right to recoup shares under certain conditions,
in practice there are a number of procedural hurdles we would have to overcome to actually get the shares back if the terminated
employee does not voluntarily surrender the certificate, and there is no guarantee we would succeed. Therefore, because the restricted
stock grants vested in full upon the Effective Date, and the clawback right is a contingent condition, 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 three year period of the contingent
clawback feature.
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 the non-dilution covenant directed by the 2017 North
Carolina court order. The shares were issued under Section 3(a)(10) of the Securities Act.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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.
In June 2019 the Company converted $20,000
principal amount of Convertible Promissory Notes into 200,000 shares of common stock. The Company also issued 350,000 shares of
common stock to CNLT, LLC, pursuant to the non-dilution covenant directed by the 2017 North Carolina court order. The shares were
issued under Section 3(a)(10) of the Securities Act.
In May 2019 the Company terminated an employee
who had received a grant of 400,000 shares of restricted stock in September 2018 pursuant to an employment agreement. In August
2019 the Company exercised its rights under the Restricted Stock Agreement to recoup a portion of the original grant. The Company
received back 266,640 shares of common stock from the former employee and the partial return of the stock grant was treated as
a forfeiture under ASC 718 and accordingly the Company reversed $1,343,866 of the stock-based compensation expense previously recorded,
after the shares were returned to the Company and cancelled. This is consistent with ASC 718 and the Company’s prior practice,
as detailed above.
In August 2019 the Company converted $2,015,500
principal amount of Convertible Promissory Notes plus $124,997 of accrued interest into 2,329,525 restricted shares of common stock.
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. 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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:
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. The COVID-19 has significantly impacted the communities
in which Company employees live and work. As a result, federal, state and local authorities have 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 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.
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%).
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings,
Inc.)
Notes to Financial Statements
(Unaudited)
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.
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).
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.
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.
There are no other events of a subsequent
nature that in management’s opinion are reportable.
12,991,384 Shares of Common
Stock
PROSPECTUS
_____________, 2020