Item
1. Financial Statements
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Index
to the Financial Statements
(Unaudited)
QUANTUM
COMPUTING INC.
(Formerly
Innovative Beverage Group Holdings, Inc.)
Balance
Sheets
(Unaudited)
|
|
September 30,
|
|
|
December 31
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,978,433
|
|
|
$
|
101,100
|
|
Prepaid Expenses
|
|
|
5,297
|
|
|
|
21,549
|
|
Lease right-of-use
|
|
|
-
|
|
|
|
-
|
|
Fixed Assets (net of depreciation)
|
|
|
24,112
|
|
|
|
25,596
|
|
Total assets
|
|
$
|
4,007,842
|
|
|
$
|
148,245
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
171,322
|
|
|
$
|
218,261
|
|
Accrued Expenses
|
|
|
257,742
|
|
|
|
152,547
|
|
Lease Liability
|
|
|
-
|
|
|
|
-
|
|
Derivative Liability
|
|
|
1,148,128
|
|
|
|
980,730
|
|
Loans Payable
|
|
|
258,371
|
|
|
|
-
|
|
Convertible promissory notes – related party
|
|
|
80,000
|
|
|
|
100,000
|
|
Convertible promissory notes
|
|
|
1,472,055
|
|
|
|
1,509,000
|
|
Total liabilities
|
|
|
3,387,618
|
|
|
|
2,960,538
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 250,000,000 shares authorized; 17,184,875 and 7,362,046 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
|
|
|
1,718
|
|
|
|
736
|
|
Additional paid-in capital
|
|
|
26,568,047
|
|
|
|
17,002,297
|
|
APIC-Beneficial Conversion Feature in Equity
|
|
|
4,898,835
|
|
|
|
4,798,835
|
|
APIC-Stock Based Compensation
|
|
|
12,046,681
|
|
|
|
4,246,794
|
|
Subscription Receivable
|
|
|
-
|
|
|
|
(100,000
|
)
|
Accumulated deficit
|
|
|
(42,895,057
|
)
|
|
|
(28,760,955
|
)
|
Total stockholders’ equity (deficit)
|
|
|
620,224
|
|
|
|
(2,812,293
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
4,007,842
|
|
|
$
|
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)
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Salaries
|
|
|
419,284
|
|
|
|
352,381
|
|
|
|
120,414
|
|
|
|
119,598
|
|
Consulting
|
|
|
425,112
|
|
|
|
254,053
|
|
|
|
284,900
|
|
|
|
81,145
|
|
Research & Development
|
|
|
967,376
|
|
|
|
553,376
|
|
|
|
287,020
|
|
|
|
256,928
|
|
Related Party Marketing
|
|
|
97,603
|
|
|
|
-
|
|
|
|
97,603
|
|
|
|
|
|
Stock Based Compensation
|
|
|
7,800,098
|
|
|
|
214,885
|
|
|
|
6,562,693
|
|
|
|
(1,343,866
|
)
|
Selling General & Administrative -Other
|
|
|
1,622,658
|
|
|
|
407,266
|
|
|
|
1,323,553
|
|
|
|
102,036
|
|
Operating expenses
|
|
|
11,332,131
|
|
|
|
1,781,961
|
|
|
|
8,676,183
|
|
|
|
(784,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(11,332,131
|
)
|
|
|
(1,781,961
|
)
|
|
|
(8,676,183
|
)
|
|
|
784,159
|
|
Interest Income – Money Market
|
|
|
27
|
|
|
|
8,522
|
|
|
|
-
|
|
|
|
1,478
|
|
Interest Expense – Promissory Notes
|
|
|
(197,456
|
)
|
|
|
(125,157
|
)
|
|
|
(27,799
|
)
|
|
|
(15,333
|
)
|
Interest Expense - Beneficial Conversion Feature
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest Expense – Derivatives & Warrants
|
|
|
(705,048
|
)
|
|
|
-
|
|
|
|
(2,193,842
|
)
|
|
|
-
|
|
Interest Expense – Financing Costs
|
|
|
(2,231,994
|
)
|
|
|
-
|
|
|
|
(759,500
|
)
|
|
|
-
|
|
Misc. Income
|
|
|
432,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other income (expense)
|
|
|
(2,801,971
|
)
|
|
|
(116,635
|
)
|
|
|
(2,981,141
|
)
|
|
|
(13,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,134,102
|
)
|
|
$
|
(1,898,596
|
)
|
|
$
|
(11,657,324
|
)
|
|
$
|
770,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
17,184,875
|
|
|
|
7,362,046
|
|
|
|
17,184,875
|
|
|
|
7,362,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.82
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
0.10
|
|
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 Nine Months Ended September 30, 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
200,000
|
|
|
|
20
|
|
|
|
19,980
|
|
|
|
-
|
|
|
|
20,000
|
|
Beneficial Conversion Feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
350,000
|
|
|
|
35
|
|
|
|
1,487,465
|
|
|
|
-
|
|
|
|
1,487,500
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,033,227
|
)
|
|
|
(2,033,227
|
)
|
BALANCES, June 30, 2019
|
|
|
5,299,161
|
|
|
$
|
530
|
|
|
$
|
20,441,142
|
|
|
$
|
(23,048,767
|
)
|
|
$
|
(2,607,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
2,239,525
|
|
|
|
233
|
|
|
|
2,140,293
|
|
|
|
-
|
|
|
|
2,140,526
|
|
Beneficial Conversion Feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
(266,640
|
)
|
|
|
(27
|
)
|
|
|
(1,343,839
|
)
|
|
|
-
|
|
|
|
(1,343,866
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
770,305
|
|
|
|
770,305
|
|
BALANCES, September 30, 2019
|
|
|
7,362,046
|
|
|
$
|
736
|
|
|
$
|
21,237,595
|
|
|
$
|
(22,278,462
|
)
|
|
$
|
(1,040,131
|
)
|
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 Nine Months Ended September 30, 2020
(Unaudited)
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
BALANCES, December 31, 2019
|
|
|
7,362,046
|
|
|
$
|
736
|
|
|
$
|
25,947,926
|
|
|
$
|
(28,760,955
|
)
|
|
$
|
(2,812,293
|
)
|
Issuance of shares for cash
|
|
|
287,000
|
|
|
|
28
|
|
|
|
430,472
|
|
|
|
-
|
|
|
|
430,500
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivatives & Warrants
|
|
|
|
|
|
|
|
|
|
|
(237,124
|
)
|
|
|
-
|
|
|
|
(237,124
|
)
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
783,100
|
|
|
|
-
|
|
|
|
783,100
|
|
Stock based compensation
|
|
|
115,000
|
|
|
|
12
|
|
|
|
229,238
|
|
|
|
-
|
|
|
|
229,250
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(698,179
|
)
|
|
|
(698,179
|
)
|
BALANCES, March 31, 2020
|
|
|
7,764,046
|
|
|
$
|
776
|
|
|
$
|
27,253,612
|
|
|
$
|
(29,459,134
|
)
|
|
$
|
(2,204,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
1,147,144
|
|
|
|
115
|
|
|
|
1,954,823
|
|
|
|
-
|
|
|
|
1,954,938
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivatives & Warrants
|
|
|
|
|
|
|
|
|
|
|
(1,189,614
|
)
|
|
|
-
|
|
|
|
(1,189,614
|
)
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
225,056
|
|
|
|
-
|
|
|
|
225,056
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,778,599
|
)
|
|
|
(1,778,599
|
)
|
BALANCES, June 30, 2020
|
|
|
8,911,190
|
|
|
$
|
891
|
|
|
$
|
28,243,877
|
|
|
$
|
(31,237,733
|
)
|
|
$
|
(2,992,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
4,524,500
|
|
|
|
452
|
|
|
|
4,762,603
|
|
|
|
-
|
|
|
|
4,763,055
|
|
Issuance of shares for debt conversion
|
|
|
1,269,185
|
|
|
|
127
|
|
|
|
223,650
|
|
|
|
|
|
|
|
223,777
|
|
Issuance of shares for services
|
|
|
480,000
|
|
|
|
480
|
|
|
|
1,656,552
|
|
|
|
|
|
|
|
1,656,600
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
Derivatives & Warrants
|
|
|
|
|
|
|
|
|
|
|
1,964,388
|
|
|
|
-
|
|
|
|
1,964,388
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
6,562,493
|
|
|
|
-
|
|
|
|
6,562,693
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,657,324
|
)
|
|
|
(11,657,324
|
)
|
BALANCES, September 30, 2020
|
|
|
17,184,875
|
|
|
$
|
1,718
|
|
|
$
|
43,513,563
|
|
|
$
|
(42,895,057
|
)
|
|
$
|
620,225
|
|
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 Nine Months Ended September 30, 2020 and 2019
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,134,102
|
)
|
|
$
|
(1,898,596
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
Prepaid Expenses
|
|
|
16,252
|
|
|
|
15,804
|
|
Depreciation
|
|
|
4,742
|
|
|
|
1,431
|
|
Accounts Payable
|
|
|
(46,939
|
)
|
|
|
107,875
|
|
Accrued Expenses
|
|
|
105,196
|
|
|
|
13,971
|
|
Derivative Mark to Market
|
|
|
167,398
|
|
|
|
-
|
|
Stock Based Compensation
|
|
|
7,800,087
|
|
|
|
214,874
|
|
Warrant Repricing
|
|
|
537,650
|
|
|
|
-
|
|
Beneficial Conversion Feature
|
|
|
100,000
|
|
|
|
-
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(5,449,716
|
)
|
|
|
(1,544,642
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Fixed Assets – Computer Software and Equipment
|
|
|
(3,258
|
)
|
|
|
(13,077
|
)
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
(3,258
|
)
|
|
|
(13,077
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of Convertible Promissory Notes
|
|
|
(56,945
|
)
|
|
|
(2,061,500
|
)
|
Proceeds from loans
|
|
|
258,371
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
100,000
|
|
|
|
-
|
|
Proceeds from stock issuance
|
|
|
9,028,881
|
|
|
|
2,160,536
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
9,330,307
|
|
|
|
(99,036
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
3,877,333
|
|
|
|
(1,458,683
|
)
|
Cash, beginning of period
|
|
|
101,100
|
|
|
|
1,767,080
|
|
Cash, end of period
|
|
$
|
3,978,433
|
|
|
$
|
308,397
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
447,993
|
|
|
$
|
-
|
|
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
|
|
|
(100,000
|
)
|
|
|
--
|
|
Common stock issued for compensation
|
|
|
7,800,098
|
|
|
|
214,874
|
|
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
(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.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
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 September 30, 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 September 30, 2020, and the cash
flows and results of operations for the three and Nine months then ended. Such adjustments consisted only of normal recurring
items. The results of operations for the Nine months ended September 30 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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 September 30, 2020
we had no finance leases.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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 September 30, 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.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net operating loss carry-forwards
|
|
$
|
2,266,446
|
|
|
$
|
1,088,955
|
|
Valuation allowance
|
|
|
(2,266,446
|
)
|
|
|
(1,088,955
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At
September 30, 2020, the Company had net operating loss carry forwards of approximately $2,66,446.
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 September 30, 2020, the Company expects that the carryback
of NOL’s will not have an impact on its current tax attributes.
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 Nine-month periods ended September 30, 2020 and 2019, and has an accumulated
deficit of $42,895,057 and $22,278,462 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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
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.
In 2019 the Company engaged the Initial
Investor as a consultant to provide advisory services for a one-year period. Upon satisfactory completion of the agreed services
in July 2020, the Company deemed the services to be sufficiently valuable that in lieu of cash payment of invoice submitted the
Company offset the invoice against the balance of the promissory note, which has been deemed paid in full. The Initial Investor
has converted $20,000 of its Convertible Promissory Note into 200,000 shares of common stock as of September 30, 2020.
Note 6 – Property and Equipment
|
|
|
|
|
|
|
Classification
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Hardware & Equipment
|
|
$
|
31,610
|
|
|
$
|
28,353
|
|
Software
|
|
|
0
|
|
|
|
0
|
|
Total cost of property and equipment
|
|
|
31,610
|
|
|
|
28,353
|
|
Accumulated depreciation
|
|
|
7,498
|
|
|
|
2,757
|
|
Property and equipment, net
|
|
$
|
24,112
|
|
|
$
|
25,596
|
|
The Company made Property and Equipment
acquisitions of $3,258 during the Nine months ended September 30, 2020. The Company depreciates computer equipment over a period
of five years.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
Note 7 – Convertible Promissory Notes and Loans
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.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
The Auctus Note is convertible into shares
of the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion
Price”) shall equal the lesser of: (i) $1.50, and (ii) 50% multiplied by the lowest trading price for the Common Stock during
the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date (representing a
discount rate of 50%). Notwithstanding anything contained in the Auctus Note to the contrary, prior to the occurrence of an Event
of Default, the Conversion Price shall not be less than $1.50 per share (the “Floor Price”). The Floor Price is subject
to adjustment at the six (6) and nine (9) month anniversary of the Issuance Date. In the event that the Floor Price as of such
dates is less than 70% multiplied by the volume weighted average price (VWAP) of the Common Stock during the five (5) trading day
period immediately prior to such dates, the Floor Price is adjusted to such lesser amount.
Under the terms of the SPA, subject to
certain conditions, upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed
with the U.S. Securities and Exchange Commission (the “Commission”) registering all of the shares of Common Stock underlying
the Auctus Note and the Warrants, Auctus agreed to provide the Company with an additional investment of up to $1,000,000 through
the issuance of an additional note or notes, as applicable (the “Additional Notes” together with the Note, the “Notes”).
The Auctus Notes and Warrants were not
registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and/or Regulation D of the Securities Act.
The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities
by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the
insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities
offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors.
In addition, the investor had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since the investor
agreed to, and received, the securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the
Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore
not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements
to qualify for exemption under Section 4(a)(2) of the Securities Act.
In connection with the SPA, the Company
entered into a Registration Rights Agreement (the “RRA”) pursuant to which it committed (i) use its best efforts to
file with the Commission the Registration Statement within ninety (90) days of the Issuance Date; and (ii) have the Registration
Statement declared effective by the Commission within one hundred fifty (150) days of the Issuance Date. The Company filed a Registration
Statement with the Commission in November 2019 and it was declared effective in December 2019, registering 1,625,000 shares.
In January 2020 the Auctus Fund LLC exercised
its option to convert $21,305 of the principal of its Convertible Note and accrued interest and fees of $8,695 (a total of $30,000)
into 20,000 shares of the Company’s common stock. The principal balance remaining on the Note following this conversion was
$478,695.
In February 2020 the Auctus Fund LLC exercised
its option to convert $138,998 of the principal of its Convertible Note and accrued interest and fees of $11,002 (a total of $150,000)
into 100,000 shares of the Company’s common stock. The principal balance remaining on the Note following this conversion
was $339,698.
In February 2020, the Company entered into
an agreement with the Auctus Fund LLC to reduce the exercise price of the $2.75 per share Warrants to $1.50 per share. No other
changes were made to the terms of the Warrants or the Convertible Note held by the Auctus Fund. In February, the Auctus Fund LLC
exercised 167,000 warrants at $1.50 per share, resulting in total proceeds to the Company of $250,500.
In February 2020, the Board authorized
a private placement of convertible promissory notes in the aggregate amount up to $5,000,000 at a conversion price of $1.50 per
share (the “2020 Convertible Note Offering”). The Notes accrue interest at eight percent (8%) per annum and are convertible
into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date. In connection
with the 2020 Convertible Note Offering, the Company has received funds of $100,000 as of June 30, 2020. The Board closed the 2020
Convertible Note Offering to further investment in June 2020.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
Oasis Securities Purchase Agreement
On May 6, 2020 (the “Issuance Date”),
Quantum Computing Inc., a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “SPA”)
by and between the Company and Oasis Capital, LLC, a Puerto Rico limited liability company (“Oasis”), pursuant to which
Oasis purchased from the Company, for a purchase price of $500,000 (the “Purchase Price”): (i) a Convertible Promissory
Note in the principal amount of $563,055.00 (the “Note”); and (ii) a common stock purchase warrant (the “Warrant”
and together with the Note, the “Securities”) permitting Oasis to purchase up to 187,685 shares of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $1.50 per share (the “Exercise
Price”). The Company received the Purchase Price on May 8, 2020.
The Note accrues interest at a rate of
eight percent (8%) per annum and matures on the nine (9) months anniversary of the Issuance Date (the “Maturity Date”).
In the event that the Company prepays the Note, the Company shall pay all of the principal and interest, together with a prepayment
penalty ranging from 105% to 135% depending upon the date of such prepayment. The Note contains customary events of default (each
an “Event of Default”). If an Event of Default occurs, all outstanding obligations owing under the Note will become
immediately due and payable in cash or Common Stock at Oasis’ election. Any outstanding obligations owing under the Note
which are not paid when due shall bear interest at the rate of eighteen percent (18%) per annum.
The Note is convertible into shares of
the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion Price”)
per share shall be (i) $1.50 during the six month period immediately following the Issuance Date, and (ii) after the six month
period immediately following the Issue Date, the lower of: (a) $1.50, and (b) 70% multiplied by the lowest volume weighted average
price for the Common Stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the
conversion date (representing a discount rate of 30%).
The Warrant is exercisable for a term of
five-years from the date of issuance. The Warrants provide for cashless exercise to the extent that there is no registration statement
available for the underlying shares of Common Stock. Until such time as there no longer an outstanding balance on the Note, if
the Company shall, at any time while the Warrant is outstanding, sell any shares of Common Stock or securities entitling any person
or entity to acquire shares of Common Stock at a price per share that is less than the Exercise Price (a “Dilutive Issuance”),
than the Exercise Price shall be reduced to equal the Base Share Price (as defined in the Warrant) and the number of shares of
Common Stock issuable under the Warrant shall be increased such that the aggregate exercise price payable under the Warrant, after
taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.
On May 7, 2020, in connection with its
entry into the Securities Purchase Agreement, the Company issued 37,537 Inducement Shares (as defined in the Securities Purchase
Agreement) to Oasis.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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).
On May 8. 2020 the Company repaid the outstanding
principal balance of the Auctus convertible note, including accrued interest and prepayment penalty interest, for a total of $462,691.
In July 2020 the Company converted $100,000
principal amount of Convertible Promissory Notes convertible at $0.10 into 1,000,000 restricted shares of common stock per the
terms of the Convertible Note subscription agreement the Company entered into in 2018 the accredited investor, currently a member
of the Company’s Board of Directors.
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.
On May 8, 2020, the Company entered into
an agreement with the Auctus Fund LLC to reduce the exercise price of the Amended First Warrants from $1.50 per share to $1.00
per share, and to reduce the exercise price of the Second Warrants from $3.75 to $2.50 per share. No other changes were made to
the terms of the Warrants or the Convertible Note held by the Auctus Fund. In May, the Auctus Fund LLC exercised 50,000 warrants
at $1.00 per share, resulting in total proceeds to the Company of $50,000. In June, the Auctus Fund LLC exercised 183,000 warrants
at $1.00 per share, resulting in total proceeds to the Company of $183,000.
In April 2020 the Company applied to the
US Small Business Administration (the “SBA”) for a loan under the Economic Injury Disaster Loan (EIDL) program. In
May the SBA informed the Company that the EIDL loan application had been declined, but that the SBA would provide a $10,000 forgivable
advance under the EIDL program.
In May 2020 the Company raised $30,000
from three stockholders in the form of short term, non-interest bearing, promissory notes, each in the amount of $10,000. The promissory
notes mature December 31, 2020 and the Company has the right to prepay the notes prior to that date.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
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.
In June 2020, the Company entered into
twelve month Lock Up – Leak Out agreements with fifty holders of approximately 2 million shares of restricted stock in exchange
for 443,273 incentive shares. Under the Lock Up-Leak Out agreements the stockholders are precluded from selling, granting, lending,
pledging, offering or in any way, directly or indirectly disposing of their shares until June 11, 2021 and after that date they
agreed to limit daily sales to no more than ten percent (10%) of the average daily trading volume of the Company’s stock
for the previous three trading days. Two additional holders of a total of 50,000 shares also entered into 12-month LockUp-Leak
Out agreements, however, due to an administrative oversight, the Company did not issue their incentives shares, totaling 10,000
shares, until September 2020.
On June 10, 2020 the Board authorized
a private placement of common stock with fifty percent (50%) warrant coverage at an exercise price of $2.00 in the aggregate amount
up to $3,000,000 at a stock price of $1.00 per share (the “2020 Units Offering”). In connection with the 2020
Units Offering, the Company received funds of $342,000 as of August 24, 2020, and issued 342,000 shares of Common Stock and Warrants
to purchase 171,000 shares of Common Stock. The Board closed the 2020 Units Offering to further investment in August 2020.
In June 2020 the Company issued 300,000
shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the
terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
On July 24, 2020, the Company entered into
Restricted Stock Agreements (the “Restricted Stock Agreements”) with certain of its senior managers, including certain
directors and officers, listed in the table below (each, a “Grantee” and together, the “Grantees”), pursuant
to the 2019 Quantum Computing Inc. Equity and Incentive Plan (the “Incentive Plan”). Pursuant to the terms of the Restricted
Stock Agreements, the stock grants are one hundred percent (100%) vested as of the date of grant, but are subject to the Company’s
right to recoup or “clawback” a portion of the shares if the Grantee terminates their employment prior to the second
anniversary of the date of grant, in accordance with the following schedule: (i) the Company can recoup 100% of the shares until
May 31, 2021, and (ii) the Company can recoup 50% of the shares between June 1, 2021 and May 31, 2022. As of June 1, 2022, the
Company has no further recoupment rights to the shares. The stock grants are also subject to LockUp agreements for three years
from the Grantee’s date of employment. The Lock Up Agreements preclude the Grantees from selling, granting, lending, pledging,
offering or in any way, directly or indirectly disposing of the shares in the Restricted Stock Agreements. In the aggregate the
Company issued 2,000,000 shares to its senior managers, including the directors and officers listed below. The shares were granted
at $3.16 per share.
Name of Grantee
|
|
Position
|
|
Number of Shares
|
Robert Liscouski
|
|
Chairman, Chief Executive Officer, President
|
|
400,000
|
Christopher Roberts
|
|
Chief Financial Officer, Director
|
|
400,000
|
In August 2020 the Board authorized a private
placement of common stock in the aggregate amount up to $4,500,000 at a stock price of $1.00 per share (the “2020 $1.00 Equity
Offering”). The Company entered into Stock Purchase Agreements (the “SPA”) with approximately 94 accredited investors
(the “Investors”), whereby the Investors purchased from the Company shares of the Company’s common stock in an
aggregate amount of 4,237,500 (the “Shares”), for a purchase price of $1.00 per share (the “Per Share Purchase
Price”) resulting in gross proceeds to the company of $4,237,500.
Under the terms of the SPA, the Investors
shall have piggy-back registration rights to have the shares issued pursuant to the SPA included as part of any registration of
securities filed by the Company (other than pursuant to Form S-4, Form S-8, or any equivalent form).
In connection with the Offering the Company
issued an advisor 100,000 shares of the Company’s common stock and warrants to purchase an additional 325,000 shares of the
Company’s common stock, at an initial exercise price) of $3.40- per share, subject to adjustment (the “Warrants”).
Warrants will expire on September 11, 2025. The Board closed the 2020 Units Offering to further investment in September, 2020.
In September 2020 the Company issued 20,000
shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the
terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.
In September 2020 the Company issued 50,000
shares of common stock and warrants to purchase an additional 150,000 shares of the Company’s common stock, at an initial
exercise price of $1.00 per share, subject to adjustment (the “Warrants”), to Bridgewater Capital Corp, a financial
and business strategy consulting firm, as compensation for services pursuant to the terms of an agreement the Company entered
into with Bridgewater Capital in August 2020. The Warrants will expire on September 11, 2025.
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.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
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.
JLS Ventures
To provide the Company with advertising
and marketing services, the Company contracted with JLS Ventures LLC. (“JLS”), an entity wholly owned by Justin Schreiber,
a member of the Company’s board of directors, to procure and manage the advertising services. The agreement with JLS is for
a period of one year and is terminable upon thirty days’ notice. During the quarter ending September 30, 2020 the Company
paid JLS $97,603 for advertising services.
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.
In October 2020 the Board authorized a
private placement of common stock in the aggregate amount up to $10,000,000 at a stock price of $2.50 per share (the “2020
$2.50 Equity Offering”). As of November 10, 2020, the Company has raised approximately $1.2 million in the 2020 $2.50 Equity
Offering.
There are no other events of a subsequent
nature that in management’s opinion are reportable.