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. In 2021 the Company established three wholly owned subsidiaries, Qubitech, Inc., Qubittech Federal,
Inc. and Qubittech International, Inc., all of which are Delaware corporations. At this time there are no personnel, assets or liabilities
associated with any of the subsidiaries.
History
Quantum
Computing Inc. (“QCI” or the “Company”), was incorporated in the State of Nevada on July 25, 2001 as Ticketcart,
Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and
compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative
Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business
operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017, one
of IBGH’s shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1) fraud;
and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.” Mr. Alessi’s
complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted, causing
injury to the Company and its shareholders. Mr. Alessi sought damages of $30,000 for each claim, plus reimbursement of filing
costs of $1,000, and the appointment of a Receiver for the Company.
On
August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment
for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative
Beverage Group Holdings, Inc. was (i) to issue to the Plaintiff 18,500,000 shares of free-trading stock without registration under Section
3(a)(10) of the Securities Act of 1933, as amended, (ii) issue 100,000,000 shares of stock to Innovative Beverage Group Holdings, Inc.’s
treasury, and (iii) that the receivership be terminated upon any change of control, and that any and all claims against Innovative Beverage
Group Holdings, Inc. that were not submitted to the Receiver as of September 16, 2017, were disallowed. On October 4, 2017 the Receiver
filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company,
(“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, redomiciled to North Carolina.
On
January 22, 2018, while the Company was in receivership, the Company (acting through the court-appointed receiver in her capacity as
CEO and sole Director of the Company) sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group
(“CRG” or “Convergent Risk”), an entity owned and operated by the Company’s Chief Executive Officer, Robert
Liscouski, for $155,000. On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski
(the Chief Executive Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of
Directors. Mr. Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take
the necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February
21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the name changed
to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate of Conversion in Delaware to convert to a Delaware corporation
with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February 23, 2018.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Nature of Business
The
Company is focused on providing software tools and applications for quantum computers. We believe there is significant business opportunity
in the quantum computing industry, and that the quantum computer has the potential to disrupt several global industries. Independent
of when quantum computing delivers compelling performance advantage over classical computing, the software tools and applications necessary
for accelerating real-world problems must be developed to deliver on quantum computing’s full promise.
Quantum
computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set
of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum
technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum
hardware. The pool of people with those skills today is limited and in high demand.
In
order to address the steep learning curve and highly particular skillset associated with quantum computing, the Company is developing
“quantum ready” software applications and solutions for commercial and government entities looking to leverage the expected
future performance of quantum computing. We are focused on being an enabler – creating software that provide the advantages of
advanced computing hardware for forward thinking clients.
By
reducing the barriers to adoption for commercial and government entities in using quantum computing technologies to solve their most
complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed
with artificial intelligence. To this end, we are leveraging our collective expertise in finance, computing, mathematics and physics
to develop a suite of applications that may enable global industries to utilize quantum computers, quantum annealers and digital simulators
to improve their processes, profitability, and security.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Strategy
While
the majority of the quantum computing market is focused on quantum computing hardware, the Company realized the traditional software
development toolkit (“SDK”) approach to creating quantum computing software is poorly suited for non-quantum experts, given
the completely new programming paradigm.
This
represents a significant barrier to entry for companies looking to leverage novel quantum computing capabilities for their business needs.
Utilizing quantum computers for real-world problems requires an abstract blend of a wide range of computing and non-computing expertise,
including:
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●
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Subject
Matter Expertise (SME): As with any problem, the first step is for a business expert to rigorously
define and describe what information and/or results the business requires.
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●
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Programming
Excellence: In the classical computing world, a programmer will take the problem defined
by a SME (subject matter expert) and implement it using standardized applications to run
on the computer. In quantum computing, programmers are required to explicitly program it
for the quantum computer they have access to, requiring a deep understanding of sophisticated
areas of expertise as described below.
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●
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Mathematics:
The problems that are attractive for being solved using quantum computers require significant
mathematical expertise to a) optimize the data and problem for quantum computers, b) create
the quantum-specific algorithms and formulas required to solve the problem, c) iterate upon
the results in a way that optimizes the performance, cost and quality of result. Mathematics
is at the core of the many steps involved in quantum computing for optimizing, compressing
and applying algorithms to the data for obtaining truly optimal results.
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●
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Quantum
Mechanics: Quantum Computing demands deep knowledge of the principles driving the computing
itself. Unlike classical computers which utilize 0 or 1 bits, quantum computers utilize qubits,
which leverage concepts of quantum mechanics such as probabilistic computation, superposition,
and entanglement. Experts much understand these concepts to create the algorithms necessary
to solve problems on a quantum computer. They must know how to “map” problems
and their associated data into problems that are optimized in the specific way required for
a quantum computer to accept and process the problem.
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●
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Quantum
Hardware Knowledge: QPUs (Quantum Processing Units) require that programmers manage the configuration,
actions, and overall operations of all the underlying circuits utilized in solving the problem.
For example, the programming to configure and access QPUs is low level and extremely complicated.
This coding is proprietary to each vendor’s QPU idiosyncratic requirements, not to
mention, unique to the specific count and version of QPUs in the system, right now. When
the system is expended or a QPU upgraded, all the code has to be rewritten.
|
As
one would expect given the dramatic differences in quantum computer hardware architectures currently under development, quantum software
requires a dramatic shift from classic software. A user would have to literally have to create every single circuit, gate, algorithm,
action and process in low level software. Moreover, the collective requirements imposed upon companies looking to utilize quantum computers
can require a training period of a year or longer, even for a highly qualified subject matter expert. Consequently, the time, difficult
and expense of hiring such a diverse and deeply knowledgeable team to create quantum applications and workflows limits any organization’s
ability to move forward quickly with the power of quantum computing.
The
Company’s strategic goals are as follows:
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1)
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Deliver
production-ready software that de-risks the shift to quantum computing.
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2)
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Empower
SMEs and programmers to access the power of quantum computing without the prerequisite quantum
expertise.
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3)
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Eliminate
the vendor lock-in created by the low-level coding required for individual QPUs by allowing
users to freely select the best QPU for their specific problem with no low-level coding or
programming changes.
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4)
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Deliver
the best performance results (speed, quality and diversity) at the lowest cost for our users.
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5)
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Provide
software and the required hardware in the cloud to make it simple and cost effective for
organizations to begin leveraging quantum computing.
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QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
The Company’s fiscal year end is December 31.
Basis of Presentation:
The accompanying Balance Sheet as of June 30,
2021, which was derived from audited financial statements, and the unaudited interim financial statements of the Company, has been prepared
in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial
position of the Company as of June 30, 2021, and the cash flows and results of operations for the three and six months then ended. Such
adjustments consisted only of normal recurring items. The results of operations for the six months ended June 30, 2021 are not necessarily
indicative of the results for subsequent periods. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted.
Accounting Changes
Except for the changes discussed below, Quantum
has consistently applied the accounting policies to all periods presented in these unaudited financial statements. The Company has evaluated
all recently implemented accounting standards and concluded that none currently apply to the Company.
Use of Estimates:
These financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets
and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements for any
period necessarily involves the use of estimates and assumption an example being assumptions in valuation of stock options. Actual amounts
may differ from these estimates. These financial statements have, in management’s opinion, been properly prepared within reasonable
limits of materiality and within the framework of the accounting policies summarized below.
Cash and Cash Equivalents
The Company’s policy is to present
bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
Operating Leases - 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.
Notes to Financial Statements
(Unaudited)
We lease substantially all our office space used
to conduct our business. 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, 2020 and June 30, 2021
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
in three locations, Leesburg, VA, Minneapolis, MN and Vancouver, BC, and we have recognized right-of-use assets and lease liabilities
accordingly.
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.
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.
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.
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June 30,
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2021
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2020
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Net operating loss carry-forwards
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$
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3,615,322
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|
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$
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1,916,401
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Valuation allowance
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(3,615,322
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)
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|
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(1,916,401
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)
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Net deferred tax assets
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$
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-
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$
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-
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At June 30, 2021, the Company had net operating
loss carry forwards of approximately $3,615,322.
The Company experienced a change in control during
the 2018, 2019 and 2020 calendar years and therefore no more than an insignificant portion of this net operating allowance will ever be
used against future taxable income.
In early 2020, an outbreak of the novel strain
of coronavirus (COVID-19) emerged globally. In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global
pandemic, which continues to spread throughout the United States. Subsequently, federal, state and local authorities issued mandates for
social distancing and working from home to delay the spread of the coronavirus, resulting in an overall decline in economic activity.
The ultimate impact of COVID-19 on the Company is not reasonably estimable at this time. Management is currently evaluating the
recent introduction of the COVID-19 virus vaccines and the related government mandates, and their impact on the software industry and
has concluded that while it is reasonably possible that the virus and the associated government mandates restricting activity could have
a negative effect on the ability of the Company to meet with potential customers and to raise additional capital, the specific impact
is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty, and the Company has not recorded any reserves relating to potential COVID-19 financial
impacts.
On March 27, 2020, the United States enacted the
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration
(the "SBA") as a response to the economic uncertainty resulting from COVID-19. Congress amended the CARES Act on December 27,
2020. The CARES Act established the Paycheck Protection Program (the “PPP”) to loan money to small businesses to enable them
to continue to meet payroll obligations in the face of business interruptions and loss of revenue due to COVID-19 related restrictions.
The CARES Act also includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense deductions,
immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of
2017, referred to herein as the U.S. Tax Act, for qualified improvement property. As of June 30, 2021, the Company expects that the carryback
of NOL's will not have an impact on its current tax attributes.
The Company applied for a PPP loan in April 2020.
On May 6, 2020, the Company executed an unsecured promissory note (the “Note”) with BB&T Bank to evidence a loan to the
Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”) established under the CARES Act.
In accordance with the requirements of the CARES
Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs and employee
benefits. The Company applied for forgiveness of the entire PPP loan balance and in June 2021 the SBA informed the Company that the full
balance of the PPP loan had been forgiven, along with accrued interest. Upon notification from the SBA that the PPP loan balance had been
forgiven, the Company reclassified the loan balance to other income.
Note 3 – Financial Accounting Developments:
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise
discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial
position or results of operations upon adoption. The Company has evaluated the recently implemented accounting standards and concluded
that none currently apply to the Company.
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Note 4 – Subscription Receivable
In 2018 the Company recorded a subscription
receivable relating to a convertible promissory note from one of the Initial Investors (as defined below) in the amount of $100,000.
During 2020, the Initial Investor converted the full $100,000 of his promissory note into 1,000,000 shares of common stock. The
Company had no subscription receivable outstanding as of December 31, 2020.
Note 5 – Property and Equipment
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June 30,
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|
|
December 31,
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Classification
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2021
|
|
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2020
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Hardware & Equipment
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|
$
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44,369
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|
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$
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40,326
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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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|
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44,369
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|
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40,326
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Accumulated depreciation
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13,604
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9,370
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Property and equipment, net
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$
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30,764
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$
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30,956
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|
The Company made Property and Equipment acquisitions
of $4,043 during the Six months ended June 30, 2021. The Company depreciates computer equipment over a period of five years.
Note 6 – Convertible Promissory Notes and Loans
In May 2020 the Company raised $30,000 from three
stockholders in the form of short term, non-interest bearing, promissory notes, each in the amount of $10,000. The promissory notes were
repaid by the Company prior to the December 31, 2020 maturity date.
In July 2020 the Company converted $100,000 principal
amount of Convertible Promissory Notes convertible at $0.10 into 1,000,000 restricted shares of common stock per the terms of the Convertible
Note subscription agreement the Company entered into in 2018 the accredited investor, currently a member of the Company’s Board
of Directors.
In December 2020, two of the Company’s Initial
Investors converted the remaining principal balance of their promissory notes, $159,000, into 1,590,000 shares of the Company’s
common stock at $0.10 per share. In addition, one of the investors in the 2018 Convertible Note Offering converted the principal balance
of his note plus accrued interest into 893,000 shares of the Company’s common stock.
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Auctus Securities Purchase Agreement
In October 2019 the Company entered into a
Securities Purchase Agreement (the “Auctus 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, 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 Auctus Note, the “Auctus 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 Auctus 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”).
In connection with the Auctus 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 Auctus 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 Auctus Note following this conversion was
$478,695.
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
In February 2020 Auctus exercised its option
to convert $138,998 of the principal of its 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 Auctus Note following this conversion was $339,698.
In February 2020, the Company entered into an
agreement with Auctus 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 Auctus Note. Also in February 2020, Auctus exercised 167,000
warrants at $1.50 per share, resulting in total proceeds to the Company of $250,500.
On May 8, 2020 the Company repaid the outstanding
principal balance of the Auctus Note, including accrued interest and prepayment penalty interest, for a total of $462,691.
On May 8, 2020, the Company entered into an agreement
with Auctus 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 Auctus Warrants or the Auctus
Note. In May 2020 Auctus exercised 50,000 warrants at $1.00 per share, resulting in total proceeds to the Company of $50,000. In June
2020, Auctus exercised 183,000 warrants at $1.00 per share, resulting in total proceeds to the Company of $183,000.
Oasis Securities Purchase Agreement
On May 6, 2020 (the “Oasis Issuance
Date”) the Company entered into a Securities Purchase Agreement (the “Oasis 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: (i) a Convertible Promissory Note in the principal amount of $563,055.00 (the “Oasis
Note”); and (ii) a common stock purchase warrant (the “Oasis Warrant” and together with the Oasis Note, the
“Oasis Securities”) permitting Oasis to purchase up to 187,685 shares of the Company’s Common Stock, at an
exercise price of $1.50 per share (the “Oasis Warrant Exercise Price”). The Company received gross proceeds of $500,000 on May
8, 2020.
The Oasis Note accrues interest at a rate of
eight percent (8%) per annum and matures on the nine (9) months anniversary of the Oasis Issuance Date (the “Maturity
Date”). In the event that the Company prepays the Oasis 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 Oasis Note contains
customary events of default (each an “Event of Default”). If an Event of Default occurs, all outstanding obligations
owing under the Oasis Note will become immediately due and payable in cash or Common Stock at Oasis’ election. Any outstanding
obligations owing under the Oasis Note which are not paid when due shall bear interest at the rate of eighteen percent (18%) per
annum.
The Oasis Note is convertible into shares of
the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Oasis Note
Conversion Price”) per share shall be (i) $1.50 during the six month period immediately following the Oasis Issuance Date, and
(ii) after the six month period immediately following the Oasis Issuance 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 Oasis Warrant is exercisable for a term
of five-years from the date of issuance. The Oasis Warrant provides 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 Oasis Note, if the Company shall, at any time while the Oasis 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 Oasis
Warrant Exercise Price (a “Dilutive Issuance”), than the Oasis Warrant Exercise Price shall be reduced to equal the Base
Share Price (as defined in the Oasis Warrant) and the number of shares of Common Stock issuable under the Oasis Warrant shall be
increased such that the aggregate exercise price payable under the Oasis 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 Oasis SPA, the Company issued 37,537 Inducement Shares (as defined in the Oasis SPA) to Oasis.
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Oasis Equity Purchase Agreement
On May 6, 2020 (the “Execution Date”),
the Company entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) and a Registration Rights Agreement (“Registration
Rights Agreement”) with Oasis. Under the terms of the Equity Purchase Agreement, Oasis agreed to purchase from the Company up to
$10,000,000 of the Company’s Common Stock upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”)
filed with the U.S. Securities and Exchange Commission (the “Commission”) and subject to certain limitations and conditions
set forth in the Equity Purchase Agreement.
Following effectiveness of the Registration Statement,
and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have the discretion
to deliver put notices to Oasis and Oasis will be obligated to purchase shares of the Company’s Common Stock based on
the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to Oasis in each put
notice shall not exceed the lesser of $500,000 or two hundred and fifty percent (250%) of the average daily trading volume of the Company’s
Common Stock during the ten (10) trading days preceding the put notice. Pursuant to the Equity Purchase Agreement, Oasis and
its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to Oasis that
would result in Oasis’s beneficial ownership of the Company’s outstanding Common Stock exceeding 9.99%. The price of each
put share shall be equal to ninety percent (90%) of the Market Price (as defined in the Equity Purchase Agreement). Puts may be delivered
by the Company to Oasis until the earlier of (i) the date on which Oasis has purchased an aggregate of $10,000,000 worth of
Common Stock under the terms of the Equity Purchase Agreement; (ii) April 26, 2023; or (iii) written notice of termination delivered by
the Company to Oasis, subject to certain equity conditions set forth in the Equity Purchase Agreement. As of the date hereof, the Registration Statement is no longer effective and the Company is not utilizing 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.
In December 2020, Oasis converted the principal
balance of its promissory note plus accrued interest into 596,869 shares of common stock.
As of December 31, 2020, all of the Warrants held
by Auctus and Oasis have been exercised, resulting in total proceeds to the Company of $1,458,500.
Paycheck Protection Program Loan
On May 6, 2020, the Company executed an
unsecured promissory note (the “PPP Loan”) 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 used the proceeds from the PPP Loan exclusively for qualified expenses under the PPP, including payroll costs, mortgage interest,
rent and utility costs. The Company applied for forgiveness of the entire PPP Loan balance, and in June 2021 the SBA informed the Company
that the full balance of the PPP Loan had been forgiven, along with accrued interest. Upon notification from the SBA that the PPP Loan
balance had been forgiven, the Company reclassified the PPP Loan balance to other income.
Note 7 – Capital Stock:
In January 2021 the Company issued 10,000 shares
of common stock to Axis Partners, Inc., an investor relations firm, as compensation for services pursuant to the terms of an agreement
the Company entered into with Axis Partners, Inc. in January 2021.
In January 2021 holders of warrants for 842,678
shares of common stock requested a cashless exercise of their warrants, resulting in the issuance of 616,273 shares of common stock.
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
In February 2021 the Company issued 5,556 shares
of common stock to a consultant as compensation for business development services pursuant to an agreement the Company entered into in
January 2021.
In February 2021 the Company issued options for
450,000 shares of common stock, vesting over twelve months, to two investor relations consultants pursuant to agreements the Company entered
into in February 20212.
In February 2021 an advisor exercised options
to purchase 30,000 shares of the Company’s common stock at $1.00 per share, resulting in proceeds to the Company of $30,000.
In February 2021 an investor exercised warrants
for 25,000 shares of the Company’s common stock at $2.00 per share, resulting in proceeds to the Company of $50,000.
In April 2021 an investor exercised warrants for
125,000 shares of the Company’s common stock at $2.00 per share, resulting in proceeds to the Company of $250,000.
In May 2021 the Company issued 200,000 shares
of common stock to a consultant as compensation for investor relations services pursuant to an agreement the Company entered into in May
2020.
Stock issuance pursuant
to settlement agreement
In May 2021, the Company entered into
settlement agreements with two former executives of Innovative Beverage Group Holdings, Inc. (IBGH), Mr. Peter Bianchi and Mr. Jan
Bonner (collectively the “IBGH Executives”), pursuant to which the Company received a release from any and all claims or
potential claims the IBGH Executives might have had against the Company, in exchange for facilitating the replacement of lost stock certificates in IBGH and the removal of any restrictions on transfer of
the shares represented by said certificates. The IBGH Executives each held the equivalent of 91,659 shares of stock in
the Company, for a total of 183,318 shares. In addition, the IBGH Executives agreed to a three week Leak Out agreement once
the restrictions on their shares were removed. No new shares were issued as a result of the settlement agreements.
Note
8 – Related Party Transactions
Convergent Risk Group, LLC
To finance the acquisition of the control block
of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent) $275,000,
in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total amount of $275,000. Convergent, a Virginia
limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority shareholder of the Company.
To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory Notes” in the total amount of
$275,000 and certain liabilities (the “Liabilities”). The Liabilities and the Promissory Notes are collectively the “Convergent
Liabilities.” The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company
for $275,000 (the same amount that Convergent had issued them for). The Convertible Promissory Notes accrue interest
at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time
prior to or at August 10, 2019. The Company also assumed a promissory note from one of the Initial Investors to Convergent
in the amount of $100,000, which is payable on or before June 30, 2019. All of the Initial Investors had converted their
Convertible Promissory Notes into shares of the Company’s Common Stock as of December 31, 2020.
REMTC, Inc.
To provide the Company with a highly secure development
environment and intra-company data management and communication system, the Company contracted with REMTC, Inc. (“REMTC”),
an entity wholly owned by Richard Malinowski, who was the Company’s Chief Technology and Operations Officer at the time, to acquire
the necessary hardware and software, configure and install the REMTC proprietary security system, known as “PASS.” The total
cost of the PASS System was approximately $670,000 which the Company paid to REMTC. In November 2018, Mr. Richard Malinowski informed
the Company of his decision to resign as Chief Technology and Operations Officer and the Board accepted his resignation and that of Mr.
Thomas Kelly. The Company and REMTC have unwound the PASS agreement and the Company expects to receive approximately $670,000 back from
Mr. Malinowski and REMTC. The Company determined that the PASS System was unusable and therefore impaired, and wrote off the remaining
undepreciated value of the PASS system as of December 31, 2018. In March 2019 the Company commenced litigation in New Jersey state court
against REMTC, Mr. Malinowski and Mr. Kelly to recover the cost of the PASS System. In January 2020 the Company entered into a settlement
of its claims against REMTC, Mr. Malinowski and Mr. Kelly and the litigation in New Jersey was dismissed.
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Note 9 – Employee Benefits:
The Company offers a health and welfare benefit
plan to current full time employees that provides medical, dental, vision, life and disability benefits. The Company also offers a 401K
retirement savings plan to all full time employees. There are no unpaid liabilities under the Company’s benefit plans, and the Company
has no obligation to pay for post-retirement health and medical costs of retired employees.
Note 10 – Subsequent Events:
On July 15, 2021 the Company commenced trading
its common stock on the NASDAQ Exchange.
There are no other events of a subsequent nature
that in management’s opinion are reportable.