Quantum Computing Inc. - FORM 10-Q

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EX-32.2 - CERTIFICATION - Quantum Computing Inc.	f10q0920ex32-2_quantum.htm
EX-32.1 - CERTIFICATION - Quantum Computing Inc.	f10q0920ex32-1_quantum.htm
EX-31.2 - CERTIFICATION - Quantum Computing Inc.	f10q0920ex31-2_quantum.htm
EX-31.1 - CERTIFICATION - Quantum Computing Inc.	f10q0920ex31-1_quantum.htm
EX-10.4 - FORM WARRANT - Quantum Computing Inc.	f10q0920ex10-4_quantum.htm
EX-10.3 - FORM STOCK PURCHASE AGREEMENT - Quantum Computing Inc.	f10q0920ex10-3_quantum.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-56015

QUANTUM COMPUTING INC.

(Exact name of registrant as specified in its charter)

Delaware		82-4533053
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

215 Depot Court SE, Suite 215

Leesburg, VA 20175

(Address of principal executive offices)

(703) 436-2121

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		None		None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller Reporting Company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 11, 2020, there were 17,790,875 shares outstanding of the registrant’s common stock.

QUANTUM COMPUTING INC.

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	F-1
	Unaudited Balance Sheets as of September 30, 2020 and December 31, 2019	F-2
	Unaudited Statement of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	F-3
	Unaudited Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2019	F-4
	Unaudited Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2020	F-5
	Unaudited Statement of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	F-6
	Notes to the Unaudited Financial Statements	F-7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4.	Controls and Procedures	7

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	8
Item 1A.	Risk Factors	8
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3.	Defaults Upon Senior Securities	8
Item 4.	Mine Safety Disclosures	9
Item 5.	Other Information	9
Item 6.	Exhibits	9

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Index to the Financial Statements

(Unaudited)

Description		Page

Unaudited Balance Sheets as of September 30, 2020 and December 31, 2019		F-2

Unaudited Statement of Operations for the Three and Nine Months Ended September 30, 2020 and 2019		F-3

Unaudited Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2019		F-4

Unaudited Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2020		F-5

Unaudited Statement of Cash Flows for the Nine Months Ended September 30, 2020 and 2019		F-6

Notes to the Unaudited Financial Statements		F-7

F-1

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Balance Sheets

(Unaudited)

	September 30,			December 31
	2020			2019
ASSETS
Current assets
Cash and cash equivalents	$	3,978,433		$	101,100
Prepaid Expenses		5,297			21,549
Lease right-of-use		-			-
Fixed Assets (net of depreciation)		24,112			25,596
Total assets	$	4,007,842		$	148,245

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities
Accounts payable	$	171,322		$	218,261
Accrued Expenses		257,742			152,547
Lease Liability		-			-
Derivative Liability		1,148,128			980,730
Loans Payable		258,371			-
Convertible promissory notes – related party		80,000			100,000
Convertible promissory notes		1,472,055			1,509,000
Total liabilities		3,387,618			2,960,538

Stockholders’ equity (deficit)
Common stock, $0.0001 par value, 250,000,000 shares authorized; 17,184,875 and 7,362,046 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		1,718			736
Additional paid-in capital		26,568,047			17,002,297
APIC-Beneficial Conversion Feature in Equity		4,898,835			4,798,835
APIC-Stock Based Compensation		12,046,681			4,246,794
Subscription Receivable		-			(100,000	)
Accumulated deficit		(42,895,057	)		(28,760,955	)
Total stockholders’ equity (deficit)		620,224			(2,812,293	)
Total liabilities and stockholders’ equity (deficit)	$	4,007,842		$	148,245

The accompanying notes are an integral part of these audited financial statements.

F-2

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Operations

(Unaudited)

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Total revenue	$	-		$	-		$	-		$	-
Cost of revenue		-			-			-			-
Gross profit								-			-
Salaries		419,284			352,381			120,414			119,598
Consulting		425,112			254,053			284,900			81,145
Research & Development		967,376			553,376			287,020			256,928
Related Party Marketing		97,603			-			97,603
Stock Based Compensation		7,800,098			214,885			6,562,693			(1,343,866	)
Selling General & Administrative -Other		1,622,658			407,266			1,323,553			102,036
Operating expenses		11,332,131			1,781,961			8,676,183			(784,159	)

Loss from Operations		(11,332,131	)		(1,781,961	)		(8,676,183	)		784,159
Interest Income – Money Market		27			8,522			-			1,478
Interest Expense – Promissory Notes		(197,456	)		(125,157	)		(27,799	)		(15,333	)
Interest Expense - Beneficial Conversion Feature		(100,000	)		-			-			-
Interest Expense – Derivatives & Warrants		(705,048	)		-			(2,193,842	)		-
Interest Expense – Financing Costs		(2,231,994	)		-			(759,500	)		-
Misc. Income		432,500			-			-			-
Other income (expense)		(2,801,971	)		(116,635	)		(2,981,141	)		(13,855	)

Federal income tax expense		-			-			-			-

Net loss	$	(14,134,102	)	$	(1,898,596	)	$	(11,657,324	)	$	770,304

Weighted average shares - basic and diluted		17,184,875			7,362,046			17,184,875			7,362,046

Loss per share - basic and diluted	$	(0.82	)	$	(0.26	)	$	(0.68	)	$	0.10

The accompanying notes are an integral part of these audited financial statements.

F-3

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Stockholders’ Deficit

For the Nine Months Ended September 30, 2019

(Unaudited)

	Common Stock						Additional Paid			Accumulated
	Shares			Amount			in Capital			Deficit			Total
BALANCES, December 31, 2018		4,724,161		$	472		$	18,862,449		$	(20,379,867	)	$	(1,516,946	)
Issuance of shares for cash		-			-			-			-			-
Beneficial Conversion Feature		-			-			-			-			-
Subscription Receivable		-			-			-			-			-
Stock based compensation		25,000			3			71,247			-			71,250
Net loss		-			-			-			(635,673	)		(635,673	)
BALANCES, March 31, 2019		4,749,161		$	475		$	18,933,696		$	(21,015,540	)	$	(2,081,369	)

Issuance of shares for cash		200,000			20			19,980			-			20,000
Beneficial Conversion Feature		-			-			-			-			-
Subscription Receivable		-			-			-			-			-
Stock based compensation		350,000			35			1,487,465			-			1,487,500
Net loss		-			-			-			(2,033,227	)		(2,033,227	)
BALANCES, June 30, 2019		5,299,161		$	530		$	20,441,142		$	(23,048,767	)	$	(2,607,096	)

Issuance of shares for cash		2,239,525			233			2,140,293			-			2,140,526
Beneficial Conversion Feature		-			-			-			-			-
Subscription Receivable		-			-			-			-			-
Stock based compensation		(266,640	)		(27	)		(1,343,839	)		-			(1,343,866	)
Net loss		-			-			-			770,305			770,305
BALANCES, September 30, 2019		7,362,046		$	736		$	21,237,595		$	(22,278,462	)	$	(1,040,131	)

The accompanying notes are an integral part of these audited financial statements.

F-4

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Stockholders’ Deficit

For the Nine Months Ended September 30, 2020

(Unaudited)

	Common Stock				Additional Paid			Accumulated
	Shares		Amount		in Capital			Deficit			Total
BALANCES, December 31, 2019		7,362,046	$	736	$	25,947,926		$	(28,760,955	)	$	(2,812,293	)
Issuance of shares for cash		287,000		28		430,472			-			430,500
Beneficial Conversion Feature						100,000						100,000
Subscription Receivable						-			-			-
Derivatives & Warrants						(237,124	)		-			(237,124	)
Stock Options						783,100			-			783,100
Stock based compensation		115,000		12		229,238			-			229,250
Net loss		-		-		-			(698,179	)		(698,179	)
BALANCES, March 31, 2020		7,764,046	$	776	$	27,253,612		$	(29,459,134	)	$	(2,204,745	)

Issuance of shares for cash		1,147,144		115		1,954,823			-			1,954,938
Beneficial Conversion Feature						-						-
Subscription Receivable						-			-			-
Derivatives & Warrants						(1,189,614	)		-			(1,189,614	)
Stock Options						225,056			-			225,056
Stock based compensation		-		-		-			-			-
Net loss		-		-		-			(1,778,599	)		(1,778,599	)
BALANCES, June 30, 2020		8,911,190	$	891	$	28,243,877		$	(31,237,733	)	$	(2,992,964	)

Issuance of shares for cash		4,524,500		452		4,762,603			-			4,763,055
Issuance of shares for debt conversion		1,269,185		127		223,650						223,777
Issuance of shares for services		480,000		480		1,656,552						1,656,600
Beneficial Conversion Feature						-						-
Subscription Receivable						100,000			-			100,000
Derivatives & Warrants						1,964,388			-			1,964,388
Stock Options						-			-			-
Stock based compensation		2,000,000		200		6,562,493			-			6,562,693
Net loss		-		-		-			(11,657,324	)		(11,657,324	)
BALANCES, September 30, 2020		17,184,875	$	1,718	$	43,513,563		$	(42,895,057	)	$	620,225

The accompanying notes are an integral part of these audited financial statements.

F-5

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Cash Flows

For the Nine Months Ended September 30, 2020 and 2019

(Unaudited)

	Nine Months Ended
	September 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(14,134,102	)	$	(1,898,596	)
Adjustments to reconcile net income (loss) to net cash
Prepaid Expenses		16,252			15,804
Depreciation		4,742			1,431
Accounts Payable		(46,939	)		107,875
Accrued Expenses		105,196			13,971
Derivative Mark to Market		167,398			-
Stock Based Compensation		7,800,087			214,874
Warrant Repricing		537,650			-
Beneficial Conversion Feature		100,000			-
CASH USED IN OPERATING ACTIVITIES		(5,449,716	)		(1,544,642	)

CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets – Computer Software and Equipment		(3,258	)		(13,077	)
CASH USED IN INVESTING ACTIVITIES		(3,258	)		(13,077	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Convertible Promissory Notes		(56,945	)		(2,061,500	)
Proceeds from loans		258,371			-
Subscription Receivable		100,000			-
Proceeds from stock issuance		9,028,881			2,160,536
CASH PROVIDED BY FINANCING ACTIVITIES		9,330,307			(99,036	)

Net increase (decrease) in cash		3,877,333			(1,458,683	)
Cash, beginning of period		101,100			1,767,080
Cash, end of period	$	3,978,433		$	308,397

SUPPLEMENTAL DISCLOSURES
Cash paid for interest	$	447,993		$	-
Cash paid for income taxes	$	-		$	-

NON-CASH INVESTING ACTIVITIES
Subscription receivable created from issuance of note payable	$	-		$	-

NON-CASH FINANCING ACTIVITIES
Note payable issued in exchange for a Subscription receivable		(100,000	)		--
Common stock issued for compensation		7,800,098			214,874
Convertible Promissory Notes issued as Compensation – related party	$	-		$	-

The accompanying notes are an integral part of these financial statements.

F-6

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies:

Organization:

Quantum Computing Inc., formerly known as Innovative Beverage Group Holdings, Inc. a Delaware corporation (the “Company”) was the surviving entity as the result of a merger between Ticketcart, Inc. and Innovative Beverage Group, Inc., both Nevada corporations. Innovative Beverage Group, Inc. was the surviving entity as the result of a merger between Kat-A-Tonic Distributing, Inc., a Texas corporation and United European Holdings, Ltd., a Nevada Corporation.

History

Quantum Computing Inc. (“QCI” or the “Company”), was incorporated in the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017, one of IBGH’s shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1) fraud; and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.” Mr. Alessi’s complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted, causing injury to the Company and its shareholders. Mr. Alessi sought damages of $30,000 for each claim, plus reimbursement of filing costs of $1,000, and the appointment of a Receiver for the Company.

On August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative Beverage Group Holdings, Inc. was (i) to issue to the Plaintiff 18,500,000 shares of free-trading stock without registration under Section 3(a)(10) of the Securities Act of 1933, as amended, (ii) issue 100,000,000 shares of stock to Innovative Beverage Group Holdings, Inc.’s treasury, and (iii) that the receivership be terminated upon any change of control, and that any and all claims against Innovative Beverage Group Holdings, Inc. that were not submitted to the Receiver as of September 16, 2017, were disallowed. On October 4, 2017 the Receiver filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company, (“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, redomiciled to North Carolina.

On January 22, 2018, while the Company was in receivership, the Company (acting through the court-appointed receiver in her capacity as CEO and sole Director of the Company) sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group (“CRG”), an entity owned and operated by the Company’s Chief Executive Officer, Robert Liscouski, for $155,000. On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski (the Chief Executive Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of Directors. Mr. Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take the necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February 21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the name changed to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate of Conversion in Delaware to convert to a Delaware corporation with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February 23, 2018.

Business

Quantum Computing Inc. (OTCQB: QUBT) is a technology company that is an emerging leader in the development of “quantum-ready” software application and solutions for companies looking to leverage the capabilities of quantum computing and quantum computing-inspired processing capabilities. We plan to leverage our collective expertise in finance, computing, mathematics, physics, and software development to develop a suite of quantum software applications that may enable global industries to utilize quantum computers and simulators to improve their processes, profitability, and security. We believe the quantum computer holds the potential to disrupt several global industries, and may be one of the most significant technological advances in processing capability.

F-7

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

The Company has adopted a “two-division” development strategy for quantum computing applications:

●

Software Applications to solve high value compute-intensive problems, and

●

Software Stack that enables the Software Applications to run on a variety of quantum computers, including annealers and gate quantum computers.

The initial focus for our Software Application division is the financial services sector. We anticipate other potential markets for quantum computing applications include industries in the field of machine learning, logistics, healthcare, and cybersecurity.

We intend to be a leading provider of software that run on quantum computers. we are focused on being an enabler – creating software that will realize the advantages of advanced computing hardware for clients aiming to be “Quantum Ready”.

The first commercial market for which we are developing a software product to be adopted is in the financial technology or “FinTech” market, for which we are developing quantitative financial related products such as a financial portfolio optimizer. The portfolio optimizer is designed to help financial advisors and investment managers allocate their capital across multiple asset classes or investment options (stocks bonds, commodities, ETFs, etc.) so as to achieve the highest return with the lowest expected aggregate risk. The finance industry has used quantitative finance software applications for several decades. However, existing products have been limited in their performance due to the lack of computing power needed to solve the relevant classes of optimization problems.

Our longer-term software development plan targets the optimization problems known as NP-complete problems, which are a class of mathematical problems that can in principle be solved by conventional computers but the solution requires time that grows exponentially with the size of the problem. These NP-complete problems require complex calculations, which cannot currently be performed in reasonable amounts of time for problem sizes relevant to many industrial uses using conventional computer systems. These problems are intractable because of the inability of classical bit-based systems to handle combinatorial problems at scale. The recent developments in quantum annealing and other quantum hardware suggests that these new technologies may soon deliver computational benefit.

Additional application markets we intend to explore beyond FinTech include Big Data, Artificial Intelligence, Healthcare, and Cybersecurity. We believe these are natural markets for quantum computing, due to the immense computer power required to process large data sets, which have experienced exponential growth in size and complexity in recent years. We are in the process of negotiating partnerships with Artificial Intelligence and Big Data firms to develop algorithms to identify behavioral trends and characteristics based on commercially available signals and geo-location data. We believe our focus and expertise have positioned the Company to pursue contract opportunities in the US government and commercial sectors based on our experience in specific areas of counterterrorism and behavioral analysis.

To achieve these goals, we have assembled a team with deep expertise in financial services, quantitative and applied mathematics, high-performance computing, quantum physics, and machine learning fields. We plan to file patents for new technology we may develop over the coming months based on our current progress, but we cannot guarantee this timeline or that we will be awarded any such patents in the future.

Business Strategy

The Company plans to enter the market for high performance computers and software applications, specifically focusing on what are known as “quantum computers”. The Company has assembled a team of experienced engineers in super computing technology and quantum mathematics, which will focus on design and development of several quantum software applications that target solutions to problems including non-deterministic polynomial applications.

F-8

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

The Company has hired physicists, applied mathematicians (algorithm developers) and software developers to support the technical team in developing and designing quantum software applications. Applied mathematicians develop the algorithms and algorithm/software developers design software solutions utilizing the algorithms provided to them by mathematicians. Software engineers test the algorithm code to ensure reliable and accurate performance of the software product.

In addition, the Company has retained outside leading industry experts from well-known institutions from the financial services industry and leading financial institutions, and expects to retain additional advisors from cybersecurity firms and government agencies to serve as technical advisors to the Company. We have formed an advisory board of additional subject matter experts, which is expected to assist us to shape our business strategy and direction as well as work with us to establish our market approach. The Company is also pursuing US Government initiatives in quantum computing and AI, including grants and funding, that are fostering U.S. innovation in those domains.

The Company does not currently intend to be a hardware manufacturer. However, due to the cutting-edge nature of quantum computing and the high cost and limited availability of quantum computers, as well as limitations on the capabilities of existing quantum simulators, we may find it necessary over the next two years to develop our own quantum simulators upon which we can develop and test our quantum software products. If such development becomes necessary, our simulators are expected to emulate the characteristics and capabilities of a quantum computer such as superposition and quantum entanglement. Our plan is to license our software as a cloud-based service, but we are not ruling out selling turn-key hardware systems that would incorporate and support our own quantum inspired computing solutions.

The Company’s technical leadership intends to leverage industry expertise and innovative methods to develop quantum computer application solutions capable of solving increasingly complex problems in a more rapid and thorough manner. The Company will initially focus on addressing computational problems in the financial services, and cybersecurity quantum-secure encryption markets, followed later by addressing problems in the AI and genetics marketplaces.

The Company’s fiscal year end is December 31.

Basis of Presentation:

The accompanying Balance Sheet as of September 30, 2020, which was derived from audited financial statements, and the unaudited interim financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2020, and the cash flows and results of operations for the three and Nine months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the Nine months ended September 30 are not necessarily indicative of the results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements contained in the Company’s 2019 Form 10-K, filed with Securities and Exchange Commission, and it is suggested that these financial statements be read in conjunction therewith.

Accounting Changes

Except for the changes discussed below, Quantum has consistently applied the accounting policies to all periods presented in these unaudited financial statements.

F-9

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Adoption of ASC 842

On January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires the recognition of the right-of-use assets and relating operating and finance lease liabilities on the balance sheet. As permitted by ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases (“ASC 840”), which did not require the recognition of operating lease liabilities on the balance sheet, and is therefore not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in our results of operations presented in our consolidated income statement and consolidated statement of comprehensive income for each period presented.

We adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had a minor impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases. The accounting for finance leases (capital leases) was substantially unchanged. Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $2,491 to operating lease right-of-use asset and the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date of January 1, 2019. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. As of December 31, 2019 and September 30, 2020 we had no finance leases.

The impact of the adoption of ADC 842 on the balance sheet at December 31, 2018 was:

	As Reported December 31, 2018		Adoption of ASC 842 Increase (Decrease)		Revised Balance January 1, 2019
Other Current Assets		1,767,080				1,767,080
Operating Lease right-of-use assets		-		2,491		2,491
Total assets		1,797,156		2,491		1,799,647
Other current liabilities		3,314,102				3,314,102
Lease Liability-current		-		2,491		2,491
Long-term Liabilities		-		-		-
Total Liabilities and equity		1,797,156		2,491		1,799,647

We lease substantially all our office space used to conduct our business. We adopted ASC 842 effective January 1, 2019. For contracts entered into on or after the effective date, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases entered into prior to January 1, 2019 are accounted for under ASC 840 and were not reassessed.

F-10

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2019 and September 30, 2020 we had no finance leases.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The Company is currently leasing space on a month-to-month basis while we evaluate alternatives for expansion facilities. Accordingly, no right-or-use asset or lease liability are currently recognized.

The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured incremental borrowing rate. For our finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.

Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term.

Adoption of ASU 2018-02

On January 1, 2019, we adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which requires the reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects arising from the reduction of the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018. ASU 2018-02 modifies ASC 740, Income Taxes (“ASC 740), which requires businesses to adjust the value of deferred tax assets and liabilities upon a change in the tax law. ASC 740 specifies that changes in tax assets and liabilities related to the tax rate change must be presented in earnings, even when the corresponding deferred taxes relate to items initially recognized in accumulated other comprehensive income such as pension adjustments, gains or losses on cash flow hedges, foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. The Company had no deferred tax assets or liabilities as of December 31, 2017, accordingly there were no stranded tax effects to reclassify and the adoption of ASU 2018-02 had no impact on the Company’s financial statements.

F-11

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Adoption of ASU 2018-07

On January 1, 2019, we adopted ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns the accounting for share-based payments to nonemployees for goods and services with the requirements for accounting for share-based payments to employees under ASC 718 Compensation - Stock Compensation. ASU 2018-07 provides that nonemployee share-based payments are measured at the grant date at the fair value of the equity instruments to be provided to the nonemployee when the goods or services have been delivered. Prior to ASU 2018-07 nonemployee share-based payments were measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever could be more reliably measured.

We adopted ASU 2018-07 using a modified retrospective approach with a cumulative effect adjustment to retained earnings as of the implementation date for all nonemployee share-based payments that (1) have not been settled as of the adoption date and (2) nonemployee share-based payments for which a measurement date has not been established. We made no adjustment to retained earnings as a result of adopting ASU 2018-07.

Use of Estimates:

These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements for any period necessarily involves the use of estimates and assumption an example being assumptions in valuation of stock options. Actual amounts may differ from these estimates. These financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.

Cash and Cash Equivalents

The Company’s policy is to present bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Property and Equipment

Property and equipment is stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment.

Net Loss Per Share:

Net loss per share is based on the weighted average number of common shares and common shares equivalents outstanding during the period.

F-12

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Note 2 – Federal Income Taxes:

The Company has made no provision for income taxes because there have been no operations to date causing income for financial statements or tax purposes.

The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards Number 109 (“SFAS 109”). “Accounting for Income Taxes”, which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

	September 30,
	2020			2019
Net operating loss carry-forwards	$	2,266,446		$	1,088,955
Valuation allowance		(2,266,446	)		(1,088,955	)
Net deferred tax assets	$	-		$	-

At September 30, 2020, the Company had net operating loss carry forwards of approximately $2,66,446.

The Company experienced a change in control during the 2018 and 2019 calendar years and therefore no more than an insignificant portion of this net operating allowance will ever be used against future taxable income.

On March 27, 2020, the United States enacted the CARES Act as a response to the economic uncertainty resulting from COVID-19. The CARES Act includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense for tax, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, referred to herein as the U.S. Tax Act, for qualified improvement property. The CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of September 30, 2020, the Company expects that the carryback of NOL’s will not have an impact on its current tax attributes.

Note 3 – Going Concern

The Company’s financial statements have been prepared on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has earned no revenue from operations in the Nine-month periods ended September 30, 2020 and 2019, and has an accumulated deficit of $42,895,057 and $22,278,462 respectively. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital or ultimately acquire an entity which the Company hopes will become profitable at some time in the near future. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is seeking additional capital to finance the operations of the Company.

F-13

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Note 4 – Financial Accounting Developments:

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Note 5 – Subscription Receivable

The Company assumed a promissory note from one of the Initial Investors to Convergent Risk Group, LLC (see Note 9 – Related Parties) in the amount of $100,000, which is payable by the Initial Investor on or before December 31, 2020. The promissory note was issued in payment for a promissory note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory note is paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note will convert and shares will be issued. If the promissory note is not paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note held by this investor will be cancelled, and no shares will be issued.

In 2019 the Company engaged the Initial Investor as a consultant to provide advisory services for a one-year period. Upon satisfactory completion of the agreed services in July 2020, the Company deemed the services to be sufficiently valuable that in lieu of cash payment of invoice submitted the Company offset the invoice against the balance of the promissory note, which has been deemed paid in full. The Initial Investor has converted $20,000 of its Convertible Promissory Note into 200,000 shares of common stock as of September 30, 2020.

Note 6 – Property and Equipment


Classification	September 30, 2020		December 31, 2019
Hardware & Equipment	$	31,610	$	28,353
Software		0		0
Total cost of property and equipment		31,610		28,353
Accumulated depreciation		7,498		2,757
Property and equipment, net	$	24,112	$	25,596

The Company made Property and Equipment acquisitions of $3,258 during the Nine months ended September 30, 2020. The Company depreciates computer equipment over a period of five years.

F-14

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Note 7 – Convertible Promissory Notes and Loans

In March 2018 the Board authorized the Company to issue non-interest bearing convertible promissory notes at a conversion price of $0.10 per share to the Initial Investors and others and $500,000 of these convertible notes have been issued, for which only $225,000 has been received by the Company in cash.

On May 24, 2018 the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $15,000,000 at a conversion price of $1.00 per share (the “Convertible Note Offering”). The Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date. In connection with the $1.00 Convertible Note Offering, the Company received funds of $3,495,500 as of December 31, 2018. The Board terminated the Convertible Note Offering in October, 2018.

In total, the Company has issued convertible promissory notes of principal value $3,995,500, for which the Company has received a total of $3,720,500 in funds.

The convertible promissory notes were issued at different times during the year, and the difference between the conversion prices of the notes and the fair market value of the Company’s common stock at the date of the investment, as measured by the closing price on the OTC Markets, was recorded as a Beneficial Conversion Feature interest expense.

In June 2019, the Company refunded $26,000 to a convertible promissory note investor. The accrued interest on that promissory note was written off by agreement with the investor.

In August 2019 the Company converted $1,994,500 principal amount of Convertible Promissory Notes convertible at $1.00 plus $124,997 of accrued interest into 2,119,525 restricted shares of common stock per the terms of the Convertible Note subscription agreements the Company entered into in 2018 with 59 accredited investors. Accrued interest on the Notes was rounded up to the next whole dollar so the Company did not issue fractional shares. Also, in August, the Company converted $21,000 principal amount of Convertible Promissory Notes (non-interest bearing) convertible at $0.10 into 210,000 shares of common stock

In October 2019 the Company entered into a Securities Purchase Agreement (the “SPA”), dated October 14, 2019 and effective October 16, 2019 (the “Issuance Date”), by and between the Company and Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which Auctus purchased from the Company, for a purchase price of $500,000 (the “Purchase Price”): (i) a Convertible Promissory Note in the principal amount of $500,000.00 (the “Auctus Note”); (ii) a common stock purchase warrant permitting Auctus to purchase up to 500,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $2.75 per share (the “First Warrant”); (iii) a common stock purchase warrant permitting Auctus to purchase up to 350,000 shares of the Company’s Common Stock at an exercise price of $3.75 per share (the “Second Warrant”); and (iv) a common stock purchase warrant permitting Auctus to purchase up to 275,000 shares of the Company’s Common Stock at an exercise price of $4.75 per share (the “Third Warrant” and together with the First Warrant and the Second Warrant, the “Warrants”, and together with the Note, the “Securities”).

The Auctus Note accrues interest at a rate of ten percent (10%) per annum and matures on October 14, 2020 (the “Maturity Date”). If the Company prepays the Auctus Note, the Company shall pay all of the principal and interest, together with a prepayment penalty ranging from 125% to 150% depending upon the date of such prepayment. The Auctus Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, all outstanding obligations owing under the Auctus Note will become immediately due and payable in cash or Common Stock at Auctus’ election. Any outstanding obligations owing under the Auctus Note which is not paid when due shall bear interest at the rate of twenty four percent (24%) per annum.

F-15

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

The Auctus Note is convertible into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion Price”) shall equal the lesser of: (i) $1.50, and (ii) 50% multiplied by the lowest trading price for the Common Stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date (representing a discount rate of 50%). Notwithstanding anything contained in the Auctus Note to the contrary, prior to the occurrence of an Event of Default, the Conversion Price shall not be less than $1.50 per share (the “Floor Price”). The Floor Price is subject to adjustment at the six (6) and nine (9) month anniversary of the Issuance Date. In the event that the Floor Price as of such dates is less than 70% multiplied by the volume weighted average price (VWAP) of the Common Stock during the five (5) trading day period immediately prior to such dates, the Floor Price is adjusted to such lesser amount.

Under the terms of the SPA, subject to certain conditions, upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) registering all of the shares of Common Stock underlying the Auctus Note and the Warrants, Auctus agreed to provide the Company with an additional investment of up to $1,000,000 through the issuance of an additional note or notes, as applicable (the “Additional Notes” together with the Note, the “Notes”).

The Auctus Notes and Warrants were not registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and/or Regulation D of the Securities Act. The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, the investor had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since the investor agreed to, and received, the securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.

In connection with the SPA, the Company entered into a Registration Rights Agreement (the “RRA”) pursuant to which it committed (i) use its best efforts to file with the Commission the Registration Statement within ninety (90) days of the Issuance Date; and (ii) have the Registration Statement declared effective by the Commission within one hundred fifty (150) days of the Issuance Date. The Company filed a Registration Statement with the Commission in November 2019 and it was declared effective in December 2019, registering 1,625,000 shares.

In January 2020 the Auctus Fund LLC exercised its option to convert $21,305 of the principal of its Convertible Note and accrued interest and fees of $8,695 (a total of $30,000) into 20,000 shares of the Company’s common stock. The principal balance remaining on the Note following this conversion was $478,695.

In February 2020 the Auctus Fund LLC exercised its option to convert $138,998 of the principal of its Convertible Note and accrued interest and fees of $11,002 (a total of $150,000) into 100,000 shares of the Company’s common stock. The principal balance remaining on the Note following this conversion was $339,698.

In February 2020, the Company entered into an agreement with the Auctus Fund LLC to reduce the exercise price of the $2.75 per share Warrants to $1.50 per share. No other changes were made to the terms of the Warrants or the Convertible Note held by the Auctus Fund. In February, the Auctus Fund LLC exercised 167,000 warrants at $1.50 per share, resulting in total proceeds to the Company of $250,500.

In February 2020, the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $5,000,000 at a conversion price of $1.50 per share (the “2020 Convertible Note Offering”). The Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date. In connection with the 2020 Convertible Note Offering, the Company has received funds of $100,000 as of June 30, 2020. The Board closed the 2020 Convertible Note Offering to further investment in June 2020.

F-16

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Oasis Securities Purchase Agreement

On May 6, 2020 (the “Issuance Date”), Quantum Computing Inc., a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “SPA”) by and between the Company and Oasis Capital, LLC, a Puerto Rico limited liability company (“Oasis”), pursuant to which Oasis purchased from the Company, for a purchase price of $500,000 (the “Purchase Price”): (i) a Convertible Promissory Note in the principal amount of $563,055.00 (the “Note”); and (ii) a common stock purchase warrant (the “Warrant” and together with the Note, the “Securities”) permitting Oasis to purchase up to 187,685 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $1.50 per share (the “Exercise Price”). The Company received the Purchase Price on May 8, 2020.

The Note accrues interest at a rate of eight percent (8%) per annum and matures on the nine (9) months anniversary of the Issuance Date (the “Maturity Date”). In the event that the Company prepays the Note, the Company shall pay all of the principal and interest, together with a prepayment penalty ranging from 105% to 135% depending upon the date of such prepayment. The Note contains customary events of default (each an “Event of Default”). If an Event of Default occurs, all outstanding obligations owing under the Note will become immediately due and payable in cash or Common Stock at Oasis’ election. Any outstanding obligations owing under the Note which are not paid when due shall bear interest at the rate of eighteen percent (18%) per annum.

The Note is convertible into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion Price”) per share shall be (i) $1.50 during the six month period immediately following the Issuance Date, and (ii) after the six month period immediately following the Issue Date, the lower of: (a) $1.50, and (b) 70% multiplied by the lowest volume weighted average price for the Common Stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date (representing a discount rate of 30%).

The Warrant is exercisable for a term of five-years from the date of issuance. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. Until such time as there no longer an outstanding balance on the Note, if the Company shall, at any time while the Warrant is outstanding, sell any shares of Common Stock or securities entitling any person or entity to acquire shares of Common Stock at a price per share that is less than the Exercise Price (a “Dilutive Issuance”), than the Exercise Price shall be reduced to equal the Base Share Price (as defined in the Warrant) and the number of shares of Common Stock issuable under the Warrant shall be increased such that the aggregate exercise price payable under the Warrant, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.

On May 7, 2020, in connection with its entry into the Securities Purchase Agreement, the Company issued 37,537 Inducement Shares (as defined in the Securities Purchase Agreement) to Oasis.

Oasis Equity Purchase Agreement

On May 6, 2020 (the “Execution Date”), the Company entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) and a Registration Rights Agreement (“Registration Rights Agreement”) with Oasis. Under the terms of the Equity Purchase Agreement, Oasis agreed to purchase from the Company up to $10,000,000 of the Company’s Common Stock upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) and subject to certain limitations and conditions set forth in the Equity Purchase Agreement.

Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have the discretion to deliver put notices to Oasis and Oasis will be obligated to purchase shares of the Company’s Common Stock based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to Oasis in each put notice shall not exceed the lesser of $500,000 or two hundred and fifty percent (250%) of the average daily trading volume of the Company’s Common Stock during the ten (10) trading days preceding the put notice. Pursuant to the Equity Purchase Agreement, Oasis and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to Oasis that would result in Oasis’s beneficial ownership of the Company’s outstanding Common Stock exceeding 9.99%. The price of each put share shall be equal to ninety percent (90%) of the Market Price (as defined in the Equity Purchase Agreement). Puts may be delivered by the Company to Oasis until the earlier of (i) the date on which Oasis has purchased an aggregate of $10,000,000 worth of Common Stock under the terms of the Equity Purchase Agreement; (ii) April 26, 2023; or (iii) written notice of termination delivered by the Company to Oasis, subject to certain equity conditions set forth in the Equity Purchase Agreement.

F-17

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

On May 7, 2020, in connection with its entry into the Equity Purchase Agreement and the Registration Rights Agreement, the Company issued 133,334 Commitment Shares (as defined in the Equity Purchase Agreement) to Oasis.

The Registration Rights Agreement provides that the Company shall (i) file with the Commission the Registration Statement by June 1, 2020; and (ii) use its best efforts to have the Registration Statement declared effective by the Commission at the earliest possible date (and in any event, within sixty (60) days of the Execution Date).

On May 8. 2020 the Company repaid the outstanding principal balance of the Auctus convertible note, including accrued interest and prepayment penalty interest, for a total of $462,691.

In July 2020 the Company converted $100,000 principal amount of Convertible Promissory Notes convertible at $0.10 into 1,000,000 restricted shares of common stock per the terms of the Convertible Note subscription agreement the Company entered into in 2018 the accredited investor, currently a member of the Company’s Board of Directors.

Paycheck Protection Program Loan

On May 6, 2020, Quantum Computing Inc. (the “Company”) executed an unsecured promissory note (the “Note”) with BB&T/Truist Bank N.A. to evidence a loan to the Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (the "SBA").

In accordance with the requirements of the CARES Act, the Company expects to use the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, mortgage interest, rent and utility costs. Interest will accrue on the outstanding balance of the Note at a rate of 1.00% per annum. The Company expects to apply for forgiveness of up to the entire amount of the Note. Notwithstanding the Company’s eligibility to apply for forgiveness, no assurance can be given that the Company will obtain forgiveness of all or any portion of the amounts due under the Note. The amount of forgiveness under the Note is calculated in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act, subject to limitations and ongoing rule-making by the SBA and the maintenance of employee and compensation levels.

Subject to any forgiveness granted under the PPP, the Note is scheduled to mature two years from the date of first disbursement under the Note. The Note may be prepaid at any time prior to maturity with no prepayment penalties. The Note provides for customary events of default, including, among others, those relating to failure to make payments, bankruptcy, and significant changes in ownership. The occurrence of an event of default may result in the required immediate repayment of all amounts outstanding and/or filing suit and obtaining judgment against the Company. The Company’s obligations under the Note are not secured by any collateral or personal guarantees.

On May 8, 2020, the Company entered into an agreement with the Auctus Fund LLC to reduce the exercise price of the Amended First Warrants from $1.50 per share to $1.00 per share, and to reduce the exercise price of the Second Warrants from $3.75 to $2.50 per share. No other changes were made to the terms of the Warrants or the Convertible Note held by the Auctus Fund. In May, the Auctus Fund LLC exercised 50,000 warrants at $1.00 per share, resulting in total proceeds to the Company of $50,000. In June, the Auctus Fund LLC exercised 183,000 warrants at $1.00 per share, resulting in total proceeds to the Company of $183,000.

In April 2020 the Company applied to the US Small Business Administration (the “SBA”) for a loan under the Economic Injury Disaster Loan (EIDL) program. In May the SBA informed the Company that the EIDL loan application had been declined, but that the SBA would provide a $10,000 forgivable advance under the EIDL program.

In May 2020 the Company raised $30,000 from three stockholders in the form of short term, non-interest bearing, promissory notes, each in the amount of $10,000. The promissory notes mature December 31, 2020 and the Company has the right to prepay the notes prior to that date.

F-18

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

Note 8 – Capital Stock:

On March 1, 2018 the Board authorized the Company to raise up to $500,000 of equity capital at price of $0.40 per share of common stock (the “Initial Raise”). In connection with the Initial Raise, the Company received subscriptions for $75,000, and issued shares of restricted common stock pursuant to the Subscription Agreements. On September 5, 2018 the Board formally concluded the Initial Raise and ceased accepting investments.

On April 13, 2018, The Company’s board of directors authorized a 1:200 reverse stock split on the shares of the Company’s common stock. Accordingly, all references to numbers of common shares and per-share data in the accompanying financial statements have been adjusted to reflect the stock split on a retroactive basis. The Board and the majority stockholder also amended the Company’s Articles of Incorporation to increase the authorized capital of the company to 260,000,000 shares, consisting of 250,000,000 shares of common stock and 10,000,000 shares of preferred stock.

In September 2018, the Company issued 4,800,000 shares of restricted common stock to key management and technical personnel, pursuant to their respective employment agreements which were entered into and executed in July 2018 and made effective as of March 1, 2018, the date employment with the Company commenced. The Company recognized stock-based compensation expense of $24.2 million in connection with the grants of stock to key management and technical personnel, pursuant to ASC 718. The expense amount was calculated based on the closing price of the Company stock on the OTC Markets on the date the grants were executed. In November 2018, two of the key management employees resigned from the Company and returned all of their stock grants to the Company, for a total of 4,000,000 shares. The return of the stock grants was treated as a forfeiture under ASC 718 and accordingly the Company reversed $20.16 million of the stock-based compensation expense after the shares were returned to the Company and cancelled.

The terms of the employee stock grants are spelled out in Restricted Stock Agreements and Lock Up Agreements (the “Stock Agreements”), which the Company entered into with each employee. The Stock Agreements specify that the stock grants are subject to restrictions spelled out in a restrictive legend, and that the grants vest in full upon the first date of employment. In addition, the employee is also subject to the Lock Up Agreement for three years from the date of employment. The Lock Up Agreement precludes the employee from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of the shares granted by the Company. Because one hundred percent (100%) of the shares vest on the first day of employment, the employee has all of the rights of a shareholder including the ability to receive dividends and vote the shares. However, if the employee terminates their employment prior to the third anniversary of his/her date of hire, the Company has a right to recoup a portion of the stock grant. Specifically, the Company can recoup two thirds of the stock grant until the second anniversary date, and one third of the stock grant between the second and third anniversary dates. After the third anniversary date, the Company has no further recoupment rights.

To properly account for the compensation expense associated with the stock grants under ASC 718, we first analyzed whether there was a “requisite service period” associated with the stock grants. Because the shares vest immediately, we determined that there was no requisite service period, and the employees received taxable compensation as of the date of grant. We also examined whether there were conditions associated with the employee stock grants that would affect recording of compensation expense. We determined that the Company’s recoupment or “clawback” right constitutes a contingent feature of a stock grant such as a clawback feature that should be accounted for if, and when, the contingent event occurs, Moreover, while the company has a legal right to recoup shares under certain conditions, in practice there are a number of procedural hurdles we would have to overcome to actually get the shares back if the terminated employee does not voluntarily surrender the certificate, and there is no guarantee we would succeed. Therefore, because the restricted stock grants vested in full upon the Effective Date, and the clawback right is a contingent condition, in accordance with ASC 718 we determined that the full amount of the fair market value of the shares should be recognized as compensation expense as of the date of the grant, rather than recognizing the stock based compensation expense pro rata over the three year period of the contingent clawback feature.

F-19

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

In October 2018 the Company converted $725,000 principal amount of Convertible Promissory Notes, plus $16,711 of accrued interest, into 1,510,377 shares of common stock. The Company also issued 130,000 shares of common stock to CNLT, LLC, pursuant to the non-dilution covenant directed by the 2017 North Carolina court order. The shares were issued under Section 3(a)(10) of the Securities Act.

In December 2018 the Company converted $100,000 principal amount of Initial Investor promissory notes, plus accrued interest of $2,422, into 1,002,422 shares of common stock.

In March 2019 the Company issued 25,000 shares of common stock to Lyons Capital, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Lyons Capital in December 2018.

In June 2019 the Company converted $20,000 principal amount of Convertible Promissory Notes into 200,000 shares of common stock. The Company also issued 350,000 shares of common stock to CNLT, LLC, pursuant to the non-dilution covenant directed by the 2017 North Carolina court order. The shares were issued under Section 3(a)(10) of the Securities Act.

In May 2019 the Company terminated an employee who had received a grant of 400,000 shares of restricted stock in September 2018 pursuant to an employment agreement. In August 2019 the Company exercised its rights under the Restricted Stock Agreement to recoup a portion of the original grant. The Company received back 266,640 shares of common stock from the former employee and the partial return of the stock grant was treated as a forfeiture under ASC 718 and accordingly the Company reversed $1,343,866 of the stock-based compensation expense previously recorded, after the shares were returned to the Company and cancelled. This is consistent with ASC 718 and the Company’s prior practice, as detailed above.

In August 2019 the Company converted $2,015,500 principal amount of Convertible Promissory Notes plus $124,997 of accrued interest into 2,329,525 restricted shares of common stock.

In June 2020, the Company entered into twelve month Lock Up – Leak Out agreements with fifty holders of approximately 2 million shares of restricted stock in exchange for 443,273 incentive shares. Under the Lock Up-Leak Out agreements the stockholders are precluded from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of their shares until June 11, 2021 and after that date they agreed to limit daily sales to no more than ten percent (10%) of the average daily trading volume of the Company’s stock for the previous three trading days. Two additional holders of a total of 50,000 shares also entered into 12-month LockUp-Leak Out agreements, however, due to an administrative oversight, the Company did not issue their incentives shares, totaling 10,000 shares, until September 2020.

On June 10, 2020 the Board authorized a private placement of common stock with fifty percent (50%) warrant coverage at an exercise price of $2.00 in the aggregate amount up to $3,000,000 at a stock price of $1.00 per share (the “2020 Units Offering”). In connection with the 2020 Units Offering, the Company received funds of $342,000 as of August 24, 2020, and issued 342,000 shares of Common Stock and Warrants to purchase 171,000 shares of Common Stock. The Board closed the 2020 Units Offering to further investment in August 2020.

In June 2020 the Company issued 300,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.

F-20

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

On July 24, 2020, the Company entered into Restricted Stock Agreements (the “Restricted Stock Agreements”) with certain of its senior managers, including certain directors and officers, listed in the table below (each, a “Grantee” and together, the “Grantees”), pursuant to the 2019 Quantum Computing Inc. Equity and Incentive Plan (the “Incentive Plan”). Pursuant to the terms of the Restricted Stock Agreements, the stock grants are one hundred percent (100%) vested as of the date of grant, but are subject to the Company’s right to recoup or “clawback” a portion of the shares if the Grantee terminates their employment prior to the second anniversary of the date of grant, in accordance with the following schedule: (i) the Company can recoup 100% of the shares until May 31, 2021, and (ii) the Company can recoup 50% of the shares between June 1, 2021 and May 31, 2022. As of June 1, 2022, the Company has no further recoupment rights to the shares. The stock grants are also subject to LockUp agreements for three years from the Grantee’s date of employment. The Lock Up Agreements preclude the Grantees from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of the shares in the Restricted Stock Agreements. In the aggregate the Company issued 2,000,000 shares to its senior managers, including the directors and officers listed below. The shares were granted at $3.16 per share.

Name of Grantee	Position	Number of Shares
Robert Liscouski	Chairman, Chief Executive Officer, President	400,000
Christopher Roberts	Chief Financial Officer, Director	400,000

In August 2020 the Board authorized a private placement of common stock in the aggregate amount up to $4,500,000 at a stock price of $1.00 per share (the “2020 $1.00 Equity Offering”). The Company entered into Stock Purchase Agreements (the “SPA”) with approximately 94 accredited investors (the “Investors”), whereby the Investors purchased from the Company shares of the Company’s common stock in an aggregate amount of 4,237,500 (the “Shares”), for a purchase price of $1.00 per share (the “Per Share Purchase Price”) resulting in gross proceeds to the company of $4,237,500.

Under the terms of the SPA, the Investors shall have piggy-back registration rights to have the shares issued pursuant to the SPA included as part of any registration of securities filed by the Company (other than pursuant to Form S-4, Form S-8, or any equivalent form).

In connection with the Offering the Company issued an advisor 100,000 shares of the Company’s common stock and warrants to purchase an additional 325,000 shares of the Company’s common stock, at an initial exercise price) of $3.40- per share, subject to adjustment (the “Warrants”). Warrants will expire on September 11, 2025. The Board closed the 2020 Units Offering to further investment in September, 2020.

In September 2020 the Company issued 20,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.

In September 2020 the Company issued 50,000 shares of common stock and warrants to purchase an additional 150,000 shares of the Company’s common stock, at an initial exercise price of $1.00 per share, subject to adjustment (the “Warrants”), to Bridgewater Capital Corp, a financial and business strategy consulting firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Bridgewater Capital in August 2020. The Warrants will expire on September 11, 2025.

Note 9 – Related Party Transactions

Convergent Risk Group, LLC

To finance the acquisition of the control block of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent) $275,000, in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total amount of $275,000. Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory Notes” in the total amount of $275,000 and certain liabilities (the “Liabilities”). The Liabilities and the Promissory Notes are collectively the “Convergent Liabilities.” The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019. The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019. While the conversion of the Convertible Promissory Notes is mandatory at the maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The Company has no obligation to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory Notes will result in dilution of other shareholders once the Initial Investors convert their notes into the Company’s common stock.

F-21

QUANTUM COMPUTING INC.
(Formerly Innovative Beverage Group Holdings, Inc.)
Notes to Financial Statements
(Unaudited)

REMTC, Inc.

To provide the Company with a highly secure development environment and intra-company data management and communication system, the Company contracted with REMTC, Inc. (“REMTC”), an entity wholly owned by Richard Malinowski, who was the Company’s Chief Technology and Operations Officer at the time, to acquire the necessary hardware and software, configure and install the REMTC proprietary security system, known as “PASS.” The total cost of the PASS System was approximately $670,000 which the Company paid to REMTC. In November 2018, Mr. Richard Malinowski informed the Company of his decision to resign as Chief Technology and Operations Officer and the Board accepted his resignation and that of Mr. Thomas Kelly. The Company and REMTC have unwound the PASS agreement and the Company expects to receive approximately $670,000 back from Mr. Malinowski and REMTC. The Company determined that the PASS System was unusable and therefore impaired, and wrote off the remaining undepreciated value of the PASS system as of December 31, 2018. In March 2019 the Company commenced litigation in New Jersey state court against REMTC, Mr. Malinowski and Mr. Kelly to recover the cost of the PASS System. In January 2020 the Company entered into a settlement of its claims against REMTC, Mr. Malinowski and Mr. Kelly and the litigation in New Jersey was dismissed.

JLS Ventures

To provide the Company with advertising and marketing services, the Company contracted with JLS Ventures LLC. (“JLS”), an entity wholly owned by Justin Schreiber, a member of the Company’s board of directors, to procure and manage the advertising services. The agreement with JLS is for a period of one year and is terminable upon thirty days’ notice. During the quarter ending September 30, 2020 the Company paid JLS $97,603 for advertising services.

Note 10 – Reclassifications:

Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. Specifically, the Beneficial Conversion Feature expense relating to the offering of Convertible Promissory Notes in 2018 has been allocated to the periods in which the Promissory Notes were issued. These reclassifications had no effect on net earnings or cash flows as previously reported for calendar year 2018.

Note 11 – Subsequent Events:

In early 2020, an outbreak of the novel strain of coronavirus (COVID-19) emerged globally. In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, which continues to spread throughout the United States. The COVID-19 has significantly impacted the communities in which Company employees live and work. As a result, federal, state and local authorities have issued mandates for social distancing and working from home to delay the spread of the coronavirus, resulting in an overall decline in economic activity. The ultimate impact of COVID-19 on the Company is not reasonably estimable at this time. Management is currently evaluating the recent introduction of the COVID-19 virus and the related government mandates, and their impact on the software industry and has concluded that while it is reasonably possible that the virus and the associated government mandates restricting activity could have a negative effect on the ability of the Company to meet with potential customers and to raise additional capital, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In October 2020 the Board authorized a private placement of common stock in the aggregate amount up to $10,000,000 at a stock price of $2.50 per share (the “2020 $2.50 Equity Offering”). As of November 10, 2020, the Company has raised approximately $1.2 million in the 2020 $2.50 Equity Offering.

There are no other events of a subsequent nature that in management’s opinion are reportable.

F-22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,

This quarterly report on Form 10-Q and other reports filed Quantum Computing, Inc. (the “Company” “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

At the present time, we are a development stage company. The Company is currently developing “quantum ready” software applications and solutions for companies that want to leverage the promise of quantum computing. Independent of when quantum computing delivers compelling performance advantage over classic computing, the software tools and applications to accelerate real-world problems must be developed to deliver quantum computing’s full promise. We specialize in quantum computer-ready software application, analytics, and tools, with a mission to deliver differentiated performance using non-quantum processors in the near-term.

Quantum computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum hardware. The pool of people with those skills today is limited and in high demand.

By reducing the barriers to adoption for commercial and government entities to use quantum computing technologies to solve their most complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed with artificial intelligence.

Products and Products in Development

MUKAI

The Company’s primary offering is the Mukai platform. Mukai enables developers to create and execute quantum-ready applications on classical computers, while being ready to run on quantum computers where those systems achieve performance advantage. Mukai performs the complex problem transformations necessary to be executed on a variety of quantum platforms today, and users can call upon the same Mukai APIs (Application Programming Interfaces) to achieve optimization performance advantages on conventional computers using our cloud-based solution.

Mukai is the only quantum acceleration platform available today, dramatically reducing the time-to-quality results and the associated costs for both classical and quantum computers. Unlike more common toolsets that require deep level quantum expertise to build new quantum problems and workflows, Mukai is not a tool kit, but a complete platform. It accelerates performance and results on classic and quantum computers, with no additional quantum programming or quantum computing expertise required. This is why it is unique in its approach to the quantum computing industry. Instead of invoking a team of quantum specialists to transform an optimization problem, a subject matter expert (“SME”) or programmer submits their current problem via a software API to the Mukai cloud-based platform. Mukai manages the workflow, optimizations, and results, without any further intervention by the user. Mukai provides a unique advantage to reduce applications development risks and costs by eliminating the need for scarce high-end quantum programmers.

Mukai is integrated with the Amazon Cloud BRAKET API, offering access to multiple Quantum Processing Units (“QPUs”) including DWave, Rigetti, and IonQ. Mukai also integrates directly with IBM’s QPUs.

By using Mukai, application developers can run their applications on any or all of the available QPUs by merely selecting which QPU they prefer to run on based on the desired performance results of the application. This is an enormous advantage over any other toolkit or platform in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.

Mukai also eliminates the need for the low-level hardware programming expertise required by toolkits. This programming is time consuming and must be updated constantly as QPUs evolve and change, resulting in significant development costs. Mukai automatically optimizes the same problem submitted by a SME for multiple Quantum and Classical Processors. The SME or programmer selects one, or many, processing resources and the problem will be submitted by Mukai. This is an enormous advantage over any tool set in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.

SOLVERS

Built into Mukai are several solvers, primarily “QBSolv.” QBSolv addresses time-bound optimization problems where the outcome is driven by a hard time constraint. QBSolv is a highly optimized classical application that has demonstrated significant performance advantages over current solvers in the market today. The QBsolv application expands the range of solution option outcomes for optimization problems, presenting organizations with the capability to make better decisions. Furthermore, because of QBSolv’s performance advantages it is able to uncover new solution options for problems that are currently unattainable with today’s solvers.

It is important to note that our solvers deliver these performance advantages while running on today’s conventional computers and will significantly improve performance as better QPU technology becomes available. To that end, the Company is beginning to seek marketing and distribution partnerships where our current solver technologies can be deployed to enable industry-specific application performance.

The Company is also working on software products to address community detection to aid researchers in discovering correlations that may not have been imagined. Community detection holds significant promise in pharmaceutical applications such as evaluating client trial outcomes, and in epidemiology to enable detection of common factors among a population.

In addition to commercial markets, QCI is pursuing a number of US government funded opportunities.

The US Government, through the National Quantum Initiative Act of 2018 (Public Law No: 115-368 - 12/21/2018) directed the President to implement a National Quantum Initiative Program to, among other things, establish the goals and priorities for a 10-year plan to accelerate the development of quantum information science and technology applications. (Sec. 103) The National Science and Technology Council shall establish a Subcommittee on Quantum Information Science, including membership from the National Institute of Standards and Technology (NIST) and the National Aeronautics and Space Administration (NASA), to guide program activities. (Sec. 104) The President must establish a National Quantum Initiative Advisory Committee to advise the President and subcommittee on the program and trends and developments in quantum information science and technology. Significant government funding has been allocated for research initiatives including a recent Department of Energy initiative of $625 million over the next five years to establish two to five multidisciplinary Quantum Information Science (QIS) Research Centers in support of the National Quantum Initiative. The Quantum Economic Development Consortium (QED-C), a consortium of stakeholders that aims to enable and grow the U.S. quantum industry. QED-C was established with support from the National Institute of Standards and Technology (NIST) as part of the Federal strategy for advancing quantum information science and as called for by the National Quantum Initiative Act enacted in 2018. Quantum Computing Inc. is one of the founding members of the QED-C.

QCI is pursuing a number of research areas funded by the government that directly relate to its capabilities. To strengthen its technology base, QCI has entered into a Technology Alliance Partnership agreement with Splunk, Inc. (NASDAQ: SPLK). QCI will partner with Splunk to do both fundamental and applied research and develop analytics that exploit conventional large-data cybersecurity stores and data-analytics workflows, combined with quantum-ready graph and constrained-optimization algorithms. These algorithms will initially be developed using QCI’s Mukai software platform, which enables quantum-ready algorithms to execute on classical hardware and also to run without modification on QC hardware when ready. Once proofs of concept are completed, QCI and Splunk will develop new analytics with these algorithms in the Splunk data-analytics platform, to evaluate quantum analytics readiness on real-world data. The Splunk platform/toolkits help customers address challenging analytical problems via neural nets or custom algorithms, extensible to Deep Learning frameworks through an open source approach that incorporates existing and custom libraries. The initial efforts of our partnership with Splunk will focus on three key challenges; network security and dynamic logistics and scheduling.

Results of Operations

Three Months Ended September 30, 2020 vs. September 30, 2019

Revenues

	For the Three Months Ended September 30, 2020					For the Three Months Ended September 30, 2019
(In thousands)	Amount		Mix			Amount		Mix			Change
Products		0		0	%		0		0	%		0	%
Services		0		0	%		0		0	%		0	%
Total	$	0		100.0	%	$	0		100.0	%		0	%

Revenues for the three months ended September 30, 2020 were $0 as compared with $0 for the comparable prior year period, a change of $0, or 0%. The lack of revenue is due to the fact that the Company has not yet completed the development and testing of any products for sale, or sold any products or services to any customers.

Cost of Revenues

Cost of revenues for the three months ended September 30, 2020 was $0 as compared with $0 for the comparable prior year period, a change of $0 or 0%. There was no cost of revenues recorded because the Company has not yet commenced marketing and selling products or services.

Gross Margin

Gross margin for the three months ended September 30, 2020 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet commenced marketing and selling products or services.

Operating Expenses

Operating expenses for the three months ended September 30, 2020 were $8,676,183 as compared with ($784,159) for the comparable prior year period, an increase of $9,460,342, or 1,206%. The increase in operating expenses is due in large part to the $7,906,559 increase in stock-based compensation expense and a $46,345 increase in legal fees in the third quarter of 2020 compared with the comparable period in 2019. In addition, changes in the number and composition of staff resulted in a $203,755 increase in consulting expenses, and a $30,092 increase in research and development expenses, compared to the comparable prior year period.

Net Income (Loss)

Our net loss for the three months ended September 30, 2020 was $11,657,324 as compared with a net gain of $770,304 for the comparable prior year period, an increase of $12,427,628 or 1,613%. The increase in net loss is primarily due to the increase in operating expenses, primarily stock based compensation as described above, and an increase of $2,981,141 in interest expense largely associated with the mark to market repricing of a convertible promissory note derivative, issuing warrants, and other financing related expenses recorded in the current period compared to the comparable prior year period.

Nine Months Ended September 30, 2020 vs. September 30, 2019

Revenues

	For the Nine Months Ended September 30, 2020					For the Nine Months Ended September 30, 2019
(In thousands)	Amount		Mix			Amount		Mix			Change
Products		0		0	%		0		0	%		0	%
Services		0		0	%		0		0	%		0	%
Total	$	0		100.0	%	$	0		100.0	%		0	%

Revenues for the nine months ended September 30, 2020 were $0 as compared with $0 for the comparable prior year period, a change of $0, or 0%. The lack of revenue is due to the fact that the Company has not yet completed the development and testing of any products for sale, or sold any products or services to any customers.

Cost of Revenues

Cost of revenues for the nine months ended September 30, 2020 was $0 as compared with $0 for the comparable prior year period, a change of $0 or 0%. There was no cost of revenues recorded because the Company has not yet commenced marketing and selling products or services.

Gross Margin

Gross margin for the nine months ended September 30, 2020 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet commenced marketing and selling products or services.

Operating Expenses

Operating expenses for the nine months ended September 30, 2020 were $11,332,131 as compared with $1,781,961 for the comparable prior year period, an increase of $9,550,170, or 536%. The increase in operating expenses is due in large part to the $7,585,213 increase in stock-based compensation, a $414,000 increase research and development expenses, and a $47,383 increase in legal fees in the first nine months of 2020 compared with the comparable period in 2019. In addition, changes in the number and composition of staff resulted in a $66,903 increase in salary and benefit expenses, and a $171,059 increase in consulting expenses, compared to the comparable prior year period.

Net Income (Loss)

Our net loss for the nine months ended September 30, 2020 was $14,134,102 as compared with a net loss of $1,898,596 for the comparable prior year period, an increase of $12,235,506 or 644%. The increase in net loss is primarily due to the increase in operating expenses, noted above, plus a $3,234,497 increase in interest expense largely associated with the mark to market repricing of a convertible promissory note derivative, replacing one derivative with another, granting warrants, and repricing existing warrants, and other financing related expenses recorded in the current period compared to the comparable prior year period, offset in part by $432,500 in other income from a legal settlement and a local government business grant.

Liquidity and Capital Resources

Since commencing operations as Quantum Computing in February 2018, the Company has raised $5,489,500 through private placement of equity and $5,341,055 through private placements of Convertible Promissory Notes for a total of $10,820,555 in new investment. The Company has no bank loans or lines of credit, and no long-term debt obligations. As of September 30, 2020, the Company had cash and equivalents of $3,978,433 on hand.

The following table summarizes total current assets, liabilities and working capital at September 30, 2020, compared to December 31, 2019:

	September 30, 2020		December 31, 2019			Increase/(Decrease)
Current Assets	$	3,983,730	$	122,649		$	3,861,081
Current Liabilities	$	3,387,618	$	2,960,538		$	427,080	)
Working Capital (Deficit)	$	596,112	$	(2,837,889	)	$	3,434,001

At September 30, 2020, we had working capital of $596,112 as compared to working capital deficit of $2,837,889 at December 31, 2019, an increase of $3,434,001. The increase in working capital is primarily attributable to an increase in cash from new sources of equity financing, net of increases in accrued expenses, short-term loans and derivative liability.

Net Cash

Net cash used in operating activities for the nine months ended September 30, 2020 and 2019 was $5,449,716 and $1,544,642, respectively. The net loss for the nine months ended September 30, 2020 and 2019, was $14,134,102 and $1,898,596, respectively.

Net cash used in investing activities for the nine months ended September 30, 2020 and 2019 were $3,258 and $13,077, respectively representing a $9,819 decrease in investments for computer equipment in 2020 compared with the first nine months of 2019.

Net cash provided in financing activities for the nine months ended September 30, 2020 was $9,330,307 and cash flows provided in the same period of 2019 was $99,036. Cash flows provided in financing activities during the first nine-month period in 2020 were primarily attributable to issuance of common stock and convertible notes, conversion of convertible notes to stock, and the exercise of warrants issued with those notes. The cash flow used in financing activities during the first nine months of 2019 were related to the conversion of convertible promissory notes to common stock.

Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities. During 2020, we have funded our operations through the sale of equity and convertible debt securities and exercise of warrants issued in conjunction with convertible debt, and income from a legal settlement with REMTC. As of November 11, 2020, we had cash on hand of approximately $4,858,272. We have approximately $8,795 in monthly lease and other mandatory payments, not including payroll and ordinary expenses which are due monthly.

On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Our current capital and revenues are not sufficient to fund such expansion and we will continue to rely on the sale of our debt and or equity securities to fund operations.

Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. In as much as a major portion of our activities will be the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.

Going Concern

The Company has earned no revenue from operations in the nine-month periods ended September 30, 2020 and 2019, and has an accumulated deficit of $42,895,057 and $22,278,462, respectively. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital or ultimately acquire an entity which the Company hopes will become profitable at some time in the near future. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is seeking additional capital to finance the operations of the Company.

Off Balance Sheet Arrangements

During the nine months ended September 30, 2020 or for fiscal 2019, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

Critical Accounting Policies and Estimates

We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

Use of Estimates:

Cash and Cash Equivalents

The Company’s policy is to present bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Property and Equipment

Property and equipment are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment.

Net Loss Per Share:

Net loss per share is based on the weighted average number of common shares and common shares equivalents outstanding during the period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the controls evaluation, our Principal Executive Officer and Principal Financial Officer concluded that as of the date of their evaluation, our disclosure controls and procedures were not effective to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (b) such information is accumulated and communicated to our management, including our Chief Executive Officer and President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding 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 our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2019. The risks described in our Form 10-K and this Report are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

There have been no material changes to the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 27, 2020, other than the following:

We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.

Our business could be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments could cause disruption to our operations and sales activities. Our third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions which could adversely affect our business, operations and customer relationships. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Other than described below, there were no unregistered sales of equity securities that were not otherwise disclosed in a current report on Form 8-K.

In March 2020 the Company’s senior management team, including its Chief Executive Officer and Chief Financial Officer, agreed to defer fifty percent (50%) of their salaries through May 31, 2020 to conserve cash during the COVID-19 pandemic shutdown, in exchange for options issued pursuant to the Company’s stock incentive plan in May 2020 the Company granted options for a total of 247,000 shares to these employees, including 75,000 options and 45,000 options to the Company’s Chief Executive Officer and Chief Financial Officer, respectively. The options vest over a period of three years from the date salary deferral was agreed to at an exercise price of $1.00 per share.

Item 3. Defaults upon Senior Securities

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

There is no other information required to be disclosed under this item which has not been previously reported.

Item 6. Exhibits

Exhibit		Incorporated by Reference		Filed or Furnished
Number	Exhibit Description	Form	Exhibit	Filing Date	Herewith
10.1	Form Subscription Agreement	8-K	10.1	08/03/2020
10.2	Form Warrant	8-K	10.2	08/03/2020
10.3	Form Stock Purchase Agreement				X
10.4	Form Warrant				X
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.				X
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350.				X
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350.				X
101.INS	XBRL Instance Document				X
101.SCH	XBRL Taxonomy Extension Schema Linkbase Document.				X
101.CAL	XBRL Taxonomy Calculation Linkbase Document.				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.				X
101.LAB	XBRL Taxonomy Label Linkbase Document.				X
101.PRE	XBRL Taxonomy Presentation Linkbase Document.				X

**	Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

	QUANTUM COMPUTING INC.

Dated: November 13, 2020	By:	/s/ Robert Liscouski
		Robert Liscouski
		Principal Executive Officer


Dated: November 13, 2020	By:	/s/ Christopher Roberts
		Christopher Roberts
		Principal Financial Officer and Principal Accounting Officer

Quantum Computing Inc. - FORM 10-Q - November 13, 2020

Attached files

Quantum Computing Inc. Reports