Operating expenses for the twelve months
ended December 31, 2018 were $10,507,093 as compared with $175,000 for the comparable prior year period, an increase of $10,332,093,
or 5,904%. The increase in operating expenses is due to the commencement of business operations in 2018, resulting in a $761,972
increase in salary expenses, a
$96,360 increase in payroll taxes and benefits, a $331,228
increase in consulting fees, a $47,744 increase
in travel costs, a $73,859 increase in legal and audit fees, a $4,182,014
increase in stock based compensation, a $4,082,807 increase in interest expense, a $625,333 increase in asset impairment charges,
and a $175,000 increase in executive recruiting fees compared to the comparable prior year period.
Operating expenses for the twelve months
ended December 31, 2018 were $9,881,760 as compared with $1,500 for the comparable prior year period, an increase of $9,880,260.
The increase in operating expenses is due to the commencement of business operations in 2018, resulting in a $761,972 increase
in salary expenses, a
$96,360 increase in payroll taxes and benefits, a $331,228 increase
in consulting fees, a $47,744 increase
in travel costs, a $73,859 increase in legal and audit fees, a $4,182,014 increase
in stock based compensation, a $4,082,807 increase in interest expense, and a $175,000 increase in executive recruiting fees compared
to the comparable prior year period.
Interest expense of $87,307 was accrued
on convertible promissory notes during the twelve months ended December 31, 2018, compared with $0 interest expense accrued during
the comparable period in 2017. A total of $19,133 of accrued interest was converted to common stock during the three months ended
December 31, 2018 when the holders of convertible promissory notes converted their Notes to stock. In addition, the Company accrued
Beneficial Conversion Feature expense of $3,995,500 relating to the Convertible Promissory Note offering, which was also recorded
as interest expense. As of December 31, 2018, the Company had accrued $68,174 of interest on the Convertible Promissory Notes.
Our net loss for the twelve months
ended December 31, 2018 was $10,507,093 as compared with a net loss of $175,000 for the comparable prior year period, an increase
of $10,332,093 or 5,904%. The increase in net loss is primarily due to the increase in operating expenses recorded in the current
period compared to the comparable prior year period.
Since commencing operations as Quantum
Computing in February 2018, the Company has raised $75,000 through private placement of equity and $3,995,500 through private
placements of Convertible Promissory Notes for a total of $4,070,500 in new investment. The Company has no bank loans or lines
of credit, and no long term debt obligations. As of May 9, 2019 the Company had cash and equivalents of $1.06 Million on hand.
We have not yet recognized any revenue
from the sale of products or services, but at the appropriate time we expect to do so in compliance with the most recent FASB
Standards.
The following table sets forth, as
of May 21, 2019, the number of shares of common stock owned of record and beneficially by our executive officers, directors and
persons who hold 5% or more of the outstanding shares of common stock of the Company.
The amounts and percentages of our common
stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities.
Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting
power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which
includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any
stock option, warrant or other right. Under these rules, more than one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise
indicated, each of the shareholders named in the table below, or his or her family members, has sole voting and investment power
with respect to such shares of our common stock. Except as otherwise indicated, the address of each of the shareholders listed
below is: c/o Quantum Computing Inc., 215 Depot Court SE #212, Leesburg, VA 20175.
Applicable percentage ownership is
based on 4,749,161 shares of Common Stock outstanding as of May 21, 2019. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of Common Stock as held
by that person or entity that are currently exercisable or that will become exercisable within 60 days of May 21, 2019.
We do not have any equity compensation
plans and therefore no equity awards are outstanding as of December 31, 2018.
2018 DIRECTOR
COMPENSATION TABLE
The following table provides information
on outstanding equity awards as of December 31, 2018 to the named executive officers.
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Option Awards
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Stock Awards
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Name
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Number of securities underlying unexercised options exercisable
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Number of securities underlying unexercised options unexercisable
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Equity incentive plan awards: Number of securities underlying unexercised unearned options
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Option exercise price
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Option expiration date
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Number of shares or units of stock that have not vested
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Market value of shares of units that have not vested
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Equity incentive plan awards: Number of unearned shares, units or other rights vested
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Equity incentive plan awards: Market or payout value of unearned shares, units or other not vested
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N/A
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N/A
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N/A
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None of the members of the Board of
Directors of the Company were compensated for services in such capacity.
Bonuses and Deferred Compensation
We do not have any bonus, deferred
compensation or retirement plan. All decisions regarding compensation are determined by our Board of Directors.
Options and Stock Appreciation Rights
As of May 21, 2019, no options have been
issued.
Payment of Post-Termination Compensation
We do not have change-in-control agreements
with our director or executive officer, and we are not obligated to pay severance or other enhanced benefits to our executive officer
upon termination of his employment.
Employment Agreements
Mr. Liscouski Employment Agreement
We entered into an employment agreement
with Robert Liscouski, our Chief Executive Officer, on February 15, 2018 (the “Liscouski Employment Agreement”). The
agreement is for an indefinite term, subject to periodic review by the Board of Directors, stipulates a base salary (the “Base
Salary”) of $360,000 per year. For the fiscal year ending December 31, 2019 and for subsequent fiscal years, the Liscouski
Employment Agreement allows for an annual incentive bonus in the amount up to $150,000 per year, subject to Mr. Liscouski achieving
certain performance based milestones that are established by the Board of Directors. In connection with the Liscouski Employment
Agreement, Mr. Liscouski was issued 100,000 restricted shares of the Company’s common stock.
As a full-time employee of the Company,
Mr. Liscouski will be eligible to participate in the Company’s benefit programs.
Mr. Liscouski’s employment may be
terminated by the Company with or without “Cause”. “Cause” shall mean (i) conviction or entry of nolo contendere
to any felony or a crime involving moral turpitude, fraud or embezzlement of Company property; (ii) dishonesty, gross negligence
or gross misconduct that is materially injurious to the Company or material failure to perform her/his duties under this Agreement
which has not been cured by Mr. Liscouski within 10 days after he shall have received written notice from the Company stating with
reasonable specificity the nature of such failure to perform; and (iii) illegal use or use of drugs, alcohol, or other related
substances that is materially injurious to the Company. If the Company terminates Mr. Liscouski’s employment without “Cause”
the Company will continue payment of Mr. Liscouski’s Base Salary for an additional twelve (12) months from the date Mr. Liscouski
is terminated.
Mr. Roberts Consulting Agreement
We entered into a consulting agreement
with Christopher Roberts, our Chief Financial Officer, on March 1, 2018 (the “Roberts Agreement”) whereby Mr. Roberts
is to provide the Company with financial and accounting and business strategy services. Mr. Roberts is to be paid $150.00 on an
hourly basis. In connection with the Roberts Agreement, Mr. Roberts was issued 300,000 restricted shares of the Company’s
common stock.
The Roberts Agreement may be terminated
by either party at will, for any reason or no reason, upon fourteen (14) days prior written notice.
Mr. Shuster Employment Agreement
We entered into an employment agreement
with Sergey Shuster, an employee of the Company, on February 28, 2018 (the “Shuster Employment Agreement”). Mr. Shuster
is entitled to a monthly salary of $25,000. In connection with the Shuster Employment Agreement, Mr. Shuster also received 400,000
restricted shares of the Company’s common stock, over a three year period.
As a full-time employee of the Company,
Mr. Shuster was eligible to participate in the Company’s benefit programs.
The Shuster Employment Agreement may
be terminated by either party upon thirty (30) days written notice. The Company may also terminate Mr. Shuster immediately if
Mr. Shuster engages in serious misconduct or dishonesty. We terminated Mr. Shuster as an employee effective May 3, 2019.
Director Agreements
The Company has not currently entered into any formal written
agreements with members of its Board of Directors.
Board of Directors
Our directors hold office until the next
annual meeting of shareholders and until their successors have been duly elected and qualified. Our officers are elected by and
serve at the discretion of the Board of Directors.
The board of directors acts as the Audit
Committee and the Board of Directors has no separate committees. The Company has no qualified financial expert at this time because
it has not been able to hire a qualified candidate. The Company intends to continue to search for a qualified individual for hire.
Item 7. Certain Relationships
and Related Transactions, and Director Independence.
Other than as disclosed below, there have
been no transactions involving the Company since the beginning of the last fiscal year, or any currently proposed transactions,
in which the Company was or is to be a participant and the amount involved exceeds $120,000 or one percent of the average of the
Company’s total assets at year-end for the last two completed fiscal years, and in which any related person had or will
have a direct or indirect material interest.
The Company contracted with REMTCS,
Inc. (“REMTCS”), 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 REMTCS proprietary security system,
known as “PASS.” The total cost of the PASS System was approximately $670,000. Since that time, the Company, Mr. Malinowski
and REMTCS have unwound this agreement, and Mr. Malinowski has left the Company. The Company expects to receive approximately
$670,000 back from Mr. Malinowski and REMTCS.
Item 8. Legal Proceedings.
Other than as described below, there is
no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened
against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’
officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
On March 14, 2019, we filed a complaint
against REMTCS, Inc. (“REMTCS”), Mr. Richard Malinowski (“Malinowski”) and Mr. Thomas Kelly (“Kelly”),
the latter two are a former employee and consultant, respectively, in the Superior Court of New Jersey, Monmouth County, alleging
multiple breach of contract claims, unjust enrichment, breach of fiduciary duties, among other claims against pursuant to certain
employment and consulting agreements between the parties, REMTCS, Malinowski and Kelly. The amount the Company seeks is in excess
of $670,000. The Company believes it has strong grounds to win this lawsuit, but our attorneys estimate that it may take some
time to be resolved. REMTCS, Malinowski and Kelly answered the Company’s complaint and denied the claims asserted. Additionally,
REMTCS, Malinowski and Kelly requested that the Company specify the damages requested.
Item 9. Market Price
of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Market Information.
Our common stock is qualified for quotation
on the OTC Markets-OTC Pink under the symbol “QUBT” and has been quoted on the OTC Pink since August 2018. Previously,
our common stock was quoted on the OTC Markets-OTC OTC Pink, under the symbol “IBGH.” The following table sets forth
the range of the high and low bid prices per share of our common stock for each quarter as reported in the over-the-counter markets.
These quotations represent interdealer prices, without retail markup, markdown or commission, and may not represent actual transactions.
There currently is no liquid trading market for our common stock. There can be no assurance that a significant active trading
market in our common stock will develop, or if such a market develops, that it will be sustained.
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2019
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High
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Low
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First Quarter (through March 31)
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$
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6.35
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$
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2.85
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Second Quarter (through
May 21)
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6.00
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3.50
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2018
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High
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Low
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First Quarter (through March 31)
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$
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39.6
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$
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0.60
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Second Quarter (through June 30)
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15.80
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2.22
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Third Quarter (through September 30)
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14.96
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0.26
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Fourth Quarter (through December 31)
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12.50
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2.85
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2017
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High
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Low
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First Quarter (through March 31)
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$
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0.76
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$
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0.12
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Second Quarter (through June 30)
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0.66
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0.12
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Third Quarter (through September 30)
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0.54
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0.18
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Fourth Quarter (through December 31)
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1.20
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0.38
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2016
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High
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Low
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First Quarter (through March 31)
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$
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0.175
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$
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0.10
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Second Quarter (through June 30)
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0.175
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0.12
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Third Quarter (through September 30)
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0.228
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0.12
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Fourth Quarter (through December 31)
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0.20
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0.02
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The ability of individual stockholders
to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states
require that an issuer’s securities be registered in their state or appropriately exempted from registration before the
securities are permitted to trade in that state. Presently, we have no plans to register our securities in any particular state.
Further, our shares may be subject to the provisions of Section 15(g) and Rule 15g-9 of the Exchange Act, commonly referred to
as the “penny stock” rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The SEC generally defines penny stock
to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides
that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities
exchange meeting specified criteria set by the SEC; authorized for quotation on The NASDAQ Stock Market; issued by a registered
investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the issuer’s net tangible
assets; or exempted from the definition by the SEC. Broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000 by an individual,
or $300,000 together with his or her spouse), are subject to additional sales practice requirements.
For transactions covered by these rules,
broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser’s
written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt,
the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market.
A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be sent to clients disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict
the ability of broker-dealers to trade and/or maintain a market in our common stock and may affect the ability of stockholders
to sell their shares.
We have not previously filed a registration
statement under the Securities Act. Shares sold pursuant to exemptions from registration are deemed to be “restricted”
securities as defined by the Securities Act. As of April 12, 2019, out of a total of 260,000,000 shares authorized, 4,722,483
shares are issued as restricted securities and can only be sold or otherwise transferred pursuant to a registration statement
under the Securities Act or pursuant to an available exemption from registration. Of such restricted shares, 2,964,775, (83.78%)
shares are held by affiliates (directors, officers and 10% holders), with the balance of 1,757,708 (16.22%) shares being held
by non-affiliates.
In general, under Rule 144 as currently
in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of a reporting company
for at least six months, including any person who may be deemed to be an “affiliate” of the company (as the term “affiliate”
is defined under the Securities Act), is entitled to sell, within any three-month period, an amount of shares that does not exceed
the greater of (i) the average weekly trading volume in the company’s common stock, as reported through the automated quotation
system of a registered securities association, during the four calendar weeks preceding such sale or (ii) 1% of the shares then
outstanding. In order for a stockholder to rely on Rule 144, adequate current public information with respect to the company must
be available. A person who is not deemed to be an affiliate of the company and has not been an affiliate for the most recent three
months, and who has held restricted shares for at least one year is entitled to sell such shares without regard to the various
resale limitations under Rule 144. Under Rule 144, the requirements of paragraphs (c), (e), (f), and (h) of such Rule do not apply
to restricted securities sold for the account of a person who is not an affiliate of an issuer at the time of the sale and has
not been an affiliate during the preceding three months, provided the securities have been beneficially owned by the seller for
a period of at least one year prior to their sale. For purposes of this registration statement, a controlling stockholder is considered
to be a person who owns 10% or more of the company’s total outstanding shares, or is otherwise an affiliate of the Company.
No individual person owning shares that are considered to be not restricted owns more than 10% of the Company’s total outstanding
shares.
Holders
As of May 21, 2019, we had 872 shareholders
of common stock per transfer agent’s shareholder list.
Dividends
The Company has not paid any cash dividends
to date and does not anticipate or contemplate paying any dividends in the foreseeable future. It is the present intention of
management to utilize all available funds for the growth of the Registrant’s business.
Equity Compensation Plan Information
The Company has not yet adopted an equity compensation plan
but plans to do so in the near future.
Item 10. Recent Sales
of Unregistered Securities.
Except where noted, all of the securities
discussed below were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
The Company sold 500 000 shares (post
reverse split) of common stock to Convergent Risk Group, LLC (the “CRG Shares”), an entity owned by the Company’s
now Chief Executive Officer and Chairman of the Board, Mr. Robert Liscouski, for an aggregate purchase price of $155,000.00. Financing
for the purchase of the CRG Shares was provided to Convergent Risk Group, LLC by a group of accredited investors (the “Original
Investors”), in exchange for promissory notes from CRG (the “CRG Liabilities”). In order to further induce the
Mr. Liscouski to accept his position as the Company’s Chief Executive Officer, the Company agreed to assume the CRG Liabilities
in exchange for the Company’s issuance of convertible promissory notes to the Original Investors in the principal aggregate
amount of $400,000 (the “January Quantum Notes”). The January Quantum Notes can be converted to shares of the Company’s
common stock at a conversion price of $0.10 per share at any time prior to, or at, the maturity date of August 10, 2019.
December 24, 2017 - 92,500 shares issued
to William Alessi pursuant to Court order settling litigation against the Company. Shares to be free trading and without a restrictive
legend. This block of shares was issued subject to a 5 year non dilution provision enabling Alessi to maintain a 4.95% equity
position in the Company. These shares were issued in reliance on the exemption under Section 3(a)(10) of the Securities Act.
December 24, 2017 - 500,000 shares issued
to Company Treasury pursuant to Court order settling litigation against the Company.
January 22, 2018 - 500,000 Treasury shares
sold to Convergent Risk Group, LLC for $155,000 and proceeds of the sale were remitted to William Alessi pursuant to Court order
settling litigation against the Company.
In January 2018 the Company issued an
aggregate of $400,000 in the principal amount of Convertible Promissory Notes, convertible at $0.10 per share (after a 1:200 reverse
stock split), to a group of accredited investors. These notes are due August 10, 2019 and as of September 30, 2018 the notes had
not been converted and no shares have been issued relating to these Notes. In April 2018 the Company issued an additional Convertible
Promissory Note, also convertible at $0.10 per share. In December 2018 this Note was converted, along with accrued interest, into
1,002,422 shares of common stock.
During the period March 1-September 30,
2018 the Company accepted subscriptions for $75,000 of common stock at $0.40 per share (after a 1:200 reverse stock split), to
a group of accredited investors. The Company issued 187,500 shares of common stock pursuant to these Subscription Agreements in
October 2018.
In March 2018 the Company commenced an
offering of up to $15,000,000 of Convertible Promissory Notes, convertible at $1.00 per share (after a 1:200 reverse stock split),
to a group of accredited investors. One Convertible Promissory Note in the amount of $250,000 was made convertible at $0.25 per
share in exchange for the investor agreeing to serve on the Board. Another Convertible Promissory Note was made convertible at
$0.10 per share in exchange for the investor providing certain investor relations services. These Convertible Promissory Notes
mature twelve (12) months from the date of issuance and as of October 31, 2018, investments had been received for $3,495,500 in
this offering. In October 2018 the Board of Directors formally closed the Convertible Note Offering. As of March 20, 2019, $725,000
of the Notes (plus accrued interest) had been converted and 1,510,377 shares have been issued relating to these Notes.
In September 2018 the Company issued a
total of 4,800,000 shares of common stock to senior management and research and development executives as grants, pursuant to
their respective employment agreements, which were effective March 1, 2018. The shares are restricted, and subject to a lockup
agreement, and a three year recoupment provision whereby the shares are forfeited to the Company if the employee’s employment
is terminated before the end of the third year of employment (February 28, 2021). The number of shares subject to recoupment declines
over time. In November 2018 two senior managers resigned and to date 4,000,000 shares of these grants have been cancelled as of
December 31, 2018.
We issued 130,000 shares in October 2018
to a shareholder of the Company 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 October 2018 the Company issued 150,000
shares of common stock to Cascade IR, LLC, an investor relations firm, as compensation for services pursuant to the terms of a
consulting agreement the Company entered into with Cascade IR, LLC in September 2018.
Also 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.
In December 2018 the Company converted
$100,000 principal amount of convertible promissory notes, plus $2,422 of accrued interest, into 1,002,422 shares of common stock.
Item 11. Description
of Registrant’s Securities to be Registered.
The following is a summary of the rights
of our Common Stock and certain provisions of our articles of incorporation and bylaws which will be in effect after the completion
of this offering. This summary does not purport to be complete and is qualified in its entirety by the provisions of our articles
of incorporation, bylaws and the Certificates of Designation (as defined below) of our preferred stock, copies of which are filed
as exhibits to the registration statement, and to the applicable provisions of Delaware law.
The Company is authorized by its Certificate
of Incorporation to issue an aggregate of 260,000,000 shares of common stock, $0.0001 par value per share (the “Common Stock”),
and 10,000,000 shares of blank check preferred. As of May 21, 2019, 4,749,161 shares of Common Stock were issued and outstanding.
Common Stock
Dividend Rights
Subject to preferences that may apply
to any shares of preferred stock outstanding at the time, the holders of our Common Stock may, receive dividends out of funds
legally available if our Board, in its discretion, determines to issue dividends and then only at the times and in the amounts
that our Board may determine. We have not paid any dividends on our Common Stock and do not contemplate doing so in the foreseeable
future.
Voting Rights
Each stockholder is entitled to one vote
for each share of common stock held by such shareholder.
Right to Receive Liquidation Distribution
Holders of common stock are entitled to
dividends when, and if, declared by the Board of Directors out of funds legally available therefore; and then, only after all
preferential dividends have been paid on any outstanding Preferred Stock. The Company has not had any earnings and it does not
presently contemplate the payment of any cash dividends in the foreseeable future.
Preferred Stock in General
The preferred stock of the Company may
be issued from time to time by the Board of Directors in one or more series. The description of shares of each series of preferred
stock will be set forth in resolutions adopted by the Board of Directors and a Certificate of Designation to be filed as required
by Delaware law prior to issuance of any shares of the series. The Certificate of Designation will set the number of shares to
be included in each series of preferred stock and set the designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to distribution, qualifications, or terms and conditions of redemption relating to the shares of
each series. However, the Board of Directors is not authorized to change the right of the common stock to vote one vote per share
on all matters submitted for shareholder action. The authority of the Board of Directors with respect to each series of preferred
stock includes, but is not limited to, setting or changing the following:
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The designation
of the series and the number of shares constituting the series, provided that the aggregate number of shares constituting
all series of preferred stock may not exceed 10,000,000;
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The annual distribution
rate on shares of the series, whether distributions will be cumulative and, if so, from which date or dates;
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Whether the shares
of the series will be redeemable and, if so, the terms and conditions of redemption, including the date or dates upon and
after which the shares will be redeemable, and the amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
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The obligation,
if any, of the Company to redeem or repurchase shares of the series pursuant to a sinking fund;
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Whether shares of
the series will be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms
and conditions of conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and
the terms of adjustment, if any;
|
|
|
|
|
●
|
Whether the shares
of the series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of the voting
rights;
|
Transfer Agent and Registrar
The transfer agent and registrar for our
Common Stock is Worldwide Stock Transfer, LLC with an address at One University Plaza, Suite 505, Hackensack,NJ 07601. Their phone
number is (201) 820-2008.
Item 12. Indemnification
of Directors and Officers.
Section 102(b)(7) of the Delaware General
Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall
not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which
the director derived an improper personal benefit. Our amended certificate of incorporation provides that, to the maximum extent
permitted by law, no director shall be personally liable to us or our shareholders for monetary damages for breach of fiduciary
duty as director.
Section 145 of the Delaware General Corporation
Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by
reason of such person being or having been a director, officer, employee or agent to the corporation. The Delaware General Corporation
Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Our bylaws provide for indemnification by us of
our directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law.
Insofar as indemnification for liabilities
arising under the Securities Act may be provided for directors, officers, employees, agents or persons controlling an issuer pursuant
to the foregoing provisions, the opinion of the SEC is that such indemnification is against public policy as expressed in the
Securities Act, and is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling
person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling
person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against
public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Subject to the operation of Section 4
of Article V of the Company’s By-laws, each Director and Officer shall be indemnified and held harmless by the Company to
the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted
the Company to provide prior to such amendment) against any and all expenses, judgments, penalties, fines and amounts reasonably
paid in settlement that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection
with any threatened, pending or completed Proceeding or any claim, issue or matter therein, which such Director or Officer is,
or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status,
if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed
to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful.
Item 13. Financial
Statements and Supplementary Data.
Description
|
|
Page
|
Unaudited
Balance Sheets as of March 31, 2019 and December 31, 2018
|
|
F-2
|
Unaudited
Statement of Operations for the Three Months Ended March 31, 2019 and 2018
|
|
F-3
|
Unaudited
Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2019
|
|
F-4
|
Unaudited
Statement of Cash Flows for the Three Months Ended March 31, 2019 and 2018
|
|
F-5
|
Notes
to the Unaudited Financial Statements
|
|
F-6
|
Report
of Independent Registered Public Accounting Firm
|
|
F-15
|
Report of
Independent Registered Public Accounting Firm
|
|
F-16
|
Balance
Sheets as of December 31, 2018 and December 31, 2017
|
|
F-17
|
Statement
of Operations for the Three and Twelve Months Ended December 31, 2018 and 2017
|
|
F-18
|
Statement
of Stockholders’ Deficit for the Twelve Months Ended December 31, 2018
|
|
F-19
|
Statement
of Cash Flows for the Twelve Months Ended December 31, 2018 and 2017
|
|
F-20
|
Notes
to the Audited Financial Statements
|
|
F-21
|
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Balance Sheets
(Unaudited)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,332,735
|
|
|
$
|
1,767,080
|
|
Prepaid Expenses
|
|
|
14,574
|
|
|
|
23,179
|
|
Lease right-of-use
|
|
|
622
|
|
|
|
-
|
|
Fixed Assets (net of depreciation)
|
|
|
6,546
|
|
|
|
6,897
|
|
Total assets
|
|
$
|
1,354,477
|
|
|
$
|
1,797,156
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
108,079
|
|
|
$
|
54,018
|
|
Accrued Expenses
|
|
|
156,645
|
|
|
|
89,584
|
|
Lease Liability
|
|
|
622
|
|
|
|
-
|
|
Convertible promissory notes – related party
|
|
|
100,000
|
|
|
|
100,000
|
|
Convertible promissory notes
|
|
|
3,070,500
|
|
|
|
3,070,500
|
|
Total liabilities
|
|
|
3,435,846
|
|
|
|
3,314,102
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 250,000,000 shares
authorized; 4,749,161 and 4,724,161 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
|
|
|
475
|
|
|
|
472
|
|
Additional paid-in capital
|
|
|
10,935,029
|
|
|
|
10,935,029
|
|
APIC-Beneficial Conversion Feature in Equity
|
|
|
3,995,500
|
|
|
|
3,995,500
|
|
APIC-Stock Based Compensation
|
|
|
4,103,167
|
|
|
|
4,031,920
|
|
Subscription Receivable
|
|
|
(100,000
|
)
|
|
|
(100,000
|
|
Accumulated deficit
|
|
|
(21,015,540
|
)
|
|
|
(20,379,867
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(2,081,369
|
)
|
|
|
(1,516,946
|
)
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
1,354,477
|
|
|
$
|
1,797,156
|
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Statement of Operations
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Salaries
|
|
|
115,646
|
|
|
|
60,000
|
|
Consulting
|
|
|
77,025
|
|
|
|
27,500
|
|
Research & Development
|
|
|
151,290
|
|
|
|
18,333
|
|
Stock Based Compensation
|
|
|
71,250
|
|
|
|
-
|
|
Selling General & Administrative -Other
|
|
|
167,927
|
|
|
|
193,015
|
|
Operating expenses
|
|
|
583,138
|
|
|
|
298,848
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(583,138
|
)
|
|
|
(298,848
|
)
|
Interest Income – Money Market
|
|
|
2,875
|
|
|
|
-
|
|
Interest Expense – Promissory Notes
|
|
|
(55,410
|
)
|
|
|
-
|
|
Interest Expense – Beneficial Conversion Feature
|
|
|
0
|
|
|
|
750,000
|
|
Asset Impairment Charge
|
|
|
-
|
|
|
|
-
|
|
Other income (expense)
|
|
|
(52,535
|
)
|
|
|
(750,000
|
)
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(635,673
|
)
|
|
$
|
(1,048,848
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
4,749,161
|
|
|
|
993,735
|
|
Loss per share - basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(1.06
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Statement of Stockholders’ Deficit
For the Three Months Ended March 31,
2019
(Unaudited)
|
|
Common Stock
|
|
|
Additional Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2018
|
|
|
4,724,161
|
|
|
$
|
472
|
|
|
$
|
18,862,449
|
|
|
$
|
(20,379,867
|
)
|
|
$
|
(1,516,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
25,000
|
|
|
|
3
|
|
|
|
71,247
|
|
|
|
-
|
|
|
|
71,250
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(635,673
|
)
|
|
|
(635,673
|
)
|
BALANCES, March 31, 2019
|
|
|
4,749,161
|
|
|
$
|
475
|
|
|
$
|
18,933,696
|
|
|
$
|
(21,015,540
|
)
|
|
$
|
(2,081,369
|
)
|
The accompanying notes are an integral
part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Statement of Cash Flows
For the Three Months Ended March 31,
2019 and 2018
(Unaudited)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(635,673
|
)
|
|
$
|
(1,048,848
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
Prepaid Expenses
|
|
|
8,606
|
|
|
|
(688
|
)
|
Loan from Officer
|
|
|
-
|
|
|
|
100
|
|
Depreciation
|
|
|
351
|
|
|
|
-
|
|
Accrued Expenses
|
|
|
67,061
|
|
|
|
-
|
|
Issuance of shares for legal settlement
|
|
|
-
|
|
|
|
175,000
|
|
Stock Based Compensation
|
|
|
71,250
|
|
|
|
-
|
|
Accounts payable
|
|
|
54,061
|
|
|
|
75,916
|
|
Beneficial Conversion Feature
|
|
|
-
|
|
|
|
750,000
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(434,344
|
)
|
|
|
(48,520
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Fixed Assets –
Computer Software and Equipment
|
|
|
-
|
|
|
|
-
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Convertible Promissory Notes
|
|
|
-
|
|
|
|
475,000
|
|
Proceeds from stock issuance
|
|
|
-
|
|
|
|
20,000
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
-
|
|
|
|
495,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(434,344
|
)
|
|
|
446,480
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
1,767,080
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,332,735
|
|
|
$
|
446,480
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
NON-CASH INVESTING ACTIVITES
|
|
|
|
|
|
|
|
|
Subscription receivable created from issuance of
note payable
|
|
$
|
-
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITES
|
|
|
|
|
|
|
|
|
Note payable issued in exchange for a Subscription
receivable
|
|
|
-
|
|
|
|
100,000
|
|
Common stock issued for compensation
|
|
|
71,250
|
|
|
|
-
|
|
Convertible Promissory Notes issued as Compensation
– related party
|
|
$
|
-
|
|
|
$
|
175,000
|
|
The accompanying notes are an integral
part of these financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
March 31, 2018
(Unaudited)
Note 1 –
Organization and Summary
of Significant Accounting Policies:
Organization:
Quantum Computing Inc. (formerly
known as Innovative Beverage Group Holdings, Inc.), a Delaware corporation (the “Company” or “QCI,”
“we,” “us,” or “our”) was the surviving entity as the result of a merger between
Ticketcart, Inc. and Innovative Beverage Group, Inc., both Nevada corporations. Innovative Beverage Group, Inc. was the
surviving entity as the result of a merger between Kat-A-Tonic Distributing, Inc., a Texas corporation and United European
Holdings, Ltd., a Nevada Corporation.
History
The Company, was incorporated in the
State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart’s original business plan involved in the sale of ink-jet
cartridges online. Ticketcart offered remanufactured and compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon
inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage Group, Inc. and changed its name to Innovative
Beverage Group Holdings, Inc. to better reflect its business operations at the time which was beverage distribution and product
development. In 2013, Innovative Beverage Group Holdings, Inc. ceased operations. On May 22, 2017, one of Innovative Beverage
Group Holdings, Inc.’s. shareholders, a North Carolina resident (the “Plaintiff”), filed suit against the Company
alleging “(1) fraud; and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.”
The complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted,
causing injury to the Company and its shareholders. Plaintiff sought damages of $30,000 for each claim, plus reimbursement
of filing costs of $1,000, and the appointment of a Receiver for the Company. On August 28, 2017, the North Carolina Court,
Superior Court Division (the “North Carolina Court”), entered a default judgment for Plaintiff and appointed an exclusive
Receiver (the “Receiver”) over the Company. On October 4, 2017 the Receiver filed Articles of Incorporation in North
Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company, (“IBGH North Carolina”).
On October 26, 2017, Innovative Beverage Group, Inc. redomiciled to North Carolina.
On January 22, 2018, while the Company
was in receivership, the Company sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group
(“CRG”), an entity owned and operated by the Company’s Chief Executive Officer, Robert Liscouski, for $155,000.
On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski (the Chief Executive
Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of Directors. Mr.
Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take the
necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February
21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the
name changed to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate of Conversion in Delaware to convert
to a Delaware corporation with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February
23, 2018.
Business
The Company’s business focuses
on quantum computing software development. The Company intends to develop heterogeneous software that can run on the platforms
that are under development by the quantum computer hardware industry. The Company’s initial focus will be on the security
and financial services sectors. Other potential markets for quantum computing include artificial intelligence (“AI”),
machine learning, genetics and pharmaceuticals. The Company intends to be a leading provider of software that can run on multiple
quantum platforms.
Initially, the Company is focused on
two main development efforts. First, we plan to focus on the development of quantitative financial related products such as financial
portfolio optimization. The financial services industry has used quantitative financial software applications for several decades
with some success. However, those existing products are limited in their performance due to the lack of computing power to solve
these classes of optimization problems, which are known as “NP Complete Problems”. NP Complete Problems are a class
of mathematical problems that can be solved in polynomial increments of time using a non-deterministic method. These NP Complete
Problems require complex calculations, which cannot currently be performed in reasonable amounts of time using conventional, binary
computer systems, with the exception of simple cases. These problems are intractable because of the inability of bit-based systems
to handle complex non-deterministic problems. The recent developments in quantum annealing and other quantum hardware suggests
that these problems will soon be solvable using these new technologies. The Company’s goal is to develop and implement quantum
related algorithms to provide solutions to these NP Complete Problems in the area of financial optimization. Optimization algorithms
are ideally suited to run on a class of quantum computers, known as “annealers,” that are currently becoming made
available in the market by various manufacturers.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
The Company’s secondary market
focus will be the field of cybersecurity, specifically encryption and decryption algorithms. Current encryption algorithms, such
as DES (widely used in banking transactions), use codes based on the product of two very large prime numbers. To decrypt the message
requires finding the factors of a very large number, which can be done with current computers, but takes unacceptably long amounts
of time. The factorization process can be performed much more rapidly using algorithms running on a quantum computer. The other
aspect of cybersecurity that we will work on is development of encryption algorithms that are either “quantum resistant”,
i.e. difficult for quantum computer to crack, or “quantum based”, i.e., that use principals of quantum physics to
create a quantum based code that is difficult for both conventional and quantum computers to break. Information security has a
number of components, of which encryption is an important tool. Encryption is vital to e-commerce, banking, cellular communication,
and protecting email, websites and online identities because unprotected data can be stolen and misused.
Business Strategy
The Company plans to enter the market
for high performance computers and software applications, specifically focusing on what are known as “quantum computers”.
The Company has assembled a team of experienced engineers in super computing technology and quantum mathematics, which will focus
on design and development of several quantum software applications that target solutions to problems including non-deterministic
polynomial applications.
The Company has hired physicists, applied
mathematicians (algorithm developers) and software developers to support the technical team in developing and designing quantum
software applications. Applied mathematicians develop the algorithms and algorithm/software developers design software solutions
utilizing the algorithms provided to them by mathematicians. Software engineers test the algorithm code to ensure reliable and
accurate performance of the software product.
In addition, the Company has retained
outside leading industry experts from well-known institutions from the financial services industry and leading financial institutions,
and expects to retain additional advisors from cybersecurity firms and government agencies to serve as technical advisors to the
Company. We have formed an advisory board of additional subject matter experts, which is expected to assist us to shape our business
strategy and direction as well as work with us to establish our market approach. QCI is also pursuing US Government initiatives
in quantum computing and AI, including grants and funding, that are fostering U.S. innovation in those domains.
The Company does not currently intend
to be a hardware manufacturer. However, due to the cutting-edge nature of quantum computing and the high cost and limited availability
of quantum computers, as well as limitations on the capabilities of existing quantum simulators, we may find it necessary over
the next two years to develop our own quantum simulators upon which we can develop and test our quantum software products. If
such development becomes necessary, our simulators are expected to emulate the characteristics and capabilities of a quantum computer
such as superposition and quantum entanglement. Our plan is to license our software as a cloud based service, but we are not ruling
out selling turn-key hardware systems that would incorporate and support our own quantum inspired computing solutions.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
The Company’s technical leadership
intends to leverage industry expertise and innovative methods to develop quantum computer application solutions capable of solving
increasingly complex problems in a more rapid and thorough manner. The Company will initially focus on addressing computational
problems in the financial services, and cybersecurity quantum-secure encryption markets, followed later by addressing problems
in the AI and genetics marketplaces.
The Company’s fiscal year end is
December 31.
Basis of Presentation:
The accompanying Balance Sheet as of
March 31, 2019, which was derived from audited financial statements, and the unaudited interim financial statements of the Company
have been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10
of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary
to present fairly the financial position of the Company as of March 31, 2019, and the cash flows and results of operations for
the three months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the three
months ended March 31 are not necessarily indicative of the results for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed
or omitted. The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial
statements contained in the Company’s 2018 Form 10-K, filed with Securities and Exchange Commission, and it is suggested
that these financial statements be read in conjunction therewith.
Accounting Changes
Except for the changes discussed below,
Quantum has consistently applied the accounting policies to all periods presented in these unaudited financial statements.
Adoption of ASC 842
On January 1, 2019, we adopted FASB
Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires the recognition of the right-of-use
assets and relating operating and finance lease liabilities on the balance sheet. As permitted by ASC 842, we elected the adoption
date of January 1, 2019, which is the date of initial application. As a result, the consolidated balance sheet prior to January
1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases (“ASC 840”), which did not required
the recognition of operating lease liabilities on the balance sheet, and is therefore not comparative. Under ASC 842, all leases
are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification
affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses.
Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied
interest component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC
842 is substantially consistent with ASC 840. As a result, there is no significant difference in our results of operations presented
in our consolidated income statement and consolidated statement of comprehensive income for each period presented.
We adopted ASC 842 using a modified
retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had a minor impact on our balance sheet.
The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases.
The accounting for finance leases (capital leases) was substantially unchanged. Accordingly, upon adoption, leases that were classified
as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $2,491 to
operating lease right-of-use asset and the related lease liability. The lease liability is based on the present value of the remaining
minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date of January
1, 2019. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a contract
is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify
as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of
the operating lease liability. As of December 31, 2018 and March 31, 2019 we had no finance leases.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
The impact of the adoption of ASC 842
on the balance sheet at December 31, 2018 was:
|
|
As Reported December 31,
2018
|
|
|
Adoption of ASC 842 Increase
(Decrease)
|
|
|
Revised Balance January 1,
2019
|
|
Other Current Assets
|
|
|
1,767,080
|
|
|
|
|
|
|
|
1,767,080
|
|
Operating Lease right-of-use assets
|
|
|
-
|
|
|
|
2,491
|
|
|
|
2,491
|
|
Total assets
|
|
|
1,797,156
|
|
|
|
2,491
|
|
|
|
1,799,647
|
|
Other current liabilities
|
|
|
3,314,102
|
|
|
|
|
|
|
|
3,314,102
|
|
Lease Liability-current
|
|
|
-
|
|
|
|
2,491
|
|
|
|
2,491
|
|
Long-term Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities and equity
|
|
|
1,797,156
|
|
|
|
2,491
|
|
|
|
1,799,647
|
|
We lease substantially all our office
space used to conduct our business. We adopted ASC 842 effective January 1, 2019. For contracts entered into on or after the effective
date, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on (1) whether
the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic
benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At
inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone
price to determine the lease payments. Leases entered into prior to January 1, 2019 are accounted for under ASC 840 and were not
reassessed.
Leases are classified as either finance
leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease
transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is
reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the
present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified
as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office
space leases and as of December 31, 2018 and March 31, 2019 we had no finance leases.
For all leases at the lease commencement
date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased
asset for the lease term. The lease liability represents the present value of the lease payments under the lease.
The right-of-use asset is initially
measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred,
consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment.
The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit
in the lease, or if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying
lease. For our real estate and other operating leases, we use our secured incremental borrowing rate. For our finance leases,
we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.
Lease payments included in the measurement
of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where
it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably
certain the lease will not be terminated early.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
Lease expense for operating leases
consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line
basis over the lease term.
Adoption of ASU 2018-02
On January 1, 2019, we adopted ASU
2018-02, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax effects from Accumulated Other
Comprehensive Income (“ASU 2018-02”), which requires the reclassification from accumulated other comprehensive income
to retained earnings for the stranded tax effects arising from the reduction of the U.S. federal statutory income tax rate from
35% to 21%, effective January 1, 2018. ASU 2018-02 modifies ASC 740, Income Taxes (“ASC 740), which requires businesses
to adjust the value of deferred tax assets and liabilities upon a change in the tax law. ASC 740 specifies that changes in tax
assets and liabilities related to the tax rate change must be presented in earnings, even when the corresponding deferred taxes
relate to items initially recognized in accumulated other comprehensive income such as pension adjustments, gains or losses on
cash flow hedges, foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. The
Company had no deferred tax assets or liabilities as of December 31, 2017, accordingly there were no stranded tax effects to reclassify
and the adoption of ASU 2018-02 had no impact on the Company’s financial statements.
Adoption of ASU 2018-07
On January 1, 2019, we adopted ASU
2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns the accounting for
share-based payments to nonemployees for goods and services with the requirements for accounting for share-based payments to employees
under ASC 718 Compensation - Stock Compensation. ASU 2018-07 provides that nonemployee share-based payments are measured at the
grant date at the fair value of the equity instruments to be provided to the nonemployee when the goods or services have been
delivered. Prior to ASU 2018-07 nonemployee share-based payments were measured at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever could be more reliably measured.
We adopted ASU 2018-07 using a modified
retrospective approach with a cumulative effect adjustment to retained earnings as of the implementation date for all nonemployee
share-based payments that (1) have not been settled as of the adoption date and (2) nonemployee share-based payments for which
a measurement date has not been established. We made no adjustment to retained earnings as a result of adopting ASU 2018-07.
Use of Estimates:
These financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination
of assets and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements
for any period necessarily involves the use of estimates and assumption an example being assumptions in valuation of stock options.
Actual amounts may differ from these estimates. These financial statements have, in management’s opinion, been properly
prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.
Cash and Cash Equivalents
The Company’s policy is to present
bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Property and Equipment
Property and equipment is stated at
cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight line method over
their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated
useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the
accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on
sale of equipment.
Net Loss Per Share:
Net loss per share is based on the
weighted average number of common shares and common shares equivalents outstanding during the period.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
(Unaudited)
Note 2 –
Federal Income Taxes:
The Company has made no provision for
income taxes because there have been no operations to date causing income for financial statements or tax purposes.
The Financial Accounting Standards
Board (FASB) has issued Statement of Financial Accounting Standards Number 109 (“SFAS 109”). “Accounting for
Income Taxes”, which requires a change from the deferred method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary
differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net operating loss carry-forwards
|
|
$
|
797,941
|
|
|
$
|
99,508
|
|
Valuation allowance
|
|
|
(797,941
|
)
|
|
|
(99,508
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At March 31, 2019, the Company had
net operating loss carry forwards of approximately $797,941.
The Company experienced a change in
control during the 2018 calendar year and therefore no more than an insignificant portion of this net operating allowance will
ever be used against future taxable income.
Note 3 –
Going Concern
The Company’s financial statements
have been prepared on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company has earned no revenue from
operations in the three-month periods ended March 31, 2019 and 2018, and has an accumulated deficit of $21,015,540 and $10,921,622
respectively. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources
of capital or ultimately acquire an entity which the Company hopes will become profitable at some time in the near future. The
accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management
is seeking additional capital to finance the operations of the Company.
Note 4 –
Financial Accounting
Developments:
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material
impact on our financial position or results of operations upon adoption.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
March 31, 2019
(Unaudited)
Note 5 –
Subscription Receivable
The Company assumed a promissory note
from one of the Initial Investors to Convergent Risk Group, LLC (see Note 9 – Related Parties) in the amount of $100,000,
which is payable by the Initial Investor on or before June 30, 2019. The promissory note was issued in payment for a promissory
note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory
Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory
note is paid in full on or before June 30, 2019, the Company’s Convertible Promissory Note will convert and shares will
be issued. If the promissory note is not paid in full on or before June 30, 2019, the Company’s Convertible Promissory Note
held by this investor will be cancelled, and no shares will be issued.
Note 6 –
Property and Equipment
|
|
March 31,
|
|
|
December 31,
|
|
Classification
|
|
2019
|
|
|
2018
|
|
Hardware & Equipment
|
|
$
|
7,014
|
|
|
$
|
7,014
|
|
Software
|
|
|
0
|
|
|
|
0
|
|
Total cost of property and equipment
|
|
|
7,014
|
|
|
|
7,014
|
|
Accumulated depreciation
|
|
|
468
|
|
|
|
117
|
|
Property and equipment, net
|
|
$
|
6,546
|
|
|
$
|
6,897
|
|
The Company made Property and Equipment
acquisitions of $0 during the three months ended March 31, 2019. The Company depreciates computer equipment over a period of five
years.
Note 7 –
Convertible Promissory
Notes
In March 2018 the Board authorized
the Company to issue non-interest bearing convertible promissory notes at a conversion price of $0.10 per share to the Initial
Investors and others and $500,000 of these convertible notes have been issued, for which only $225,000 has been received by the
Company in cash.
On May 24, 2018 the Board authorized
a private placement of convertible promissory notes in the aggregate amount up to $15,000,000 at a conversion price of $1.00 per
share (the “Convertible Note Offering”). The Notes accrue interest at eight percent (8%) per annum and are convertible
into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date. In
connection with the $1.00 Convertible Note Offering, the Company received funds of $3,495,500 as of December 31, 2018. The Board
terminated the Convertible Note Offering in October, 2018.
In total, the Company has issued convertible
promissory notes of principal value $3,995,500, for which the Company has received a total of $3,720,500 in funds.
The convertible promissory notes were
issued at different times during the year, and the difference between the conversion prices of the notes and the fair market value
of the Company’s common stock at the date of the investment, as measured by the closing price on the OTC Markets, was recorded
as a Beneficial Conversion Feature interest expense.
Note 8 –
Capital Stock:
On March 1, 2018 the Board authorized
the Company to raise up to $500,000 of equity capital at price of $0.40 per share of common stock (the “Initial Raise”).
In connection with the Initial Raise, the Company received subscriptions for $75,000, and issued shares of restricted common stock
pursuant to the Subscription Agreements. On September 5, 2018 the Board formally concluded the Initial Raise and ceased accepting
investments.
On April 13, 2018, The Company’s
board of directors authorized a 1:200 reverse stock split on the shares of the Company’s common stock. Accordingly, all
references to numbers of common shares and per-share data in the accompanying financial statements have been adjusted to reflect
the stock split on a retroactive basis. The Board and the majority stockholder also amended the Company’s Articles of Incorporation
to increase the authorized capital of the company to 260,000,000 shares, consisting of 250,000,000 shares of common stock and
10,000,000 shares of preferred stock.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
March 31, 2019
(Unaudited)
In September 2018, the Company issued
4,800,000 shares of restricted common stock to key management and technical personnel, pursuant to their respective employment
agreements which were entered into and executed in July 2018 and made effective as of March 1, 2018, the date employment with
the Company commenced. The Company recognized stock based compensation expense of $24.2 million in connection with the grants
of stock to key management and technical personnel, pursuant to ASC 718. The expense amount was calculated based on the closing
price of the Company stock on the OTC Markets on the date the grants were executed. In November 2018, two of the key management
employees resigned from the Company and returned all of their stock grants to the Company, for a total of 4,000,000 shares. The
return of the stock grants was treated as a forfeiture under ASC 718 and accordingly the Company reversed $20.16 million of the
stock based compensation expense after the shares were returned to the Company and cancelled
The terms of the employee stock grants
are spelled out in Restricted Stock Agreements and Lock Up Agreements (the “Stock Agreements”), which the Company
entered into with each employee. The Stock Agreements specify that the stock grants are subject to restrictions spelled
out in a restrictive legend, and that the grants vest in full upon the first date of employment. In addition, the employee
is also subject to the Lock Up Agreement for three years from the date of employment. The Lock Up Agreement precludes
the employee from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of the shares
granted by the Company. Because one hundred percent (100%) of the shares vest on the first day of employment, the employee has
all of the rights of a shareholder including the ability to receive dividends and vote the shares. However, if the employee terminates
their employment prior to the third anniversary of his/her date of hire, the Company has a right to recoup a portion of the stock
grant. Specifically, the Company can recoup two thirds of the stock grant until the second anniversary date, and one third
of the stock grant between the second and third anniversary dates. After the third anniversary date, the Company has
no further recoupment rights.
To properly account for the compensation
expense associated with the stock grants under ASC 718, we first analyzed whether there was a “requisite service period”
associated with the stock grants. Because the shares vest immediately, we determined that there was no requisite service period,
and the employees received taxable compensation as of the date of grant. We also examined whether there were conditions associated
with the employee stock grants that would affect recording of compensation expense. We determined that the Company’s recoupment
or “clawback” right constitutes a contingent feature of a stock grant such as a clawback feature that should be accounted
for if, and when, the contingent event occurs, Moreover, while the company has a legal right to recoup shares under certain conditions,
in practice there are a number of procedural hurdles we would have to overcome to actually get the shares back if the terminated
employee does not voluntarily surrender the certificate, and there is no guarantee we would succeed. Therefore, because the restricted stock grants vested in full upon the Effective Date, and the clawback right is a contingent
condition, in accordance with ASC 718 we determined that the full amount of the fair market value of the shares should be recognized
as compensation expense as of the date of the grant, rather than recognizing the stock based compensation expense pro rata over
the three year period of the contingent clawback feature.
In October 2018 the Company converted
$725,000 principal amount of Convertible Promissory Notes, plus $16,711 of accrued interest, into 1,510,377 shares of common stock.
The Company also issued 130,000 shares of common stock to CNLT, LLC, pursuant to an anti-dilution provision associated with the
shares held by CNLT.
In December 2018 the Company converted
$100,000 principal amount of Initial Investor promissory notes, plus accrued interest of $2,422, into 1,002,422 shares of common
stock.
In March 2019 the Company issued 25,000
shares of common stock to Lyons Capital, LLC, an investor relations firm, as compensation for services pursuant to the terms of
an agreement the Company entered into with Lyons Capital in December 2018.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Notes to Financial Statements
March 31, 2019
(Unaudited)
Note 9 –
Related Party Transactions
Convergent Risk Group, LLC
To finance the acquisition of the control
block of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent)
$275,000, in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total amount of $275,000.
Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority
shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory
Notes” in the total amount of $275,000 and certain liabilities (the “Liabilities”). The Liabilities and the
Promissory Notes are collectively the “Convergent Liabilities.” The Convergent Liabilities assumed by the Company
were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued
them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible
into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019.
The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which
is payable on or before June 30, 2019. While the conversion of the Convertible Promissory Notes is mandatory at the
maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The Company has no obligation
to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory Notes will result in dilution
of other shareholders once the Initial Investors convert their notes into the Company’s common stock.
REMTC, Inc.
To provide the Company with a highly
secure development environment and intra-company data management and communication system, the Company contracted with REMTC,
Inc. (“REMTC”), an entity wholly owned by Richard Malinowski, who was the Company’s Chief Technology and Operations
Officer at the time, to acquire the necessary hardware and software, configure and install the REMTC proprietary security system,
known as “PASS.” The total cost of the PASS System was approximately $670,000 which the Company paid to REMTC. In
November 2018, Mr. Richard Malinowski informed the Company of his decision to resign as Chief Technology and Operations Officer
and the Board accepted his resignation and that of Mr. Thomas Kelly. The Company and REMTC have unwound the PASS agreement and
the Company expects to receive approximately $670,000 back from Mr. Malinowski and REMTC. The Company determined that the PASS
System was unusable and therefore impaired, and wrote off the remaining undepreciated value of the PASS system as of December
31, 2018. In March 2019 the Company commenced litigation in New Jersey State Court against REMTC, Mr. Malinowski and Mr. Kelly
to recover the cost of the PASS System, among other fees.
Note 10 –
Reclassifications:
Certain reclassifications have been
made to the prior period financial statements to conform to the current period financial statement presentation. Specifically,
the Beneficial Conversion Feature expense relating to the offering of Convertible Promissory Notes in 2018 has been allocated
to the periods in which the Promissory Notes were issued. These reclassifications had no effect on net earnings or cash flows
as previously reported for calendar year 2018.
Note 11 –
Subsequent Events:
There are no other events of a subsequent
nature that in management’s opinion are reportable.
Report of Independent
Registered Public Accounting Firm
To the shareholders and the board of
directors of Quantum Computing, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance
sheet of Quantum Computing, Inc. (the “Company”) as of December 31, 2018, the related statement of operations, stockholders’
equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
Substantial Doubt about the Company’s
Ability to Continue as a Going Concern
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements,
the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor
since 2019
Lakewood, CO
April 15, 2019
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Innovative Beverage Group Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Innovative Beverage Group Holdings, Inc. (the “Company”) as of December 31, 2017 and 2016, and the related statements
of operations, stockholders’ equity, and cash flows, for each of the years in the two-year period ended December 31, 2017,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results
of its operations and cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Emphasis of Matter
The accompanying financial statements have been
prepared assuming that the Company will become a going concern. As described in Note 3 to the financial statements, the Company
has no operations nor business plans, which raises substantial doubt about its ability to continue as a going concern. Management’s
plans regarding these matters are also described in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Thayer O’Neal Company, LLC
Thayer O’Neal Company, LLC
We have served as the Company’s auditor since 2018.
Houston, Texas
August 15, 2018
QUANTUM COMPUTING
INC.
(Formerly Innovative
Beverage Group Holdings, Inc.)
Balance
Sheets
(Audited)
|
|
December 31,
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,767,080
|
|
|
$
|
-
|
|
Prepaid Expenses
|
|
|
23,179
|
|
|
|
-
|
|
Fixed Assets (net of depreciation)
|
|
|
6,897
|
|
|
|
-
|
|
Total assets
|
|
$
|
1,797,156
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
54,018
|
|
|
$
|
1,500
|
|
Accrued Expenses
|
|
|
89,584
|
|
|
|
-
|
|
Convertible promissory notes – related party
|
|
|
100,000
|
|
|
|
-
|
|
Convertible promissory notes
|
|
|
3,070,500
|
|
|
|
-
|
|
Total liabilities
|
|
|
3,314,102
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 250,000,000 and 247,000,000 shares authorized;
4,724,161 and 943,735 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively
|
|
|
472
|
|
|
|
94
|
|
Additional paid-in capital
|
|
|
10,935,029
|
|
|
|
9,871,180
|
|
APIC-Beneficial Conversion Feature in Equity
|
|
|
3,995,500
|
|
|
|
|
|
APIC-Stock Based Compensation
|
|
|
4,031,920
|
|
|
|
|
|
Subscription Receivable
|
|
|
(100,000
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(20,379,867
|
)
|
|
|
(9,872,774
|
)
|
Total stockholders’ equity
(deficit)
|
|
|
(1,516,946
|
)
|
|
|
(1,500
|
)
|
Total liabilities and stockholders’
equity (deficit)
|
|
$
|
1,797,156
|
|
|
$
|
-
|
|
The accompanying
notes are an integral part of these audited financial statements.
QUANTUM COMPUTING
INC.
(Formerly Innovative
Beverage Group Holdings, Inc.)
Statement
of Operations
(Audited)
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
Salaries
|
|
|
520,327
|
|
|
|
-
|
|
Consulting
|
|
|
322,278
|
|
|
|
|
|
Research & Development
|
|
|
250,640
|
|
|
|
-
|
|
Stock Based Compensation
|
|
|
4,182,014
|
|
|
|
-
|
|
Selling General & Administrative -Other
|
|
|
523,694
|
|
|
|
175,000
|
|
Operating expenses
|
|
|
5,798,953
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(5,798,953
|
)
|
|
|
(175,000
|
)
|
|
|
|
|
|
|
|
|
|
Interest Expense – Promissory Notes
|
|
|
87,307
|
|
|
|
|
|
Interest Expense - Beneficial Conversion Feature
|
|
|
3,995,500
|
|
|
|
|
|
Asset Impairment Charge
|
|
|
625,333
|
|
|
|
|
|
Other income (expense)
|
|
|
(4,708,140
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,507,093
|
)
|
|
$
|
(175,000
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
4,724,161
|
|
|
|
943,735
|
|
Loss per share - basic and diluted
|
|
$
|
(2.22
|
)
|
|
$
|
(0.19
|
)
|
The accompanying
notes are an integral part of these audited financial statements.
QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group
Holdings, Inc.)
Statement of Stockholders’
Deficit
For the Twelve Months Ended December 31,
2018
(Audited)
|
|
Common
Stock
|
|
|
Additional
Paid
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in
Capital
|
|
|
Deficit
|
|
|
Total
|
|
BALANCES, December 31, 2017
|
|
|
943,735
|
|
|
$
|
94
|
|
|
$
|
9,871,180
|
|
|
$
|
(9,872,774
|
)
|
|
$
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash
|
|
|
2,980,426
|
|
|
|
298
|
|
|
|
1,063,849
|
|
|
|
-
|
|
|
|
1,064,147
|
|
Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
3,995,500
|
|
|
|
|
|
|
|
3,995,500
|
|
Subscription Receivable
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(100,000
|
)
|
Stock based compensation
|
|
|
800,000
|
|
|
|
80
|
|
|
|
4,031,920
|
|
|
|
|
|
|
|
4,032,000
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,507,093
|
)
|
|
|
(10,507,093
|
)
|
BALANCES, December 31, 2018
|
|
|
4,724,161
|
|
|
$
|
472
|
|
|
$
|
18,862,449
|
|
|
$
|
(20,379,867
|
)
|
|
$
|
(1,516,946
|
)
|
The accompanying
notes are an integral part of these audited financial statements.
QUANTUM COMPUTING
INC.
(Formerly Innovative
Beverage Group Holdings, Inc.)
Statement
of Cash Flows
(Audited)
|
|
Twelve Months Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,507,093
|
)
|
|
$
|
(175,000
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
Prepaid Expenses
|
|
|
(23,180
|
)
|
|
|
-
|
|
Share Based Compensation
|
|
|
4,032,000
|
|
|
|
-
|
|
Depreciation
|
|
|
117
|
|
|
|
-
|
|
Accrued Expenses
|
|
|
89,584
|
|
|
|
-
|
|
Issuance of shares for legal settlement
|
|
|
-
|
|
|
|
173,500
|
|
Accounts payable
|
|
|
52,518
|
|
|
|
1,500
|
|
Beneficial Conversion Feature
|
|
|
3,995,500
|
|
|
|
-
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,360,554
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Fixed Assets – Computer Software and Equipment
|
|
|
(7,014
|
)
|
|
|
-
|
|
CASH USED IN INVESTING ACTIVITIES
|
|
|
(7,014
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Convertible Promissory Notes
|
|
|
3,070,500
|
|
|
|
-
|
|
Proceeds from stock issuance
|
|
|
1,064,148
|
|
|
|
-
|
|
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
4,134,648
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
1,767,080
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,767,080
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
NON-CASH INVESTING ACTIVITES
|
|
|
|
|
|
|
|
|
Subscription receivable created from issuance of note
payable
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITES
|
|
|
|
|
|
|
|
|
Note payable issued in exchange for a Subscription
receivable
|
|
|
100,000
|
|
|
|
-
|
|
Common stock issued for compensation
|
|
|
4,032,000
|
|
|
|
-
|
|
Convertible Promissory Notes issued as Compensation
– related party
|
|
$
|
175,000
|
|
|
$
|
-
|
|
The accompanying
notes are an integral part of these financial statements.
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. (the “Company”),
was incorporated in the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart’s original business plan involved
in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and compatible cartridges for Hewlett-Packard, Epson,
Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage Group, Inc. and changed its
name to Innovative Beverage Group Holdings, Inc. to better reflect its business operations at the time which was beverage distribution
and product development. In 2013, Innovative Beverage Group Holdings, Inc. ceased operations. On May 22, 2017, one of Innovative
Beverage Group Holdings, Inc.’s. shareholders, a North Carolina resident (the “Plaintiff”), filed suit against
the Company. On August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered
a default judgment for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. On October
4, 2017 the Receiver filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned
subsidiary of the Company, (“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, Inc. redomiciled
to North Carolina.
On January 22, 2018, while the Company
was in receivership, the Company sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group
(“CRG”), an entity owned and operated by the Company’s Chief Executive Officer, Robert Liscouski, for $155,000.
On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski (the Chief Executive
Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of Directors. Mr.
Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take the
necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February
21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the
name changed to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate of Conversion in Delaware to convert
to a Delaware corporation with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February
23, 2018.
Business
The Company’s business focuses on
quantum computing software development. The Company intends to develop heterogeneous software that can run on the platforms that
are under development by the quantum computer hardware industry. The Company’s initial focus will be on the security and
financial services sectors. Other potential markets for quantum computing include artificial intelligence (“AI”),
machine learning, genetics and pharmaceuticals. The Company intends to be a leading provider of software that can run on multiple
quantum platforms.
Initially, the Company is focused on two
main development efforts. First, we plan to focus on the development of quantitative financial related products such as financial
portfolio optimization. The financial services industry has used quantitative financial software applications for several decades
with some success. However, those existing products are limited in their performance due to the lack of computing power to solve
these classes of optimization problems, which are known as “NP Complete Problems”. NP Complete Problems are a class
of mathematical problems that can be solved in polynomial increments of time using a non-deterministic method. These NP Complete
Problems require complex calculations, which cannot currently be performed in reasonable amounts of time using conventional, binary
computer systems, with the exception of simple cases. These problems are intractable because of the inability of bit-based systems
to handle complex non-deterministic problems. The recent developments in quantum annealing and other quantum hardware suggests
that these problems will soon be solvable using these new technologies. The Company’s goal is to develop and implement quantum
related algorithms to provide solutions to these NP Complete Problems in the area of financial optimization. Optimization algorithms
are ideally suited to run on a class of quantum computers, known as “annealers,” that are currently becoming made
available in the market by various manufacturers.
The Company’s secondary market focus
will be the field of cybersecurity, specifically encryption and decryption algorithms. Current encryption algorithms, such as
DES (widely used in banking transactions), use codes based on the product of two very large prime numbers. To decrypt the message
requires finding the factors of a very large number, which can be done with current computers, but takes unacceptably long amounts
of time. The factorization process can be performed much more rapidly using algorithms running on a quantum computer. The other
aspect of cybersecurity that we will work on is development of encryption algorithms that are either “quantum resistant”,
i.e. difficult for quantum computer to crack, or “quantum based”, i.e., that use principals of quantum physics to
create a quantum based code that is difficult for both conventional and quantum computers to break. Information security has a
number of components, of which encryption is an important tool. Encryption is vital to e-commerce, banking, cellular communication,
and protecting email, websites and online identities because unprotected data can be stolen and misused.
Business Strategy
The Company plans to enter the market
for high performance computers and software applications, specifically focusing on what are known as “quantum computers”.
The Company has assembled a team of experienced engineers in super computing technology and quantum mathematics, which will focus
on both design and development of several quantum software applications that target solutions to non-deterministic polynomial
applications.
The Company has hired physicists, applied
mathematicians (algorithm developers) and software developers to support the technical team in developing and designing quantum
software applications. Applied mathematicians develop the algorithms and algorithm/software developers design software solutions
utilizing the algorithms provided to them by mathematicians. Software engineers test the algorithm code to ensure reliable and
accurate performance of the software product.
In addition, the Company has retained
outside leading industry experts from well-known institutions from the financial services industry and leading financial institutions,
and expects to retain additional advisors from cybersecurity firms and government agencies to serve as technical advisors to the
Company. We have formed an advisory board of additional subject matter experts, which is expected to assist us to shape our business
strategy and direction as well as work with us to establish our market approach. QCI is also pursuing US Government initiatives
in quantum computing and AI, including grants and funding, that are fostering U.S. innovation in those domains.
The Company does not currently intend
to be a hardware manufacturer. However, due to the cutting-edge nature of quantum computing and the high cost and limited availability
of quantum computers, as well as limitations on the capabilities of existing quantum simulators, we may find it necessary over
the next two years to develop our own quantum simulators upon which we can develop and test our quantum software products. If
such development becomes necessary, our simulators are expected to emulate the characteristics and capabilities of a quantum computer
such as superposition and quantum entanglement. Our plan is to license our software as a cloud based service, but we are not ruling
out selling turn-key hardware systems that would incorporate and support our own quantum inspired computing solutions.
The Company’s technical leadership
intends to leverage industry expertise and innovative methods to develop quantum computer application solutions capable of solving
increasingly complex problems in a more rapid and thorough manner. The Company will initially focus on addressing computational
problems in the financial services, and cybersecurity quantum-secure encryption markets, followed later by addressing problems
in the AI and genetics marketplaces.
The Company’s fiscal year end is December 31.
Basis of Presentation:
The accompanying Balance Sheet as of December
31, 2018, has been prepared in accordance with U.S. GAAP. In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly the financial position of the Company as of December 31, 2018, and the cash
flows and results of operations for the twelve months then ended. Such adjustments consisted only of normal recurring items..
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 2017 Annual Disclosure, filed with OTCMarkets.com, and it is suggested that these financial statements
be read in conjunction therewith.
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 (which is 5 years). 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.
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.
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net operating loss carry-forwards
|
|
$
|
651,191
|
|
|
$
|
61,250
|
|
Valuation allowance
|
|
|
(651,191
|
)
|
|
|
(61,250
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018, the Company had
net operating loss carry forwards of approximately $651,191.
The Company experienced a change in control
during the year and therefore no more than an insignificant portion of this net operating allowance will ever be used against
future taxable income.
Note 3 –
Going Concern
The Company’s financial statements
have been prepared on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company has earned no revenue from
operations in the twelve-month periods ended December 31, 2018 and 2017, and has an accumulated deficit of $20,379,867 and $9,872,774
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 new capital to revitalize the Company.
Note 4 –
Financial Accounting
Developments:
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material
impact on our financial position or results of operations upon adoption.
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, 2018. The promissory note was issued in payment for a promissory
note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory
Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory
note is paid in full on or before June 30, 2019, the Company’s Convertible Promissory Note will convert and shares will
be issued. If the promissory note is not paid in full on or before June 30, 2019, the Company’s Convertible Promissory Note
held by this investor will be cancelled, and no shares will be issued.
Note 6 –
Property and Equipment
|
|
December 31,
|
|
|
December 31,
|
|
Classification
|
|
2018
|
|
|
2017
|
|
Hardware & Equipment
|
|
$
|
7,014
|
|
|
$
|
-
|
|
Software
|
|
|
0
|
|
|
|
-
|
|
Total cost of property and equipment
|
|
|
7,014
|
|
|
|
-
|
|
Accumulated depreciation
|
|
|
117
|
|
|
|
-
|
|
Property and equipment, net
|
|
$
|
6,897
|
|
|
$
|
-
|
|
The Company made Property and Equipment
acquisitions of $677,014 during the twelve months ended December 31, 2018. As of December 31, 2018, the Company determined that
some of the acquired property and equipment, consisting of a secure IT system, comprised of hardware and software purchased from
a related party, had been impaired and wrote off the full amount of the $670,000 purchase price. The total impairment expense
recognized by the Company in 2018 was $625,333, which was the entire net book value of the secure IT system, net of accumulated
depreciation. Depreciation expense on the IT system recorded during the year was $44,667.
Note 7 –
Convertible Promissory Notes
In March 2018 the Board authorized the
Company to issue non-interest bearing convertible promissory notes at a conversion price of $0.10 per share to the Initial Investors
and others and $500,000 of these convertible notes have been issued, for which only $225,000 has been received by the Company
in cash.
On May 24, 2018 the Board authorized a
private placement of convertible promissory notes in the aggregate amount up to $15,000,000 at a conversion price of $1.00 per
share (the “Convertible Note Offering”). The Notes accrue interest at eight percent (8%) per annum and are convertible
into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date. In
connection with the $1.00 Convertible Note Offering, the Company has received funds of $3,495,500 as of December 31, 2018. The
Board terminated the Convertible Note Offering in October, 2018.
In total, the Company has issued convertible
promissory notes of principal value $3,995,500, for which the Company has received a total of $3,720,500 in funds.
The convertible promissory notes were
issued at different times during the year, and the difference between the conversion prices of the notes and the fair market value
of the Company’s common stock at the date of the investment, as measured by the closing price on the OTC Markets, was recorded
as a Beneficial Conversion Feature interest expense.
Note 8 –
Capital Stock:
On March 1, 2018 the Board authorized
the Company to raise up to $500,000 of equity capital at price of $0.40 per share of common stock (the “Initial Raise”).
In connection with the Initial Raise, the Company received subscriptions for $75,000, and issued shares of restricted common stock
pursuant to the Subscription Agreements. On September 5, 2018 the Board formally concluded the Initial Raise and ceased accepting
investments.
On April 13, 2018, The Company’s
board of directors authorized a 1:200 reverse stock split on the shares of the Company’s common stock. Accordingly, all
references to numbers of common shares and per-share data in the accompanying financial statements have been adjusted to reflect
the stock split on a retroactive basis. The Board and the majority stockholder also amended the Company’s Articles of Incorporation
to increase the authorized capital of the company to 260,000,000 shares, consisting of 250,000,000 shares of common stock and
10,000,000 shares of preferred stock.
In September 2018, the Company issued
4,800,000 shares of restricted common stock to key management and technical personnel, pursuant to their respective employment
agreements which were entered into and executed in July 2018 and made effective as of March 1, 2018, the date employment with
the Company commenced. The Company recognized stock based compensation expense of $24.2 million in connection with the grants
of stock to key management and technical personnel, pursuant to ASC 718. The expense amount was calculated based on the closing
price of the Company stock on the OTC Markets on the date the grants were executed. In November 2018, two of the key management
employees resigned from the Company and returned all of their stock grants to the Company, for a total of 4,000,000 shares. The
return of the stock grants was treated as a forfeiture under ASC 718 and accordingly the Company reversed $20.16 million of the
stock based compensation expense after the shares were returned to the Company and cancelled
The terms of the employee stock grants
are spelled out in Restricted Stock Agreements and Lock Up Agreements (the “Stock Agreements”), which the Company
entered into with each employee. The Stock Agreements specify that the stock grants are subject to restrictions spelled
out in a restrictive legend, and that the grants vest in full upon the first date of employment. In addition, the employee
is also subject to the Lock Up Agreement for three years from the date of employment. The Lock Up Agreement precludes
the employee from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of the shares
granted by the Company. Because one hundred percent (100%) of the shares vest on the first day of employment, the employee has
all of the rights of a shareholder including the ability to receive dividends and vote the shares. However, if the employee terminates
their employment prior to the third anniversary of his/her date of hire, the Company has a right to recoup a portion of the stock
grant. Specifically, the Company can recoup two thirds of the stock grant until the second anniversary date, and one third
of the stock grant between the second and third anniversary dates. After the third anniversary date, the Company has
no further recoupment rights.
To properly account for the compensation
expense associated with the stock grants under ASC 718, we first analyzed whether there was a “requisite service period”
associated with the stock grants. Because the shares vest immediately, we determined that there was no requisite service period,
and the employees received taxable compensation as of the date of grant. We also examined whether there were conditions associated
with the employee stock grants that would affect recording of compensation expense. We determined that the Company’s recoupment
or “clawback” right constitutes a contingent feature of a stock grant such as a clawback feature that should be accounted
for if, and when, the contingent event occurs, Moreover, while the company has a legal right to recoup shares under certain conditions,
in practice there are a number of procedural hurdles we would have to overcome to actually get the shares back if the terminated
employee does not voluntarily surrender the certificate, and there is no guarantee we would succeed. Therefore, because
the restricted stock grants vested in full upon the Effective Date, and the clawback right is a contingent condition, in accordance
with ASC 718 we determined that the full amount of the fair market value of the shares should be recognized as compensation expense
as of the date of the grant, rather than recognizing the stock based compensation expense pro rata over the three year period
of the contingent clawback feature.
In October 2018 the Company converted
$725,000 principal amount of Convertible Promissory Notes, plus $16,711 of accrued interest, into 1,510,377 shares of common stock.
The Company also issued 130,000 shares of common stock to CNLT, LLC, pursuant to an anti-dilution provision associated with the
shares held by CNLT.
In December 2018 the Company converted
$100,000 principal amount of Initial Investor promissory notes, plus accrued interest of $2,422, into 1,002,422 shares of common
stock.
Note 9 – Related Party Transactions,
Convergent Risk Group, LLC
To finance the acquisition of the control
block of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent)
$275,000, in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total amount of $275,000.
Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority
shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory
Notes” in the total amount of $275,000 and certain liabilities (the “Liabilities”). The Liabilities and the
Promissory Notes are collectively the “Convergent Liabilities.” The Convergent Liabilities assumed by the Company
were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued
them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible
into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019.
The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which
is payable on or before June 30, 2019. While the conversion of the Convertible Promissory Notes is mandatory
at the maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The Company has no obligation
to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory Notes will result in dilution
of other shareholders once the Initial Investors convert their notes into the Company’s common stock.
REMTC, Inc.
To provide the Company with a highly secure
development environment and intra-company data management and communication system, the Company contracted with REMTC, Inc. (“REMTC”),
an entity wholly owned by Richard Malinowski, who was the Company’s Chief Technology and Operations Officer at the time,
to acquire the necessary hardware and software, configure and install the REMTC proprietary security system, known as “PASS.”
The total cost of the PASS System was approximately $670,000 which the Company paid to REMTC. In November 2018, Mr. Richard Malinowski
informed the Company of his decision to resign as Chief Technology and Operations Officer and the Board accepted his resignation
and that of Mr. Thomas Kelly. The Company and REMTC have unwound the PASS agreement and the Company expects to receive approximately
$670,000 back from Mr. Malinowski and REMTC. The Company determined that the PASS System was unusable and therefore impaired,
and wrote off the remaining undepreciated value of the PASS system as of December 31, 2018. In March 2019 the Company commenced
litigation in New Jersey state court against REMTC, Mr. Malinowski and Mr. Kelly to recover the cost of the PASS System.
Note 10 –
Subsequent Events:
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
There are no other events of a subsequent
nature that in management’s opinion are reportable.
Item 14. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
On January 30, 2019, the Board of Directors
dismissed Thayer O’Neal Company, LLC (“Thayer”) as the Company’s independent registered public accounting
firm, effective as of such date.
The audit reports of Thayer on the consolidated
financial statements of the Company for each of the two most recent fiscal years ended December 31, 2017 and December 31, 2016
did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope
or accounting principles. The audit reports for the years ended December 31, 2017 and December 31, 2016 contained an explanatory
paragraph disclosing the uncertainty regarding the Company’s ability to continue as a going concern.
During the Company’s two most recent
fiscal years ended December 31, 2017 and December 31, 2016 and during the subsequent interim period from January 1, 2018 through
January 30, 2019, (i) there were no disagreements with Thayer on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures that, if not resolved to Thayer’s satisfaction, would have caused Thayer to make
reference to the subject matter of the disagreement in connection with its reports and (ii) there were no “reportable events”
as defined in Item 304(a)(1)(v) of Regulation S-K.
On February 4, 2019, the Board of Directors
engaged BF Borgers CPA PC (“BF”) as the Company’s independent registered public accounting firm for the year
ending December 31, 2018.
During the two most recent fiscal years
ended December 31, 2017 and December 31, 2016 and during the subsequent interim period from January 1, 2018 through February 4,
2019, neither the Company nor anyone on its behalf consulted BF regarding either (i) the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s
financial statements, and neither a written report nor oral advice was provided to the Company that BF concluded was an important
factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any
matter that was either the subject of a “disagreement” or a “reportable event”, each as defined in Regulation
S-K Item 304(a)(1)(iv) and 304(a)(1)(v), respectively.
Item 15. Financial Statements and Exhibits.
**
|
Indicates a management contract or compensatory
plan or arrangement.
|
SIGNATURES
In accordance with Section 12 of the Securities
Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May 23, 2019
|
QUANTUM COMPUTING INC.
|
|
|
|
|
By:
|
/s/
Robert Liscouski
|
|
|
Name: Robert Liscouski
|
|
|
Title: Chief Executive Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Robert Liscouski
|
|
Chairman of the Board of Directors, Chief
Executive Officer
|
|
May 23, 2019
|
Robert Liscouski
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Christopher Roberts
|
|
Chief Financial Officer and Director
|
|
May 23, 2019
|
Christopher Roberts
|
|
(Principal Financial Officer and Principal
Accounting Officer)
|
|
|
|
|
|
|
|
/s
/
Justin Schreiber
|
|
Director
|
|
May 23, 2019
|
Justin Schreiber
|
|
|
|
|
|
|
|
|
|
/
s/
Bertrand Velge
|
|
Director
|
|
May 23, 2019
|
Bertrand Velge
|
|
|
|
|
37