Notes
to Financial Statements
(Unaudited)
Note
1 – Organization and Summary of Significant Accounting Policies:
Organization:
Quantum
Computing Inc., formerly known as Innovative Beverage Group Holdings, Inc. a Delaware corporation (the “Company”) was the
surviving entity as the result of a merger between Ticketcart, Inc. and Innovative Beverage Group, Inc., both Nevada corporations. Innovative
Beverage Group, Inc. was the surviving entity as the result of a merger between Kat-A-Tonic Distributing, Inc., a Texas corporation and
United European Holdings, Ltd., a Nevada Corporation. In 2021 the Company established three wholly owned subsidiaries, Qubitech, Inc.,
Qubittech Federal, Inc. and Qubittech International, Inc., all of which are Delaware corporations. At this time there are no personnel,
assets or liabilities associated with any of the subsidiaries.
History
Quantum
Computing Inc. (“QCI” or the “Company”), was incorporated in the State of Nevada on July 25, 2001 as Ticketcart,
Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and
compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative
Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business
operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017, one
of IBGH’s shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1) fraud;
and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.” Mr. Alessi’s
complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted, causing
injury to the Company and its shareholders. Mr. Alessi sought damages of $30,000 for each claim, plus reimbursement of filing
costs of $1,000, and the appointment of a Receiver for the Company.
On
August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment
for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative
Beverage Group Holdings, Inc. was (i) to issue to the Plaintiff 18,500,000 shares of free-trading stock without registration under Section
3(a)(10) of the Securities Act of 1933, as amended, (ii) issue 100,000,000 shares of stock to Innovative Beverage Group Holdings, Inc.’s
treasury, and (iii) that the receivership be terminated upon any change of control, and that any and all claims against Innovative Beverage
Group Holdings, Inc. that were not submitted to the Receiver as of September 16, 2017, were disallowed. On October 4, 2017 the Receiver
filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company,
(“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, redomiciled to North Carolina.
On
January 22, 2018, while the Company was in receivership, the Company (acting through the court-appointed receiver in her capacity as
CEO and sole Director of the Company) sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group
(“CRG” or “Convergent Risk”), an entity owned and operated by the Company’s Chief Executive Officer, Robert
Liscouski, for $155,000. On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski
(the Chief Executive Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of
Directors. Mr. Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take
the necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February
21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the name changed
to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate of Conversion in Delaware to convert to a Delaware corporation
with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February 23, 2018.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Nature
of Business
The
Company is a developer of quantum computing software offering ready-to-run software for complex optimization computations. The Company
was founded in 2018 by leaders in supercomputing, mathematics, and massively parallel programming to solve the enormous challenge with
quantum computing in terms of the high cost and lengthy times required for quantum software development. While much of the market focuses
on Quantum Processing Unit (QPU) hardware, QCI’s experts realized that the quantum marketplace and vendors were limiting access
to quantum computers due to the complexity of programming them. At the present time, only a very limited number of highly specialized
quantum experts are able to use software development toolkits (“SDKs”) to create these critical programs and applications.
The
Company’s flagship software solution, Qatalyst, is the industry’s only quantum application accelerator. It ensures that today’s
SMEs can continue to create and solve the complex computations demanded by organizations to optimize supply chains, logistics, emergency
responses, clinical trials, and more. Qatalyst software masks the complexity of quantum programming via the Q API (Qatalyst Application
Programming Interface), a powerful API comprised of six function calls for complex computations. Instead of spending months or years
developing new applications and workflows requiring complex and extremely low-level coding, users or applications can submit a problem
to Qatalyst after licensing the software, via the Q API. In practice, users have utilized Qatalyst’s simple API and familiar constructs
to solve their first complex problem within a week, as compared to the 6-12 months or more associated with writing a single quantum software
program using vendor toolkits.
The
Company is focused on solving real-world problems with Qatalyst, including supply chain and logistics optimization and crisis management,
as well as community detection opportunities such as drug discovery and fraud detection.
The
Company is actively partnering with quantum computing leaders in both hardware and software. As an Amazon AWS partner, the Company uses
the AWS Braket service to connect to multiple quantum computers, including Rigetti, DWave, and IonQ. The same problem can be submitted
to any of these QPUs or classical processing units (CPUs) with no need for API call changes. Users seamlessly can submit the same problem
to diverse quantum computers (QPUs) to determine which QPU will provide the best answers to their complex problem.
The
Company believes that the development of real-world use cases, not just science projects, is critical to the forward momentum of quantum
computing as a practical technology. To that end, the Company has created an internally funded program called QikStart. It will provide
access to Qatalyst and cloud-based resources, experts, and funding to explore quantum applications to push the boundaries of quantum
computing for delivering practical business results, right now.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Strategy
While
the majority of the quantum computing market is focused on quantum computing hardware, the Company realized the traditional software
development toolkit (“SDK”) approach to creating quantum computing software is poorly suited for non-quantum experts, given
the completely new programming paradigm.
This
represents a significant barrier to entry for companies looking to leverage novel quantum computing capabilities for their business needs.
Utilizing quantum computers for real-world problems requires an abstract blend of a wide range of computing and non-computing expertise,
including:
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|
●
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Subject
Matter Expertise (SME): As with any problem, the first step is for a business expert to rigorously define and describe what information
and/or results the business requires.
|
|
|
●
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Programming Excellence:
In the classical computing world, a programmer will take the problem defined by a SME (subject matter expert) and implement it using
standardized applications to run on the computer. In quantum computing, programmers are required to explicitly program it for the
quantum computer they have access to, requiring a deep understanding of sophisticated areas of expertise as described below.
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|
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●
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Mathematics: The problems
that are attractive for being solved using quantum computers require significant mathematical expertise to a) optimize the data and
problem for quantum computers, b) create the quantum-specific algorithms and formulas required to solve the problem, c) iterate upon
the results in a way that optimizes the performance, cost and quality of result. Mathematics is at the core of the many steps involved
in quantum computing for optimizing, compressing and applying algorithms to the data for obtaining truly optimal results.
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|
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●
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Quantum Mechanics: Quantum
Computing demands deep knowledge of the principles driving the computing itself. Unlike classical computers which utilize 0 or 1
bits, quantum computers utilize qubits, which leverage concepts of quantum mechanics such as probabilistic computation, superposition,
and entanglement. Experts much understand these concepts to create the algorithms necessary to solve problems on a quantum computer.
They must know how to “map” problems and their associated data into problems that are optimized in the specific way required
for a quantum computer to accept and process the problem.
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|
|
●
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Quantum Hardware Knowledge:
QPUs (Quantum Processing Units) require that programmers manage the configuration, actions, and overall operations of all the underlying
circuits utilized in solving the problem. For example, the programming to configure and access QPUs is low level and extremely complicated.
This coding is proprietary to each vendor’s QPU idiosyncratic requirements, not to mention, unique to the specific count and
version of QPUs in the system, right now. When the system is expended or a QPU upgraded, all the code has to be rewritten.
|
As
one would expect given the dramatic differences in quantum computer hardware architectures currently under development, quantum software
requires a dramatic shift from classic software. A user would have to literally have to create every single circuit, gate, algorithm,
action and process in low level software. Moreover, the collective requirements imposed upon companies looking to utilize quantum computers
can require a training period of a year or longer, even for a highly qualified subject matter expert. Consequently, the time, difficult
and expense of hiring such a diverse and deeply knowledgeable team to create quantum applications and workflows limits any organization’s
ability to move forward quickly with the power of quantum computing.
The
Company’s strategic goals are as follows:
|
|
1)
|
Deliver production-ready
software that de-risks the shift to quantum computing.
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|
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2)
|
Empower
SMEs and programmers to access the power of quantum computing without the prerequisite quantum expertise.
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|
3)
|
Eliminate
the vendor lock-in created by the low-level coding required for individual QPUs by allowing users to freely select the best QPU for
their specific problem with no low-level coding or programming changes.
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|
|
4)
|
Deliver
the best performance results (speed, quality and diversity) at the lowest cost for our users.
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|
5)
|
Provide
software and the required hardware in the cloud to make it simple and cost effective for organizations to begin leveraging quantum
computing.
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QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
The
Company’s fiscal year end is December 31.
Basis
of Presentation:
The
accompanying Balance Sheet as of September 30, 2021, which was derived from audited financial statements, and the unaudited interim financial
statements of the Company, has been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form
10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments
necessary to present fairly the financial position of the Company as of September 30, 2021, and the cash flows and results of operations
for the three and nine months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the
nine months ended September 30, 2021 are not necessarily indicative of the results for subsequent periods. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted.
Accounting
Changes
Except
for the changes discussed below, Quantum has consistently applied the accounting policies to all periods presented in these unaudited
financial statements. The Company has evaluated all recently implemented accounting standards and concluded that none currently apply
to the Company.
Use
of Estimates:
These
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation
of financial statements for any period necessarily involves the use of estimates and assumption an example being assumptions in valuation
of stock options. Actual amounts may differ from these estimates. These financial statements have, in management’s opinion, been
properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.
Cash
and Cash Equivalents
The
Company’s policy is to present bank balances under cash and cash equivalents, which at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts.
Operating
Leases - ASC 842
On
January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires
the recognition of the right-of-use assets and relating operating and finance lease liabilities on the balance sheet. As permitted by
ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the consolidated balance
sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases (“ASC 840”), which
did not require the recognition of operating lease liabilities on the balance sheet, and is therefore not comparative. Under ASC 842,
all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease
classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses.
Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest
component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially
consistent with ASC 840. As a result, there is no significant difference in our results of operations presented in our consolidated income
statement and consolidated statement of comprehensive income for each period presented.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
We
lease substantially all our office space used to conduct our business. For contracts entered into on or after the effective date, at
the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on (1) whether the contract
involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use
of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate
the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases
entered into prior to January 1, 2019 are accounted for under ASC 840 and were not reassessed.
Leases
are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria
are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the
asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or
(4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified
as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space
leases and as of December 31, 2020 and September 30, 2021 we had no finance leases.
For
all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents
the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the
lease. The Company is currently leasing space in three locations, Leesburg, VA, Minneapolis, MN and Vancouver, BC, and we have recognized
right-of-use assets and lease liabilities accordingly.
The
right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial
direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed
for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate
implicit in the lease, or if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the
underlying lease. For our real estate and other operating leases, we use our secured incremental borrowing rate. For our finance leases,
we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.
Lease
payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments
for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination
options unless it is reasonably certain the lease will not be terminated early.
Lease
expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized
on a straight-line basis over the lease term.
Property
and Equipment
Property
and equipment are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line
method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their
estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from
the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale
of equipment.
Net
Loss Per Share:
Net
loss per share is based on the weighted average number of common shares and common shares equivalents outstanding during the period.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Note
2 – Federal Income Taxes:
The
Company has made no provision for income taxes because there have been no operations to date causing income for financial statements
or tax purposes.
The
Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards Number 109 (“SFAS 109”)
“Accounting for Income Taxes”, which requires a change from the deferred method to the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary
differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
|
|
|
September
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Net operating
loss carry-forwards
|
|
$
|
4,185,540
|
|
|
$
|
2,266,446
|
|
|
Valuation
allowance
|
|
|
(4,185,540
|
)
|
|
|
(2,266,446
|
)
|
|
Net deferred
tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At
September 30, 2021, the Company had net operating loss carry forwards of approximately $4,185,540.
The
Company experienced a change in control during the 2018, 2019 and 2020 calendar years and therefore no more than an insignificant portion
of this net operating allowance will ever be used against future taxable income.
In
early 2020, an outbreak of the novel strain of coronavirus (COVID-19) emerged globally. In March 2020, the World Health Organization
declared the COVID-19 outbreak to be a global pandemic, which continues to spread throughout the United States. Subsequently, federal,
state and local authorities issued mandates for social distancing and working from home to delay the spread of the coronavirus, resulting
in an overall decline in economic activity. The ultimate impact of COVID-19 on the Company is not reasonably estimable at this
time. Management is currently evaluating the recent introduction of the COVID-19 virus vaccines and the related government mandates,
and their impact on the software industry and has concluded that while it is reasonably possible that the virus and the associated government
mandates restricting activity could have a negative effect on the ability of the Company to meet with potential customers and to raise
additional capital, the specific impact is not readily determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty, and the Company has not recorded any
reserves relating to potential COVID-19 financial impacts.
On
March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered
by the U.S. Small Business Administration (the “SBA”) as a response to the economic uncertainty resulting from COVID-19.
Congress amended the CARES Act on December 27, 2020. The CARES Act established the Paycheck Protection Program (the “PPP”)
to loan money to small businesses to enable them to continue to meet payroll obligations in the face of business interruptions and loss
of revenue due to COVID-19 related restrictions. The CARES Act also includes modifications for net operating loss carryovers and carrybacks,
limitations of business interest expense deductions, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a
technical correction to the Tax Cuts and Jobs Act of 2017, referred to herein as the U.S. Tax Act, for qualified improvement property.
As of September 30, 2021, the Company expects that the carryback of NOL’s will not have an impact on its current tax attributes.
The
Company applied for a PPP loan in April 2020. On May 6, 2020, the Company executed an unsecured promissory note (the “Note”)
with BB&T Bank to evidence a loan to the Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”)
established under the CARES Act.
In
accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under
the PPP, including payroll costs and employee benefits. The Company applied for forgiveness of the entire PPP loan balance and in June
2021 the SBA informed the Company that the full balance of the PPP loan had been forgiven, along with accrued interest. Upon notification
from the SBA that the PPP loan balance had been forgiven, the Company reclassified the loan balance to other income.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Note
3 – Financial Accounting Developments:
Recently
Issued Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as
of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet
effective will not have a material impact on our financial position or results of operations upon adoption. The Company has evaluated
the recently implemented accounting standards and concluded that none currently apply to the Company.
Note
4 – Subscription Receivable
In
2018 the Company recorded a subscription receivable relating to a convertible promissory note from one of the Initial Investors (as defined
below) in the amount of $100,000. During 2020, the Initial Investor converted the full $100,000 of his promissory note into 1,000,000
shares of common stock. The Company had no subscription receivable outstanding as of December 31, 2020.
Note
5 – Property and Equipment
|
|
|
September
30,
|
|
|
December
31,
|
|
|
Classification
|
|
2021
|
|
|
2020
|
|
|
Hardware &
Equipment
|
|
$
|
48,632
|
|
|
$
|
40,326
|
|
|
Software
|
|
|
0
|
|
|
|
0
|
|
|
Total cost of property and
equipment
|
|
|
48,632
|
|
|
|
40,326
|
|
|
Accumulated
depreciation
|
|
|
15,823
|
|
|
|
9,370
|
|
|
Property
and equipment, net
|
|
$
|
32,809
|
|
|
$
|
30,956
|
|
The
Company made Property and Equipment acquisitions of $8,306 during the Nine months ended September 30, 2021. The Company depreciates computer
equipment over a period of five years.
Note
6 – Convertible Promissory Notes and Loans
In
May 2020 the Company raised $30,000 from three stockholders in the form of short term, non-interest bearing, promissory notes, each in
the amount of $10,000. The promissory notes were repaid by the Company prior to the December 31, 2020 maturity date.
In
July 2020 the Company converted $100,000 principal amount of Convertible Promissory Notes convertible at $0.10 into 1,000,000 restricted
shares of common stock per the terms of the Convertible Note subscription agreement the Company entered into in 2018 the accredited investor,
currently a member of the Company’s Board of Directors.
In
December 2020, two of the Company’s Initial Investors converted the remaining principal balance of their promissory notes, $159,000,
into 1,590,000 shares of the Company’s common stock at $0.10 per share. In addition, one of the investors in the 2018 Convertible
Note Offering converted the principal balance of his note plus accrued interest into 893,000 shares of the Company’s common stock.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Auctus
Securities Purchase Agreement
In
October 2019 the Company entered into a Securities Purchase Agreement (the “Auctus SPA”), dated October 14, 2019 and effective
October 16, 2019 (the “Issuance Date”), by and between the Company and Auctus Fund, LLC, a Delaware limited liability company
(“Auctus”), pursuant to which Auctus purchased from the Company, for a purchase price of $500,000 (the “Purchase Price”):
(i) a Convertible Promissory Note in the principal amount of $500,000.00 (the “Auctus Note”); (ii) a common stock purchase
warrant permitting Auctus to purchase up to 500,000 shares of the Company’s common stock, at an exercise price of $2.75 per share
(the “First Warrant”); (iii) a common stock purchase warrant permitting Auctus to purchase up to 350,000 shares of the Company’s
common stock at an exercise price of $3.75 per share (the “Second Warrant”); and (iv) a common stock purchase warrant permitting
Auctus to purchase up to 275,000 shares of the Company’s Common Stock at an exercise price of $4.75 per share (the “Third
Warrant” and together with the First Warrant and the Second Warrant, the “Warrants”, and together with the Auctus Note,
the “Auctus Securities”).
The
Auctus Note accrues interest at a rate of ten percent (10%) per annum and matures on October 14, 2020 (the “Maturity Date”).
If the Company prepays the Auctus Note, the Company shall pay all of the principal and interest, together with a prepayment penalty ranging
from 125% to 150% depending upon the date of such prepayment. The Auctus Note contains customary events of default (each an “Event
of Default”). If an Event of Default occurs, all outstanding obligations owing under the Auctus Note will become immediately due
and payable in cash or Common Stock at Auctus’ election. Any outstanding obligations owing under the Auctus Note which is not paid
when due shall bear interest at the rate of twenty four percent (24%) per annum.
The
Auctus Note is convertible into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion
price (the “Conversion Price”) shall equal the lesser of: (i) $1.50, and (ii) 50% multiplied by the lowest trading price
for the Common Stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion
date (representing a discount rate of 50%). Notwithstanding anything contained in the Auctus Note to the contrary, prior to the occurrence
of an Event of Default, the Conversion Price shall not be less than $1.50 per share (the “Floor Price”). The Floor Price
is subject to adjustment at the six (6) and nine (9) month anniversary of the Issuance Date. In the event that the Floor Price as of
such dates is less than 70% multiplied by the volume weighted average price (VWAP) of the Common Stock during the five (5) trading day
period immediately prior to such dates, the Floor Price is adjusted to such lesser amount.
Under
the terms of the Auctus SPA, subject to certain conditions, upon effectiveness of a registration statement on Form S-1 (the “Registration
Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) registering all of the shares
of Common Stock underlying the Auctus Note and the Warrants, Auctus agreed to provide the Company with an additional investment of up
to $1,000,000 through the issuance of an additional note or notes, as applicable (the “Additional Notes”).
In
connection with the Auctus SPA, the Company entered into a Registration Rights Agreement (the “RRA”) pursuant to which it
committed (i) use its best efforts to file with the Commission the Registration Statement within ninety (90) days of the Issuance Date;
and (ii) have the Registration Statement declared effective by the Commission within one hundred fifty (150) days of the Issuance Date.
The Company filed a Registration Statement with the Commission in November 2019 and it was declared effective in December 2019, registering
1,625,000 shares.
In
January 2020 Auctus exercised its option to convert $21,305 of the principal of its Convertible Note and accrued interest and fees of
$8,695 (a total of $30,000) into 20,000 shares of the Company’s Common Stock. The principal balance remaining on the Auctus Note
following this conversion was $478,695.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
In
February 2020 Auctus exercised its option to convert $138,998 of the principal of its note and accrued interest and fees of $11,002 (a
total of $150,000) into 100,000 shares of the Company’s Common Stock. The principal balance remaining on the Auctus Note following
this conversion was $339,698.
In
February 2020, the Company entered into an agreement with Auctus to reduce the exercise price of the $2.75 per share Warrants to $1.50
per share. No other changes were made to the terms of the Warrants or the Auctus Note. Also in February 2020, Auctus exercised 167,000
warrants at $1.50 per share, resulting in total proceeds to the Company of $250,500.
On
May 8, 2020 the Company repaid the outstanding principal balance of the Auctus Note, including accrued interest and prepayment penalty
interest, for a total of $462,691.
On
May 8, 2020, the Company entered into an agreement with Auctus to reduce the exercise price of the Amended First Warrants from $1.50
per share to $1.00 per share, and to reduce the exercise price of the Second Warrants from $3.75 to $2.50 per share. No other changes
were made to the terms of the Auctus Warrants or the Auctus Note. In May 2020 Auctus exercised 50,000 warrants at $1.00 per share, resulting
in total proceeds to the Company of $50,000. In June 2020, Auctus exercised 183,000 warrants at $1.00 per share, resulting in total proceeds
to the Company of $183,000.
Oasis
Securities Purchase Agreement
On
May 6, 2020 (the “Oasis Issuance Date”) the Company entered into a Securities Purchase Agreement (the “Oasis SPA”)
by and between the Company and Oasis Capital, LLC, a Puerto Rico limited liability company (“Oasis”), pursuant to which Oasis
purchased from the Company, for a purchase price of $500,000: (i) a Convertible Promissory Note in the principal amount of $563,055.00
(the “Oasis Note”); and (ii) a common stock purchase warrant (the “Oasis Warrant” and together with the Oasis
Note, the “Oasis Securities”) permitting Oasis to purchase up to 187,685 shares of the Company’s Common Stock, at an
exercise price of $1.50 per share (the “Oasis Warrant Exercise Price”). The Company received gross proceeds of $500,000 on
May 8, 2020.
The
Oasis Note accrues interest at a rate of eight percent (8%) per annum and matures on the nine (9) months anniversary of the Oasis Issuance
Date (the “Maturity Date”). In the event that the Company prepays the Oasis Note, the Company shall pay all of the principal
and interest, together with a prepayment penalty ranging from 105% to 135% depending upon the date of such prepayment. The Oasis Note
contains customary events of default (each an “Event of Default”). If an Event of Default occurs, all outstanding obligations
owing under the Oasis Note will become immediately due and payable in cash or Common Stock at Oasis’ election. Any outstanding
obligations owing under the Oasis Note which are not paid when due shall bear interest at the rate of eighteen percent (18%) per annum.
The
Oasis Note is convertible into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion
price (the “Oasis Note Conversion Price”) per share shall be (i) $1.50 during the six month period immediately following
the Oasis Issuance Date, and (ii) after the six month period immediately following the Oasis Issuance Date, the lower of: (a) $1.50,
and (b) 70% multiplied by the lowest volume weighted average price for the Common Stock during the twenty-five (25) trading day period
ending on the latest complete trading day prior to the conversion date (representing a discount rate of 30%).
The
Oasis Warrant is exercisable for a term of five-years from the date of issuance. The Oasis Warrant provides for cashless exercise to
the extent that there is no registration statement available for the underlying shares of Common Stock. Until such time as there no longer
an outstanding balance on the Oasis Note, if the Company shall, at any time while the Oasis Warrant is outstanding, sell any shares of
Common Stock or securities entitling any person or entity to acquire shares of Common Stock at a price per share that is less than the
Oasis Warrant Exercise Price (a “Dilutive Issuance”), than the Oasis Warrant Exercise Price shall be reduced to equal the
Base Share Price (as defined in the Oasis Warrant) and the number of shares of Common Stock issuable under the Oasis Warrant shall be
increased such that the aggregate exercise price payable under the Oasis Warrant, after taking into account the decrease in the exercise
price, shall be equal to the aggregate exercise price prior to such adjustment.
On
May 7, 2020, in connection with its entry into the Oasis SPA, the Company issued 37,537 Inducement Shares (as defined in the Oasis
SPA) to Oasis.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Oasis
Equity Purchase Agreement
On
May 6, 2020 (the “Execution Date”), the Company entered into an Equity Purchase Agreement (“Equity Purchase Agreement”)
and a Registration Rights Agreement (“Registration Rights Agreement”) with Oasis. Under the terms of the Equity Purchase
Agreement, Oasis agreed to purchase from the Company up to $10,000,000 of the Company’s Common Stock upon effectiveness of a registration
statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”)
and subject to certain limitations and conditions set forth in the Equity Purchase Agreement.
Following
effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase
Agreement, the Company had the discretion to deliver put notices to Oasis and Oasis was then obligated to purchase shares of
the Company’s Common Stock based on the investment amount specified in each put notice. The maximum amount that the Company is
entitled to put to Oasis in each put notice shall not exceed the lesser of $500,000 or two hundred and fifty percent (250%) of the average
daily trading volume of the Company’s Common Stock during the ten (10) trading days preceding the put notice. Pursuant to the Equity
Purchase Agreement, Oasis and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s
Common Stock to Oasis that would result in Oasis’s beneficial ownership of the Company’s outstanding Common Stock exceeding
9.99%. The price of each put share shall be equal to ninety percent (90%) of the Market Price (as defined in the Equity Purchase
Agreement). Puts may be delivered by the Company to Oasis until the earlier of (i) the date on which Oasis has purchased an
aggregate of $10,000,000 worth of Common Stock under the terms of the Equity Purchase Agreement; (ii) April 26, 2023; or (iii) written
notice of termination delivered by the Company to Oasis, subject to certain equity conditions set forth in the Equity Purchase
Agreement. As of the date hereof, the Registration Statement is no longer effective and the Company is not utilizing the Equity Purchase
Agreement.
On
May 7, 2020, in connection with its entry into the Equity Purchase Agreement and the Registration Rights Agreement, the Company issued
133,334 Commitment Shares (as defined in the Equity Purchase Agreement) to Oasis.
In
December 2020, Oasis converted the principal balance of its promissory note plus accrued interest into 596,869 shares of common stock.
As
of December 31, 2020, all of the Warrants held by Auctus and Oasis have been exercised, resulting in total proceeds to the Company of
$1,458,500.
Paycheck
Protection Program Loan
On
May 6, 2020, the Company executed an unsecured promissory note (the “PPP Loan”) with BB&T/Truist Bank N.A. to evidence
a loan to the Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”) established under the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (the “SBA”).
In
accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan exclusively for qualified expenses
under the PPP, including payroll costs, mortgage interest, rent and utility costs. The Company applied for forgiveness of the entire
PPP Loan balance, and in June 2021 the SBA informed the Company that the full balance of the PPP Loan had been forgiven, along with accrued
interest. Upon notification from the SBA that the PPP Loan balance had been forgiven, the Company reclassified the PPP Loan balance to
other income.
Note
7 – Capital Stock:
On
July 13, 2021 the Company entered into a three-month agreement with Axis Partners, Inc., an investor relations firm, pursuant to which
the firm will receive monthly payments of $20,000 and a grant of 15,000 shares of the Company’s common stock.
On
July 14, 2021 the Company entered into a one year consulting agreement with a business development professional, pursuant to which the
Company issued the consultant 86,113 shares of the Company’s common stock. These shares will vest at the rate of 5,000 shares per
month over the term of the agreement.
Stock
issuance pursuant to settlement agreement
In
May 2021, the Company entered into settlement agreements with two former executives of Innovative Beverage Group Holdings, Inc. (IBGH),
Mr. Peter Bianchi and Mr. Jan Bonner (collectively the “IBGH Executives”), pursuant to which the Company received a release
from any and all claims or potential claims the IBGH Executives might have had against the Company, in exchange for facilitating the
replacement of lost stock certificates in IBGH and the removal of any restrictions on transfer of the shares represented by said certificates. The
IBGH Executives each held the equivalent of 91,659 shares of stock in the Company, for a total of 183,318 shares. In addition,
the IBGH Executives agreed to a three week Leak Out agreement once the restrictions on their shares were removed. No new shares were
issued as a result of the settlement agreements.
QUANTUM
COMPUTING INC.
Notes
to Financial Statements
(Unaudited)
Note
8 – Related Party Transactions
Convergent
Risk Group, LLC
To
finance the acquisition of the control block of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent
Risk Group, LLC (Convergent) $275,000, in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total
amount of $275,000. Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently
the majority shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory
Notes” in the total amount of $275,000 and certain liabilities (the “Liabilities”). The Liabilities and the Promissory
Notes are collectively the “Convergent Liabilities.” The Convergent Liabilities assumed by the Company were exchanged for
Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for). The
Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at
a conversion price of $0.10 per share at any time prior to or at August 10, 2019. The Company also assumed a promissory
note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019. All
of the Initial Investors had converted their Convertible Promissory Notes into shares of the Company’s Common Stock as of December
31, 2020.
REMTC,
Inc.
To
provide the Company with a highly secure development environment and intra-company data management and communication system, the Company
contracted with REMTC, Inc. (“REMTC”), an entity wholly owned by Richard Malinowski, who was the Company’s Chief Technology
and Operations Officer at the time, to acquire the necessary hardware and software, configure and install the REMTC proprietary security
system, known as “PASS.” The total cost of the PASS System was approximately $670,000 which the Company paid to REMTC. In
November 2018, Mr. Richard Malinowski informed the Company of his decision to resign as Chief Technology and Operations Officer and the
Board accepted his resignation and that of Mr. Thomas Kelly. The Company and REMTC have unwound the PASS agreement and the Company expects
to receive approximately $670,000 back from Mr. Malinowski and REMTC. The Company determined that the PASS System was unusable and therefore
impaired, and wrote off the remaining undepreciated value of the PASS system as of December 31, 2018. In March 2019 the Company commenced
litigation in New Jersey state court against REMTC, Mr. Malinowski and Mr. Kelly to recover the cost of the PASS System. In January 2020
the Company entered into a settlement of its claims against REMTC, Mr. Malinowski and Mr. Kelly and the litigation in New Jersey was
dismissed.
Note
9 – Employee Benefits:
The
Company offers a health and welfare benefit plan to current full time employees that provides medical, dental, vision, life and disability
benefits. The Company also offers a 401K retirement savings plan to all full time employees. There are no unpaid liabilities under the
Company’s benefit plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired employees.
Note
10 – Subsequent Events:
There
are no other events of a subsequent nature that in management’s opinion are reportable.