0001213900-19-014436.txt : 20190802 0001213900-19-014436.hdr.sgml : 20190802 20190802121848 ACCESSION NUMBER: 0001213900-19-014436 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 48 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190802 DATE AS OF CHANGE: 20190802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Quantum Computing Inc. CENTRAL INDEX KEY: 0001758009 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 824533053 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-56015 FILM NUMBER: 19995018 BUSINESS ADDRESS: STREET 1: 215 DEPOT COURT SE, #215 CITY: LEESBURG STATE: VA ZIP: 20175 BUSINESS PHONE: 703-436-2161 MAIL ADDRESS: STREET 1: 215 DEPOT COURT SE, #215 CITY: LEESBURG STATE: VA ZIP: 20175 10-Q 1 f10q0619_quantumcomputing.htm QUARTERLY REPORT

 

 

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: June 30, 2019

 

or

 

☐ 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 August 2, 2019, there were 5,299,161 shares outstanding of the registrant’s common stock. 

 

 

 

 

 

 

QUANTUM COMPUTING INC.

 

TABLE OF CONTENTS

 

    Page No.
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Balance Sheets as of June 30, 2019 and December 31, 2018 2
  Unaudited Statement of Operations for the Three  and Six Months Ended June 30, 2019 and 2018 3
  Unaudited Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2019 4
  Unaudited Statement of Cash Flows for the Six Months Ended June 30, 2019 and 2018 5
  Notes to the Unaudited Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
     
PART II.   OTHER INFORMATION
     
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Mine Safety Disclosures 20
Item 5. Other Information 20
Item 6. Exhibits 20

 

i

 

 

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 June 30, 2019 and December 31, 2018   1
Unaudited Statement of Operations for the Three  and Six Months Ended June 30, 2019 and 2018   2
Unaudited Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2019   3
Unaudited Statement of Cash Flows for the Six Months Ended June 30, 2019 and 2018   4
Notes to the Unaudited Financial Statements   5

 

1

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Balance Sheets

(Unaudited)

 

   June 30,   December 31 
   2019   2018 
ASSETS        
         
Current assets        
Cash and cash equivalents  $807,144   $1,767,080 
Prepaid Expenses   9,155    23,179 
Lease right-of-use   -    - 
Fixed Assets (net of depreciation)   6,196    6,897 
Total assets  $822,495   $1,797,156 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
           
Current liabilities          
Accounts payable  $97,545   $54,018 
Accrued Expenses   207,545    89,584 
Lease Liability   -    - 
Convertible promissory notes – related party   100,000    100,000 
Convertible promissory notes   3,024,500    3,070,500 
Total liabilities   3,429,590    3,314,102 
           
Stockholders’ equity (deficit)          
Common stock, $0.0001 par value, 250,000,000 shares authorized; 5,299,161 and 4,724,161 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively   530    472 
Additional paid-in capital   10,955,009    10,935,029 
APIC-Beneficial Conversion Feature in Equity   3,995,500    3,995,500 
APIC-Stock Based Compensation   5,590,633    4,031,920 
Subscription Receivable   (100,000)   (100,000 
Accumulated deficit   (23,048,767)   (20,379,867)
Total stockholders’ equity (deficit)   (2,507,095)   (1,516,946)
Total liabilities and stockholders’ equity (deficit)  $822,495   $1,797,156 

 

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

 

2

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Operations

(Unaudited)

 

   Six Months Ended   Three Months Ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
Total revenue  $-   $-   $-   $- 
Cost of revenue   -    -    -    - 
Gross profit   -    -    -    - 
Salaries   231,727    271,325    116,081    211,325 
Consulting   173,963    129,120    86,938    101,620 
Research & Development   296,448    77,721    145,158    59,388 
Stock Based Compensation   1,558,750    -    1,487,500      
Selling General & Administrative -Other   305,233    220,892    147,305    27,876 
Operating expenses   2,566,121    699,058    1,982,982    400,209 
Loss from Operations   (2,566,121)   (699,058)   (1,982,982)   (400,209 
Interest Income – Money Market   7,044    -    4,169    - 
Interest Expense – Promissory Notes   (109,823)   -    (54,413)   - 
Interest Expense - Beneficial Conversion Feature   -    (1,225,000)   -    (475,000)
Asset Impairment Charge   -    -    -    - 
Other income (expense)   (102,779)   (1,225,000)   (50,244)   (475,000)
                     
Federal income tax expense   -    -    -    - 
                     
Net loss  $(2,668,900)  $(1,924,058)  $(2,033,226)  $(875,209)
                     
Weighted average shares - basic and diluted   5,299,161    1,093,735    5,299,161    1,093,735 
Loss per share - basic and diluted  $(0.50)  $(1.76)  $(0.38)  $(0.80)

 

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

 

3

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Stockholders’ Deficit

For the Six Months Ended June 30, 2018

(Unaudited)

 

   Common Stock   Additional Paid   Accumulated     
   Shares   Amount   in Capital   Deficit   Total 
                     
BALANCES, December 31, 2017  $943,735   $94   $9,871,180   $(9,872,774)  $(1,500)
                          
Issuance of shares for cash   50,000    5    19,995    -    20,000 
Beneficial Conversion Feature   -    -    750,000    -    750,000 
Subscription Receivable   -    -    (100,000)   -    (100,000)
Stock based compensation   -    -    -    -    - 
Net loss   -    -    -    (1,048,848)   (1,048,848)
BALANCES, March 31, 2018   993,735   $99   $10,541,175   $(10,921,622)  $(380,348)
                          
Issuance of shares for cash   100,000    10    39,990    -    40,000 
Beneficial Conversion Feature   -    -    475,000    -    475,000 
Subscription Receivable   -    -    -    -    - 
Stock based compensation   -    -    -    -    - 
Net loss   -    -    -    (875,210)   (875,210)
BALANCES, June 30, 2018   1,093,735   $109   $11,056,165   $(11,796,832)  $(740,558)

 

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

 

4

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Stockholders’ Deficit

For the Six Months Ended June 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)

 

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

 

5

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Statement of Cash Flows

For the Six Months Ended June 30, 2019 and 2018

(Unaudited)

 

   Six Months Ended 
   June 30, 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(2,668,900)  $(1,924,058)
Adjustments to reconcile net income (loss) to net cash          
Prepaid Expenses   (14,025)   (1,212)
Loan from Officer   -    100 
Depreciation   701    - 
Accrued Expenses   117,961    - 
Issuance of shares for legal settlement   -    175,000 
Stock Based Compensation   1,558,750    - 
Accounts payable   43,527    40,969 
Beneficial Conversion Feature   -    1,225,000 
CASH USED IN OPERATING ACTIVITIES   (933,936)   (484,201)
           
 CASH FLOWS FROM INVESTING ACTIVITIES          
        Fixed Assets – Computer Software and Equipment   -    (220,000)
CASH USED IN INVESTING ACTIVITIES   -    - 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
           
Issuance of Convertible Promissory Notes   (26,000)   950,000 
Proceeds from stock issuance   -    60,000 
CASH PROVIDED BY FINANCING ACTIVITIES   -    1,010,000 
           
Net increase (decrease) in cash   (959,936)   305,799 
           
Cash, beginning of period   1,767,080    - 
           
Cash, end of period   $ 807,144,     $305,799 
           
SUPPLEMENTAL DISCLOSURES          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 
NON-CASH INVESTING ACTIVITES          
Subscription receivable created from issuance of note payable  $-   $100,000 
           
NON-CASH FINANCING ACTIVITES          
Note payable issued in exchange for a Subscription receivable   -    100,000 
Common stock issued for compensation   1,558,750    - 
Convertible Promissory Notes issued as Compensation – related party  $-   $175,000 

 

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

 

6

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(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., was incorporated in the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. to better reflect its business operations at the time which was beverage distribution and product development. In 2013, Innovative Beverage Group Holdings, Inc. ceased operations. On May 22, 2017, one of Innovative Beverage Group Holdings, Inc.’s. shareholders, a North Carolina resident (the “Plaintiff”), filed suit against the Company alleging “(1) fraud; and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.”   The complaint alleged that the officers and directors of Innovative Beverage Group Holdings, Inc. had abandoned it and allowed the Company’s assets to be wasted, causing injury to the Company and its shareholders. Plaintiff sought damages of $30,000 for each claim, plus reimbursement of filing costs of $1,000, and the appointment of a Receiver for the Company.  On August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. On October 4, 2017 the Receiver filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company, (“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, Inc. redomiciled to North Carolina.

 

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

 

Business

 

The Company’s business focuses on quantum computing software development. The Company intends to develop heterogeneous software that can run on the platforms that are under development by the quantum computer hardware industry. The Company’s initial focus will be on the security and financial services sectors. Other potential markets for quantum computing include artificial intelligence (“AI”), machine learning, genetics and pharmaceuticals. The Company intends to be a leading provider of software that can run on multiple quantum platforms.

 

Initially, the Company is focused on two main development efforts. First, we plan to focus on the development of quantitative financial related products such as financial portfolio optimization. The financial services industry has used quantitative financial software applications for several decades with some success. However, those existing products are limited in their performance due to the lack of computing power to solve these classes of optimization problems, which are known as “NP Complete Problems”. NP Complete Problems are a class of mathematical problems that can be solved in polynomial increments of time using a non-deterministic method. These NP Complete Problems require complex calculations, which cannot currently be performed in reasonable amounts of time using conventional, binary computer systems, with the exception of simple cases. These problems are intractable because of the inability of bit-based systems to handle complex non-deterministic problems. The recent developments in quantum annealing and other quantum hardware suggests that these problems will soon be solvable using these new technologies. The Company’s goal is to develop and implement quantum related algorithms to provide solutions to these NP Complete Problems in the area of financial optimization. Optimization algorithms are ideally suited to run on a class of quantum computers, known as “annealers,” that are currently becoming made available in the market by various manufacturers.

 

7

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

The Company’s secondary market focus will be the field of cybersecurity, specifically encryption and decryption algorithms. Current encryption algorithms, such as DES (widely used in banking transactions), use codes based on the product of two very large prime numbers. To decrypt the message requires finding the factors of a very large number, which can be done with current computers, but takes unacceptably long amounts of time. The factorization process can be performed much more rapidly using algorithms running on a quantum computer. The other aspect of cybersecurity that we will work on is development of encryption algorithms that are either “quantum resistant”, i.e. difficult for quantum computer to crack, or “quantum based”, i.e., that use principals of quantum physics to create a quantum based code that is difficult for both conventional and quantum computers to break. Information security has a number of components, of which encryption is an important tool. Encryption is vital to e-commerce, banking, cellular communication, and protecting email, websites and online identities because unprotected data can be stolen and misused.

 

Business Strategy

 

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

 

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

 

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

 

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

 

8

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

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

 

The Company’s fiscal year end is December 31.

 

Basis of Presentation:

 

The accompanying Balance Sheet as of June 30, 2019, which was derived from audited financial statements, and the unaudited interim financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2019, and the cash flows and results of operations for the six months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the six months ended June 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 2018 Form 10-K, filed with Securities and Exchange Commission, and it is suggested that these financial statements be read in conjunction therewith.

 

Accounting Changes

 

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

 

Adoption of ASC 842

 

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

 

We adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had a minor impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases. The accounting for finance leases (capital leases) was substantially unchanged. Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $2,491 to operating lease right-of-use asset and the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date of January 1, 2019. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. As of December 31, 2018 and June 30, 2019 we had no finance leases.

 

9

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

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.

 

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2018 and June 30, 2019 we had no finance leases.

 

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The 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.

 

10

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

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.

 

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.

 

11

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(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.

 

   June 30, 
   2019   2018 
Net operating loss carry-forwards  $939,829   $183,552 
Valuation allowance   (939,829)   (183,552)
Net deferred tax assets  $-   $- 

 

At June 30, 2019, the Company had net operating loss carry forwards of approximately $939,829.

 

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

 

Note 3 – Going Concern:

 

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

 

The Company has earned no revenue from operations in the three-month periods ended June 30, 2019 and 2018, and has an accumulated deficit of $23,048,767 and $11,796,832 respectively. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital or ultimately acquire an entity which the Company hopes will become profitable at some time in the near future. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is seeking additional capital to finance the operations of the Company.

 

Note 4 – Financial Accounting Developments:

 

Recently Issued Accounting Pronouncements

 

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

 

12

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

Note 5 – Subscription Receivable:

 

The Company assumed a promissory note from one of the Initial Investors to Convergent Risk Group, LLC (see Note 9 – Related Parties) in the amount of $100,000, which is payable by the Initial Investor on or before December 31, 2019. The promissory note was issued in payment for a promissory note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory note is paid in full on or before December 31, 2019, the Company’s Convertible Promissory Note will convert and shares will be issued. If the promissory note is not paid in full on or before December 31, 2019, the Company’s Convertible Promissory Note held by this investor will be cancelled, and no shares will be issued.

 

Note 6 – Property and Equipment:

 

   June 30,   December 31, 
Classification  2019   2018 
Hardware & Equipment  $7,014   $7,014 
Software   0    0 
Total cost of property and equipment   7,014    7,014 
Accumulated depreciation   818    117 
Property and equipment, net  $6,196   $6,897 

 

The Company made Property and Equipment acquisitions of $0 during the six months ended June 30, 2019. The Company depreciates computer equipment over a period of five years.

 

Note 7 – Convertible Promissory Notes:

 

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

 

On May 24, 2018, the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $15,000,000 at a conversion price of $1.00 per share (the “Convertible Note Offering”).  The Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date.  In connection with the $1.00 Convertible Note Offering, the Company received funds of $3,469,500 as of June 30, 2019. The Board terminated the Convertible Note Offering in October 2018.

 

In total, the Company has issued convertible promissory notes of principal value $3,969,500, for which the Company has received a total of $3,694,500 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.

 

Note 8 – Capital Stock:

 

On March 1, 2018, the Board authorized the Company to raise up to $500,000 of equity capital at a 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.

 

13

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

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

 

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

 

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

 

In October 2018 the Company converted $725,000 principal amount of Convertible Promissory Notes, plus $16,711 of accrued interest, into 1,510,377 shares of common stock. The Company also issued 130,000 shares of common stock to CNLT, LLC, pursuant to 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.

 

14

 

 

QUANTUM COMPUTING INC.

(Formerly Innovative Beverage Group Holdings, Inc.)

Notes to Financial Statements

June 30, 2019

(Unaudited)

 

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 Initial Investor 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.

 

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”, and together with the Promissory Notes the “Convergent Liabilities”). The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019. The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019. While the conversion of the Convertible Promissory Notes is mandatory at the maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The Company has no obligation to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory Notes will result in dilution of other shareholders once the Initial Investors convert their notes into the Company’s common stock. 

 

REMTC, Inc.

 

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

 

Note 10 – Reclassifications:

 

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

 

Note 11 – Subsequent Events:

 

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

15

 

 

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

 

Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying condensed financial statements and provides additional information on Quantum Computing Inc.’s (“Quantum” or the “Company’) business, current developments, financial condition, cash flows and results of operations.

 

When we say “we,” “us,” “our,” “Company,” or “Quantum,” we mean Quantum Computing Inc.

 

Please see our Annual Form 10-K and Audited Financial Statements filed with SEC.GOV for the fiscal year ended December 31, 2018, for a complete description of our business and accounting practices.

 

Overview

 

At the present time, we are a development stage company with limited operations.  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 is assembling a team of experts in super computing technology and quantum mathematics, which will focus on the design and development of several quantum software applications targeting solutions to non-deterministic polynomial applications. The Company’s development team has initially focused on addressing computational problems in the financial services, defense, heavy manufacturing, and computer security (cyber) market segments.  The Company’s development team includes world class mathematicians, physicists, and software developers. 

 

Critical Accounting Policies

 

Our significant accounting policies are summarized in Note 1 to our audited financial statements for the year ended December 31, 2018. Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.

 

Results of Operations

 

Three Months Ended June 30, 2019 vs. June 30,2018

 

Revenues

 

   For the Three Months Ended
June 30, 2019
   For the Three Months Ended
June 30, 2018
     
(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 June 30, 2019 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 June 30, 2019 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.

 

16

 

 

Gross Margin

 

Gross margin for the three months ended June 30, 2019 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 June 30, 2019 were $1,982,982 as compared with $400,209 for the comparable prior year period, an increase of $1,582,773, or 395%. The increase in operating expenses is due to a $1,487,500 increase in stock based compensation expense, an $85,770 increase in research and development expenses a $34,695 increase in legal and audit fees, and a $119,480 increase in other SG&A expenses compared to the comparable prior year period.

 

Net Income (Loss)

 

Our net loss for the three months ended June 30, 2019 was $2,033,226 as compared with a net loss of $875,209 for the comparable prior year period, an increase of $1,158,017 or 132%. The increase in net loss is primarily due to the $1,487,500 increase in stock based compensation expense, which was offset in part by a decrease of $475,000 in beneficial conversion feature expense that was incurred in connection with the offering of Convertible Promissory Notes in 2018 and the increase in accrued interest expense on the outstanding Convertible Promissory Notes of $54,413 recorded in the current period compared to the comparable prior year period.

 

Six Months Ended June 30, 2019 vs. June 30, 2018

 

Revenues

 

   For the Six Months Ended
June 30, 2019
   For the Six Months Ended
June 30, 2018
     
(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 six months ended June 30, 2019 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 offered services to any customers.

 

Cost of Revenues

 

Cost of revenues for the six months ended June 30, 2019 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 six months ended June 30, 2019 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 six months ended June 30, 2019 were $2,566,121 as compared with $699,058 for the comparable prior year period, an increase of $1,867,063, or 267%. The increase in operating expenses is due to a $1,558,750 increase in stock based compensation expenses, a $218,727 increase in research and development expenses, a $44,843 increase in consulting fees, a $10,615 increase in legal and audit fees compared to the comparable prior year period, and a $175,000 decrease in executive recruiting fees compared to the comparable prior year period.

 

17

 

 

Net Loss

 

Our net loss for the six months ended June 30, 2019 was $2,668,900 as compared with a net loss of $1,924,058 for the comparable prior year period, an increase of $744,842 or 39%. The increase in net loss is primarily due to the increase in operating expenses recorded in the current period compared to the comparable prior year period, as noted above, and the increase in accrued interest expense on the outstanding Convertible Promissory Notes of $102,779 in the current period, which was offset in part by a decrease of $1,225,000 in beneficial conversion feature expense that was incurred in connection with the offering of Convertible Promissory Notes in 2018.

 

Critical Accounting Policies

 

Our significant accounting policies are summarized in Note 1 to our audited financial statements for the years ended December 31, 2018. Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.

 

Liquidity and Capital Resources

 

Since commencing operations as Quantum Computing in February 2018, the Company has raised $75,000 through private placement of equity and $3,969,500 through private placements of Convertible Promissory Notes for a total of $4,044,500 in new investment. The Company has no bank loans or lines of credit, and no long term debt obligations. As of July 31, 2019 the Company had cash and equivalents of $660 Thousand on hand.

 

Off Balance Sheet Arrangements

 

During the six months ended June 30, 2019 or for fiscal 2018, 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.

 

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.

 

18

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Other than as described below, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

On March 13, 2019, Quantum Computing, Inc. (“Quantum”) filed a Complaint against REMTCS, Inc. (“REMTCS”), Richard Malinowski (“Malinowski”) and Thomas Kelly (“Kelly”).  REMTCS promotes itself as an expert in cyber-security.  Malinowski is the Founder and President of REMTCS.  Kelly is the General Manager and Head of Marketing and Communications of REMTCS.  On or about February 15, 2018, Quantum and Malinowski orally agreed that Quantum would employ Malinowski as Quantum’s Chief Technical and Operations Officer.  On the same day, Quantum and Kelly orally agreed that Kelly would provide financial and program management services in support of Malinowski and Quantum.  On or about March 1, 2018, Quantum and Kelly executed a written consulting agreement memorializing their prior oral agreement.  On or about July 23, 2018, Quantum and Malinowski executed a written employment contract memorializing their prior oral agreement.  On or about April 7, 2018, REMTCS – through Malinowski and Kelly – provided Quantum with a Proposal for the construction, manufacture, development and implementation of a cyber security system known as the PASS System.  Quantum accepted this proposal and thereby entered into a contract pertaining to the delivery of a cyber-security system.

 

The Complaint filed by Quantum includes causes of action for breach of contract, promissory estoppel and unjust enrichment pertaining to REMTCS’s failure to deliver a functioning cyber-security system and related failure to abide the terms of a settlement reached between Quantum and REMTCS.  The Complaint additionally includes causes of action of breach of contract and breach of fiduciary duty pertaining to Malinowski’s breach of his employment contract and of his fiduciary obligations as Quantum’s Chief Technical and Operations Officer.  The Complaint finally alleges that Kelly breached the consulting agreement entered into by and between Quantum and Kelly.

 

On May 30, 2019, Quantum filed a motion to enforce the above-referenced settlement agreement.  On or about July 26, 2019, the Court denied the motion, without prejudice, pending additional discovery.

 

The parties have agreed to schedule a settlement conference to include all parties as well as a representative of REMTCS’s insurance carrier.  That conference is yet to be scheduled.

 

Item 1A.  Risk Factors

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2018, filed with the SEC on June 7, 2019.

 

19

 

 

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 June 2019, the Company issued 350,000 unrestricted shares of common stock to CNLT, LLC, (“CNLT”) pursuant to the terms of a North Carolina Court-ordered anti-dilution provision tied to the stock originally acquired by CNLT in 2018.  The shares of stock were issued to CNLT pursuant to an exemption from registration under Section 3(a)(10) of the Securities Act of 1933, as amended.  

 

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

 

        Incorporated by    
Exhibit       Reference   Filed or Furnished
Number   Exhibit Description   Form     Exhibit   Filing Date   Herewith
                     
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.

 

20

 

 

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: August 2, 2019 By: /s/ Robert Liscouski
    Robert Liscouski
    Principal Executive Officer
     
  By: /s/ Christopher Roberts
    Christopher Roberts
    Principal Financial Officer and
Principal Accounting Officer

 

 

21

 

 

EX-31.1 2 f10q0619ex31-1_quantum.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Robert Liscouski, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Quantum Computing Inc.;

 

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

 5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.     

 

         
       
Date: August 2, 2019       By: /s/ Robert Liscouski              
         

Robert Liscouski

Chief Executive Officer

 

EX-31.2 3 f10q0619ex31-2_quantum.htm CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Christopher Roberts, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Quantum Computing Inc.;

 

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly for the period in which this quarterly report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

       
Date: August 2, 2019       By: /s/ Christopher Roberts
         

Christopher Roberts

Chief Financial Officer

 

EX-32.1 4 f10q0619ex32-1_quantum.htm CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

EXHIBIT 32.1

 

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Quarterly Report of Quantum Computing Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2019, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Robert Liscouski, Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) Such Quarterly Report on Form 10-Q for the period ended June 30, 2019, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in such Quarterly Report on Form 10-Q for the period ended June 30, 2019, fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

 

Date: August 2, 2019 By: /s/ Robert Liscouski  
    Robert Liscouski  
   

Chief Executive Officer

 

 

 

 

 

EX-32.2 5 f10q0619ex32-2_quantum.htm CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Quarterly Report of Quantum Computing Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2019, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Christopher Roberts, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) Such Quarterly Report on Form 10-Q for the period ended June 30, 2019, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in such Quarterly Report on Form 10-Q for the period ended June 30, 2019, fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: August 2, 2019 By: /s/ Christopher Roberts  
    Christopher Roberts  
   

Chief Financial Officer

 

 

 

 

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Dec. 31, 2018
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Jun. 30, 2018
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Organization and Summary of Significant Accounting Policies
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Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Summary of Significant Accounting Policies

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., was incorporated in the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart's original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. to better reflect its business operations at the time which was beverage distribution and product development. In 2013, Innovative Beverage Group Holdings, Inc. ceased operations. On May 22, 2017, one of Innovative Beverage Group Holdings, Inc.'s. shareholders, a North Carolina resident (the "Plaintiff"), filed suit against the Company alleging "(1) fraud; and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation's shareholders."   The complaint alleged that the officers and directors of Innovative Beverage Group Holdings, Inc. had abandoned it and allowed the Company's assets to be wasted, causing injury to the Company and its shareholders. Plaintiff sought damages of $30,000 for each claim, plus reimbursement of filing costs of $1,000, and the appointment of a Receiver for the Company.  On August 28, 2017, the North Carolina Court, Superior Court Division (the "North Carolina Court"), entered a default judgment for Plaintiff and appointed an exclusive Receiver (the "Receiver") over the Company. On October 4, 2017 the Receiver filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company, ("IBGH North Carolina"). On October 26, 2017, Innovative Beverage Group, Inc. redomiciled to North Carolina.

 

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

 

Business

 

The Company's business focuses on quantum computing software development. The Company intends to develop heterogeneous software that can run on the platforms that are under development by the quantum computer hardware industry. The Company's initial focus will be on the security and financial services sectors. Other potential markets for quantum computing include artificial intelligence ("AI"), machine learning, genetics and pharmaceuticals. The Company intends to be a leading provider of software that can run on multiple quantum platforms.

 

Initially, the Company is focused on two main development efforts. First, we plan to focus on the development of quantitative financial related products such as financial portfolio optimization. The financial services industry has used quantitative financial software applications for several decades with some success. However, those existing products are limited in their performance due to the lack of computing power to solve these classes of optimization problems, which are known as "NP Complete Problems". NP Complete Problems are a class of mathematical problems that can be solved in polynomial increments of time using a non-deterministic method. These NP Complete Problems require complex calculations, which cannot currently be performed in reasonable amounts of time using conventional, binary computer systems, with the exception of simple cases. These problems are intractable because of the inability of bit-based systems to handle complex non-deterministic problems. The recent developments in quantum annealing and other quantum hardware suggests that these problems will soon be solvable using these new technologies. The Company's goal is to develop and implement quantum related algorithms to provide solutions to these NP Complete Problems in the area of financial optimization. Optimization algorithms are ideally suited to run on a class of quantum computers, known as "annealers," that are currently becoming made available in the market by various manufacturers.

 

The Company's secondary market focus will be the field of cybersecurity, specifically encryption and decryption algorithms. Current encryption algorithms, such as DES (widely used in banking transactions), use codes based on the product of two very large prime numbers. To decrypt the message requires finding the factors of a very large number, which can be done with current computers, but takes unacceptably long amounts of time. The factorization process can be performed much more rapidly using algorithms running on a quantum computer. The other aspect of cybersecurity that we will work on is development of encryption algorithms that are either "quantum resistant", i.e. difficult for quantum computer to crack, or "quantum based", i.e., that use principals of quantum physics to create a quantum based code that is difficult for both conventional and quantum computers to break. Information security has a number of components, of which encryption is an important tool. Encryption is vital to e-commerce, banking, cellular communication, and protecting email, websites and online identities because unprotected data can be stolen and misused.

 

Business Strategy

 

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

 

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

 

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

 

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

 

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 June 30, 2019, which was derived from audited financial statements, and the unaudited interim financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2019, and the cash flows and results of operations for the six months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the six months ended June 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 2018 Form 10-K, filed with Securities and Exchange Commission, and it is suggested that these financial statements be read in conjunction therewith.

 

Accounting Changes

 

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

 

Adoption of ASC 842

 

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

 

We adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had a minor impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases. The accounting for finance leases (capital leases) was substantially unchanged. Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $2,491 to operating lease right-of-use asset and the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date of January 1, 2019. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. As of December 31, 2018 and June 30, 2019 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.

 

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2018 and June 30, 2019 we had no finance leases.

 

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The 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.

 

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.

XML 19 R8.htm IDEA: XBRL DOCUMENT v3.19.2
Federal Income Taxes
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Federal Income Taxes

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.

 

   June 30, 
   2019   2018 
Net operating loss carry-forwards  $939,829   $183,552 
Valuation allowance   (939,829)   (183,552)
Net deferred tax assets  $-   $- 

 

At June 30, 2019, the Company had net operating loss carry forwards of approximately $939,829.

 

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

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.19.2
Going Concern
6 Months Ended
Jun. 30, 2019
Going Concern [Abstract]  
Going Concern

Note 3 – Going Concern:

 

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

 

The Company has earned no revenue from operations in the three-month periods ended June 30, 2019 and 2018, and has an accumulated deficit of $23,048,767 and $11,796,832 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.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.19.2
Financial Accounting Developments
6 Months Ended
Jun. 30, 2019
Financial Accounting Developments [Abstract]  
Financial Accounting Developments

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.

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.19.2
Subscription Receivable
6 Months Ended
Jun. 30, 2019
Subscription Receivable [Abstract]  
Subscription Receivable

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, 2019. The promissory note was issued in payment for a promissory note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory note is paid in full on or before December 31, 2019, the Company's Convertible Promissory Note will convert and shares will be issued. If the promissory note is not paid in full on or before December 31, 2019, the Company's Convertible Promissory Note held by this investor will be cancelled, and no shares will be issued.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.19.2
Property and Equipment
6 Months Ended
Jun. 30, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment

Note 6 – Property and Equipment:

 

   June 30,   December 31, 
Classification  2019   2018 
Hardware & Equipment  $7,014   $7,014 
Software   0    0 
Total cost of property and equipment   7,014    7,014 
Accumulated depreciation   818    117 
Property and equipment, net  $6,196   $6,897 

 

The Company made Property and Equipment acquisitions of $0 during the six months ended June 30, 2019. The Company depreciates computer equipment over a period of five years.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Promissory Notes
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Convertible Promissory Notes

Note 7 – Convertible Promissory Notes:

 

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

 

On May 24, 2018, the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $15,000,000 at a conversion price of $1.00 per share (the "Convertible Note Offering").  The Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date.  In connection with the $1.00 Convertible Note Offering, the Company received funds of $3,469,500 as of June 30, 2019. The Board terminated the Convertible Note Offering in October 2018.

 

In total, the Company has issued convertible promissory notes of principal value $3,969,500, for which the Company has received a total of $3,694,500 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.

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.19.2
Capital Stock
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Capital Stock

Note 8 – Capital Stock:

 

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

 

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

 

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

 

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

 

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

 

In October 2018 the Company converted $725,000 principal amount of Convertible Promissory Notes, plus $16,711 of accrued interest, into 1,510,377 shares of common stock. The Company also issued 130,000 shares of common stock to CNLT, LLC, pursuant to 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 Initial Investor 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.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.19.2
Related Party Transactions
6 Months Ended
Jun. 30, 2019
Related Party Transactions [Abstract]  
Related Party Transactions

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”, and together with the Promissory Notes the “Convergent Liabilities”). The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019. The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019. While the conversion of the Convertible Promissory Notes is mandatory at the maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The Company has no obligation to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory Notes will result in dilution of other shareholders once the Initial Investors convert their notes into the Company’s common stock. 

 

REMTC, Inc.

 

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

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.19.2
Reclassifications
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Reclassifications

 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.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.19.2
Subsequent Events
6 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events

Note 11 – Subsequent Events:

 

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

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation

Basis of Presentation:

 

The accompanying Balance Sheet as of June 30, 2019, which was derived from audited financial statements, and the unaudited interim financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2019, and the cash flows and results of operations for the six months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the six months ended June 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 2018 Form 10-K, filed with Securities and Exchange Commission, and it is suggested that these financial statements be read in conjunction therewith.

 

Accounting Changes

 

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

 

Adoption of ASC 842

 

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

 

We adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had a minor impact on our balance sheet. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases. The accounting for finance leases (capital leases) was substantially unchanged. Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $2,491 to operating lease right-of-use asset and the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the effective date of January 1, 2019. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. As of December 31, 2018 and June 30, 2019 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.

 

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2018 and June 30, 2019 we had no finance leases.

 

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The 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.

 

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

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

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

 

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:

 

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

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of impact of the adoption of balance sheet

   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 
XML 31 R20.htm IDEA: XBRL DOCUMENT v3.19.2
Federal Income Taxes (Tables)
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Schedule of differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities

   June 30, 
   2019   2018 
Net operating loss carry-forwards  $939,829   $183,552 
Valuation allowance   (939,829)   (183,552)
Net deferred tax assets  $-   $- 

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.19.2
Property and Equipment (Tables)
6 Months Ended
Jun. 30, 2019
Property, Plant and Equipment [Abstract]  
Schedule of property and equipment

   June 30,   December 31, 
Classification  2019   2018 
Hardware & Equipment  $7,014   $7,014 
Software   0    0 
Total cost of property and equipment   7,014    7,014 
Accumulated depreciation   818    117 
Property and equipment, net  $6,196   $6,897 

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Summary of Significant Accounting Policies (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Total assets $ 822,495 $ 1,797,156
Lease Liability-current
Total Liabilities and equity 822,495 1,797,156
As Reported December 31, 2018 [Member]    
Other Current Assets   1,767,080
Operating Lease right-of-use assets  
Total assets   1,797,156
Other current liabilities   3,314,102
Lease Liability-current  
Long-term Liabilities  
Total Liabilities and equity   1,797,156
Adoption of ASC 842 Increase (Decrease) [Member]    
Operating Lease right-of-use assets $ 2,491  
Total assets   2,491
Lease Liability-current   2,491
Long-term Liabilities  
Total Liabilities and equity   2,491
Revised Balance January 1, 2019 [Member]    
Other Current Assets   1,767,080
Operating Lease right-of-use assets   2,491
Total assets   1,799,647
Other current liabilities   3,314,102
Lease Liability-current   2,491
Long-term Liabilities  
Total Liabilities and equity   $ 1,799,647
XML 34 R23.htm IDEA: XBRL DOCUMENT v3.19.2
Organization and Summary of Significant Accounting Policies (Details Textual) - USD ($)
1 Months Ended 6 Months Ended
Dec. 31, 2018
May 22, 2017
Jan. 22, 2018
Jun. 30, 2019
Organization and Summary of Significant Accounting Policies (Textual)        
Incorporation, Date       Jul. 25, 2001
Plaintiff sought damages   $ 30,000    
Reimbursement of filing costs   $ 1,000    
Maximum [Member]        
Organization and Summary of Significant Accounting Policies (Textual)        
U.S. federal statutory income tax rate 35.00%      
Minimum [Member]        
Organization and Summary of Significant Accounting Policies (Textual)        
U.S. federal statutory income tax rate 21.00%      
Adoption of ASC 842 [Member]        
Organization and Summary of Significant Accounting Policies (Textual)        
Operating Lease right-of-use assets       $ 2,491
Chief Executive Officer [Member]        
Organization and Summary of Significant Accounting Policies (Textual)        
Common stock shares sold     500,000  
Amount of common stock shares sold     $ 155,000  
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.19.2
Federal Income Taxes (Details) - USD ($)
Jun. 30, 2019
Jun. 30, 2018
Income Tax Disclosure [Abstract]    
Net operating loss carry-forwards $ 939,829 $ 183,552
Valuation allowance (939,829) (183,552)
Net deferred tax assets
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.19.2
Federal Income Taxes (Details Textual) - USD ($)
Jun. 30, 2019
Jun. 30, 2018
Federal Income Taxes (Textual)    
Net operating loss carry-forwards $ 939,829 $ 183,552
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.19.2
Going Concern (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Jun. 30, 2018
Going Concern (Textual)      
Accumulated deficit $ (23,048,767) $ (20,379,867) $ 11,796,832
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.19.2
Subscription Receivable (Details)
6 Months Ended
Jun. 30, 2019
USD ($)
$ / shares
Subscription Receivable (Textual)  
Convertible promissory note amount $ 100,000
Convergent Risk Group, LLC [Member]  
Subscription Receivable (Textual)  
Convertible promissory note amount $ 100,000
Conversion price | $ / shares $ 0.10
Convertible promissory note, description If the promissory note is paid in full on or before December 31, 2019, the Company’s Convertible Promissory Note will convert and shares will be issued. If the promissory note is not paid in full on or before December 31, 2019, the Company’s Convertible Promissory Note held by this investor will be cancelled, and no shares will be issued.
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.19.2
Property and Equipment (Details) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Total cost of property and equipment $ 7,014 $ 7,014
Accumulated depreciation 818 117
Property and equipment, net 6,196 6,897
Hardware & Equipment [Member]    
Total cost of property and equipment 7,014 7,014
Software [Member]    
Total cost of property and equipment $ 0 $ 0
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.19.2
Property and Equipment (Details Textual)
6 Months Ended
Jun. 30, 2019
USD ($)
Property and Equipment (Textual)  
Property and equipment acquisitions $ 0
Depreciation of computer equipment 5 years
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.19.2
Convertible Promissory Notes (Details) - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
May 24, 2018
Mar. 31, 2018
Convertible Promissory Notes (Textual)        
Aggregate amount $ 100,000      
Amount received 3,694,500      
Issuance of Convertible Promissory Notes (26,000) $ 950,000    
Principal amount $ 100,000    
Private Placement [Member]        
Convertible Promissory Notes (Textual)        
Conversion price $ 1.00   $ 1.00  
Aggregate amount $ 3,969,500   $ 15,000,000  
Accrue interest     8.00%  
Amount received $ 3,469,500      
Board [Member]        
Convertible Promissory Notes (Textual)        
Conversion price       $ 0.10
Convertible notes, amount       $ 500,000
Cash       $ 225,000
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.19.2
Capital Stock (Details) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Apr. 13, 2018
Nov. 30, 2018
Oct. 31, 2018
Sep. 30, 2018
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Mar. 01, 2018
Capital Stock (Textual)                      
Converted principal amount                   $ 100,000  
Accrued interest                   $ 2,422  
Converted shares of common stock                   1,002,422  
Shares of common stock issued       4,800,000              
Recognized stock based compensation expense       $ 24,200,000 $ 1,487,500   $ 1,558,750    
Stock grants   4,000,000                  
Shares granted, percentage               100.00%      
Common stock, shares authorized         250,000,000     250,000,000   250,000,000  
Common stock per share         $ 0.0001     $ 0.0001   $ 0.0001  
Stock based compensation expense reversed   $ 20,160,000                  
CNLT, LLC [Member]                      
Capital Stock (Textual)                      
Converted principal amount     $ 725,000                
Accrued interest     $ 16,711                
Converted shares of common stock     1,510,377                
Shares of common stock issued     130,000                
Lyons Capital, LLC [Member]                      
Capital Stock (Textual)                      
Shares of common stock issued           25,000          
Board [Member]                      
Capital Stock (Textual)                      
Common stock subscriptions                     $ 75,000
Raise in equity capital                     $ 500,000
Common stock per share                     $ 0.40
Board of directors [Member]                      
Capital Stock (Textual)                      
Increase authorized capital of common stock 260,000,000                    
Common stock, shares authorized 250,000,000                    
Preferred stock, shares authorized 10,000,000                    
Reverse stock split shares, description The Company's board of directors authorized a 1:200 reverse stock split on the shares of the Company's common stock                    
Convertible Promissory Notes [Member]                      
Capital Stock (Textual)                      
Converted principal amount               $ 20,000      
Converted shares of common stock               200,000      
Shares of common stock issued               350,000      
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.19.2
Related Party Transactions (Details) - USD ($)
6 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Related Party Transactions (Textual)    
Convertible promissory note amount $ 100,000  
Convertible promissory notes issued 3,024,500 $ 3,070,500
Chief Executive Officer [Member]    
Related Party Transactions (Textual)    
Convertible promissory notes issued 275,000  
Promissory notes total amount 275,000  
Convergent Risk Group, LLC [Member]    
Related Party Transactions (Textual)    
Convertible promissory note amount $ 100,000  
Conversion price $ 0.10  
Accrue interest 8.00%  
Loan amount $ 275,000  
Promissory notes total amount $ 275,000  
Ownership percentage 100.00%  
Due date Aug. 10, 2020  
REMTCS, Inc. [Member]    
Related Party Transactions (Textual)    
Related party transaction, description 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.  
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