UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
or
For the transition period from __________ to __________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices)
(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 | ||
The |
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.
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).
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 | ☐ |
☒ | 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. ☐
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As
of August 13, 2021, there were
QUANTUM COMPUTING INC.
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
QUANTUM COMPUTING INC.
Index to the Financial Statements
(Unaudited)
F-1
QUANTUM COMPUTING INC.
Balance Sheets
(Unaudited)
June 30, | December 31 | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Prepaid Expenses | ||||||||
Lease right-of-use | ||||||||
Security Deposits | ||||||||
Fixed Assets (net of depreciation) | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued Expenses | ||||||||
Lease Liability | ||||||||
Derivative Liability | ||||||||
Loans Payable | ||||||||
Convertible promissory notes – related party | ||||||||
Convertible promissory notes | ||||||||
Total liabilities | ||||||||
Stockholders’ equity (deficit) | ||||||||
Common stock, $ |
||||||||
Additional paid-in capital | ||||||||
APIC-Beneficial Conversion Feature in Equity | ||||||||
APIC-Stock Based Compensation | ||||||||
Subscription Receivable | ||||||||
Accumulated deficit | ( |
( |
) | |||||
Total stockholders’ equity (deficit) | ||||||||
Total liabilities and stockholders’ equity (deficit) | $ | $ |
The accompanying notes are an integral part of these Unaudited financial statements.
F-2
QUANTUM COMPUTING INC.
Statement of Operations
(Unaudited)
Six Months Ended | Three Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Total revenue | $ | $ | $ | $ | ||||||||||||
Cost of revenue | ||||||||||||||||
Gross profit | ||||||||||||||||
Salaries | ||||||||||||||||
Consulting | ||||||||||||||||
Research & Development | ||||||||||||||||
Stock Based Compensation | ||||||||||||||||
Selling General & Administrative -Other | ||||||||||||||||
Operating expenses | ||||||||||||||||
Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Interest Income – Money Market | ||||||||||||||||
Interest Expense – Promissory Notes | ( | ) | ( | ) | ||||||||||||
Interest Expense - Beneficial Conversion Feature | ( | ) | ||||||||||||||
Interest Expense – Derivatives & Warrants | ||||||||||||||||
Interest Expense – Financing Costs | ( | ) | ( | ) | ||||||||||||
Misc. Income | ||||||||||||||||
Other income (expense) | ( | ) | ||||||||||||||
Federal income tax expense | ||||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted average shares - basic and diluted | ||||||||||||||||
Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these Unaudited financial statements.
F-3
QUANTUM COMPUTING INC.
Statement of Stockholders’ Deficit
For the Six Months Ended June 30, 2020
(Unaudited)
Common Stock | Additional Paid | Accumulated | ||||||||||||||||||
Shares | Amount | in Capital | Deficit | Total | ||||||||||||||||
BALANCES, December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Issuance of shares for cash | ||||||||||||||||||||
Beneficial Conversion Feature | ||||||||||||||||||||
Subscription Receivable | ||||||||||||||||||||
Derivative Mark to Market | ( | ) | ( | ) | ||||||||||||||||
Stock Options | ||||||||||||||||||||
Stock based compensation | ||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
BALANCES, March 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Issuance of shares for cash | ||||||||||||||||||||
Beneficial Conversion Feature | ||||||||||||||||||||
Subscription Receivable | ||||||||||||||||||||
Derivatives & Warrants | ( | ) | ( | ) | ||||||||||||||||
Stock Options | ||||||||||||||||||||
Stock based compensation | - | |||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
BALANCES, June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these Unaudited financial statements.
F-4
QUANTUM COMPUTING INC.
Statement of Stockholders’ Deficit
For the Six Months Ended June 30, 2021
(Unaudited)
Common Stock | Additional Paid | Accumulated | ||||||||||||||||||
Shares | Amount | in Capital | Deficit | Total | ||||||||||||||||
BALANCES, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Issuance of shares for cash | ||||||||||||||||||||
Issuance of shares for debt conversion | ||||||||||||||||||||
Issuance of shares for services | ||||||||||||||||||||
Beneficial Conversion Feature | ||||||||||||||||||||
Subscription Receivable | ||||||||||||||||||||
Derivatives & Warrants | ||||||||||||||||||||
Stock Options | ||||||||||||||||||||
Stock based compensation | ||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
BALANCES, March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Issuance of shares for cash | ||||||||||||||||||||
Issuance of shares for debt conversion | ||||||||||||||||||||
Issuance of shares for services | ||||||||||||||||||||
Beneficial Conversion Feature | ||||||||||||||||||||
Subscription Receivable | ||||||||||||||||||||
Derivatives & Warrants | ||||||||||||||||||||
Stock Options | ||||||||||||||||||||
Stock based compensation | - | |||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
BALANCES, June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these Unaudited financial statements.
F-5
QUANTUM COMPUTING INC.
Statement of Cash Flows
For the Six Months Ended June 30, 2021 and 2020
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net income (loss) to net cash | ||||||||
Prepaid Expenses | ( | ) | ||||||
Depreciation | ||||||||
Accounts Payable | ||||||||
Accrued Expenses | ||||||||
Derivative Mark to Market | ( | ) | ||||||
Stock Based Compensation | ||||||||
Warrant Expense | ( | ) | ||||||
Beneficial Conversion Feature | ||||||||
CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Fixed Assets – Computer Software and Equipment | ( | ) | ( | ) | ||||
Security Deposits | ( | ) | - | |||||
CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Issuance (repayment/conversion) of Convertible Promissory Notes | - | |||||||
Proceeds from (forgiveness of) loans | ( | ) | ||||||
Subscription Receivable | ||||||||
Proceeds from stock issuance | ||||||||
CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
Net increase (decrease) in cash | ( | ) | ||||||
Cash, beginning of period | ||||||||
Cash, end of period | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURES | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for income taxes | $ | $ | ||||||
NON-CASH INVESTING ACTIVITIES | ||||||||
Subscription receivable created from issuance of note payable | $ | $ | ||||||
NON-CASH FINANCING ACTIVITIES | ||||||||
Common stock issued for compensation |
The accompanying notes are an integral part of these financial statements.
F-6
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Note 1 – Organization and Summary of Significant Accounting Policies:
Organization:
Quantum Computing Inc., formerly known as Innovative Beverage Group Holdings, Inc. a Delaware corporation (the “Company”) was the surviving entity as the result of a merger between Ticketcart, Inc. and Innovative Beverage Group, Inc., both Nevada corporations. Innovative Beverage Group, Inc. was the surviving entity as the result of a merger between Kat-A-Tonic Distributing, Inc., a Texas corporation and United European Holdings, Ltd., a Nevada Corporation. In 2021 the Company established three wholly owned subsidiaries, Qubitech, Inc., Qubittech Federal, Inc. and Qubittech International, Inc., all of which are Delaware corporations. At this time there are no personnel, assets or liabilities associated with any of the subsidiaries.
History
Quantum
Computing Inc. (“QCI” or the “Company”), was incorporated in the State of Nevada on July 25, 2001 as Ticketcart,
Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and
compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative
Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business
operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017, one
of IBGH’s shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1) fraud;
and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.” Mr. Alessi’s
complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted, causing
injury to the Company and its shareholders. Mr. Alessi sought damages of $
On
August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment
for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative
Beverage Group Holdings, Inc. was (i) to issue to the Plaintiff
On
January 22, 2018, while the Company was in receivership, the Company (acting through the court-appointed receiver in her capacity as
CEO and sole Director of the Company) sold
F-7
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Nature of Business
The Company is focused on providing software tools and applications for quantum computers. We believe there is significant business opportunity in the quantum computing industry, and that the quantum computer has the potential to disrupt several global industries. Independent of when quantum computing delivers compelling performance advantage over classical computing, the software tools and applications necessary for accelerating real-world problems must be developed to deliver on quantum computing’s full promise.
Quantum computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum hardware. The pool of people with those skills today is limited and in high demand.
In order to address the steep learning curve and highly particular skillset associated with quantum computing, the Company is developing “quantum ready” software applications and solutions for commercial and government entities looking to leverage the expected future performance of quantum computing. We are focused on being an enabler – creating software that provide the advantages of advanced computing hardware for forward thinking clients.
By reducing the barriers to adoption for commercial and government entities in using quantum computing technologies to solve their most complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed with artificial intelligence. To this end, we are leveraging our collective expertise in finance, computing, mathematics and physics to develop a suite of applications that may enable global industries to utilize quantum computers, quantum annealers and digital simulators to improve their processes, profitability, and security.
F-8
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Strategy
While the majority of the quantum computing market is focused on quantum computing hardware, the Company realized the traditional software development toolkit (“SDK”) approach to creating quantum computing software is poorly suited for non-quantum experts, given the completely new programming paradigm.
This represents a significant barrier to entry for companies looking to leverage novel quantum computing capabilities for their business needs. Utilizing quantum computers for real-world problems requires an abstract blend of a wide range of computing and non-computing expertise, including:
● | Subject Matter Expertise (SME): As with any problem, the first step is for a business expert to rigorously define and describe what information and/or results the business requires. | |
● | Programming Excellence: In the classical computing world, a programmer will take the problem defined by a SME (subject matter expert) and implement it using standardized applications to run on the computer. In quantum computing, programmers are required to explicitly program it for the quantum computer they have access to, requiring a deep understanding of sophisticated areas of expertise as described below. | |
● | Mathematics: The problems that are attractive for being solved using quantum computers require significant mathematical expertise to a) optimize the data and problem for quantum computers, b) create the quantum-specific algorithms and formulas required to solve the problem, c) iterate upon the results in a way that optimizes the performance, cost and quality of result. Mathematics is at the core of the many steps involved in quantum computing for optimizing, compressing and applying algorithms to the data for obtaining truly optimal results. | |
● | Quantum Mechanics: Quantum Computing demands deep knowledge of the principles driving the computing itself. Unlike classical computers which utilize 0 or 1 bits, quantum computers utilize qubits, which leverage concepts of quantum mechanics such as probabilistic computation, superposition, and entanglement. Experts much understand these concepts to create the algorithms necessary to solve problems on a quantum computer. They must know how to “map” problems and their associated data into problems that are optimized in the specific way required for a quantum computer to accept and process the problem. | |
● | Quantum Hardware Knowledge: QPUs (Quantum Processing Units) require that programmers manage the configuration, actions, and overall operations of all the underlying circuits utilized in solving the problem. For example, the programming to configure and access QPUs is low level and extremely complicated. This coding is proprietary to each vendor’s QPU idiosyncratic requirements, not to mention, unique to the specific count and version of QPUs in the system, right now. When the system is expended or a QPU upgraded, all the code has to be rewritten. |
As one would expect given the dramatic differences in quantum computer hardware architectures currently under development, quantum software requires a dramatic shift from classic software. A user would have to literally have to create every single circuit, gate, algorithm, action and process in low level software. Moreover, the collective requirements imposed upon companies looking to utilize quantum computers can require a training period of a year or longer, even for a highly qualified subject matter expert. Consequently, the time, difficult and expense of hiring such a diverse and deeply knowledgeable team to create quantum applications and workflows limits any organization’s ability to move forward quickly with the power of quantum computing.
The Company’s strategic goals are as follows:
1) | Deliver production-ready software that de-risks the shift to quantum computing. |
2) | Empower SMEs and programmers to access the power of quantum computing without the prerequisite quantum expertise. |
3) | Eliminate the vendor lock-in created by the low-level coding required for individual QPUs by allowing users to freely select the best QPU for their specific problem with no low-level coding or programming changes. |
4) | Deliver the best performance results (speed, quality and diversity) at the lowest cost for our users. |
5) | Provide software and the required hardware in the cloud to make it simple and cost effective for organizations to begin leveraging quantum computing. |
F-9
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
The Company’s fiscal year end is December 31.
Basis of Presentation:
The accompanying Balance Sheet as of June 30, 2021, which was derived from audited financial statements, and the unaudited interim financial statements of the Company, has been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2021, and the cash flows and results of operations for the three and six months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results for subsequent periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.
Accounting Changes
Except for the changes discussed below, Quantum has consistently applied the accounting policies to all periods presented in these unaudited financial statements. The Company has evaluated all recently implemented accounting standards and concluded that none currently apply to the Company.
Use of Estimates:
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements for any period necessarily involves the use of estimates and assumption an example being assumptions in valuation of stock options. Actual amounts may differ from these estimates. These financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.
Cash and Cash Equivalents
The Company’s policy is to present bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Operating Leases - ASC 842
On January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires the recognition of the right-of-use assets and relating operating and finance lease liabilities on the balance sheet. As permitted by ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases (“ASC 840”), which did not require the recognition of operating lease liabilities on the balance sheet, and is therefore not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in our results of operations presented in our consolidated income statement and consolidated statement of comprehensive income for each period presented.
F-10
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
We lease substantially all our office space used to conduct our business. For contracts entered into on or after the effective date, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases entered into prior to January 1, 2019 are accounted for under ASC 840 and were not reassessed.
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2020 and June 30, 2021 we had no finance leases.
For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The Company is currently leasing space in three locations, Leesburg, VA, Minneapolis, MN and Vancouver, BC, and we have recognized right-of-use assets and lease liabilities accordingly.
The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured incremental borrowing rate. For our finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term.
Property and Equipment
Property and equipment are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment.
Net Loss Per Share:
Net loss per share is based on the weighted average number of common shares and common shares equivalents outstanding during the period.
F-11
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Note 2 – Federal Income Taxes:
The Company has made no provision for income taxes because there have been no operations to date causing income for financial statements or tax purposes.
The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards Number 109 (“SFAS 109”). “Accounting for Income Taxes”, which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.
June 30, | ||||||||
2021 | 2020 | |||||||
Net operating loss carry-forwards | $ | $ | ||||||
Valuation allowance | ( | ) | ( | ) | ||||
Net deferred tax assets | $ | $ |
At June 30, 2021, the Company had net operating
loss carry forwards of approximately $
The Company experienced a change in control during the 2018, 2019 and 2020 calendar years and therefore no more than an insignificant portion of this net operating allowance will ever be used against future taxable income.
In early 2020, an outbreak of the novel strain of coronavirus (COVID-19) emerged globally. In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, which continues to spread throughout the United States. Subsequently, federal, state and local authorities issued mandates for social distancing and working from home to delay the spread of the coronavirus, resulting in an overall decline in economic activity. The ultimate impact of COVID-19 on the Company is not reasonably estimable at this time. Management is currently evaluating the recent introduction of the COVID-19 virus vaccines and the related government mandates, and their impact on the software industry and has concluded that while it is reasonably possible that the virus and the associated government mandates restricting activity could have a negative effect on the ability of the Company to meet with potential customers and to raise additional capital, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty, and the Company has not recorded any reserves relating to potential COVID-19 financial impacts.
On March 27, 2020, the United States enacted the
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration
(the "SBA") as a response to the economic uncertainty resulting from COVID-19. Congress amended the CARES Act on December 27,
2020. The CARES Act established the Paycheck Protection Program (the “PPP”) to loan money to small businesses to enable them
to continue to meet payroll obligations in the face of business interruptions and loss of revenue due to COVID-19 related restrictions.
The CARES Act also includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense deductions,
immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of
2017, referred to herein as the U.S. Tax Act, for qualified improvement property.
The Company applied for a PPP loan in April 2020.
On May 6, 2020, the Company executed an unsecured promissory note (the “Note”) with BB&T Bank to evidence a loan to the
Company in the amount of $
In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs and employee benefits. The Company applied for forgiveness of the entire PPP loan balance and in June 2021 the SBA informed the Company that the full balance of the PPP loan had been forgiven, along with accrued interest. Upon notification from the SBA that the PPP loan balance had been forgiven, the Company reclassified the loan balance to other income.
Note 3 – Financial Accounting Developments:
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. The Company has evaluated the recently implemented accounting standards and concluded that none currently apply to the Company.
F-12
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Note 4 – Subscription Receivable
In 2018 the Company recorded a subscription
receivable relating to a convertible promissory note from one of the Initial Investors (as defined below) in the amount of $
Note 5 – Property and Equipment
June 30, | December 31, | |||||||
Classification | 2021 | 2020 | ||||||
Hardware & Equipment | $ | $ | ||||||
Software | ||||||||
Total cost of property and equipment | ||||||||
Accumulated depreciation | ||||||||
Property and equipment, net | $ | $ |
The Company made Property and Equipment acquisitions
of $
Note 6 – Convertible Promissory Notes and Loans
In May 2020 the Company raised $
In July 2020 the Company converted $
In December 2020, two of the Company’s Initial
Investors converted the remaining principal balance of their promissory notes, $
F-13
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Auctus Securities Purchase Agreement
In October 2019 the Company entered into a
Securities Purchase Agreement (the “Auctus SPA”), dated October 14, 2019 and effective October 16, 2019 (the
“Issuance Date”), by and between the Company and Auctus Fund, LLC, a Delaware limited liability company
(“Auctus”), pursuant to which Auctus purchased from the Company, for a purchase price of $
The Auctus Note accrues interest at a rate of
ten percent (
The Auctus Note is convertible into shares of
the Company’s Common Stock, subject to the adjustments described therein. The conversion price (the “Conversion Price”)
shall equal the lesser of: (i) $1.50, and (ii) 50% multiplied by the lowest trading price for the Common Stock during the twenty-five
(25) trading day period ending on the latest complete trading day prior to the conversion date (representing a discount rate of 50%).
Under the terms of the Auctus SPA, subject
to certain conditions, upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed
with the U.S. Securities and Exchange Commission (the “Commission”) registering all of the shares of Common Stock
underlying the Auctus Note and the Warrants, Auctus agreed to provide the Company with an additional investment of up to $
In connection with the Auctus SPA, the
Company entered into a Registration Rights Agreement (the “RRA”) pursuant to which it committed (i) use its best efforts
to file with the Commission the Registration Statement within ninety (90) days of the Issuance Date; and (ii) have the Registration
Statement declared effective by the Commission within one hundred fifty (150) days of the Issuance Date. The Company filed a
Registration Statement with the Commission in November 2019 and it was declared effective in December 2019, registering
In January 2020 Auctus exercised its option
to convert $
F-14
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
In February 2020 Auctus exercised its option
to convert $
In February 2020, the Company entered into an
agreement with Auctus to reduce the exercise price of the $
On May 8, 2020 the Company repaid the outstanding
principal balance of the Auctus Note, including accrued interest and prepayment penalty interest, for a total of $
On May 8, 2020, the Company entered into an agreement
with Auctus to reduce the exercise price of the Amended First Warrants from $
Oasis Securities Purchase Agreement
On May 6, 2020 (the “Oasis Issuance
Date”) the Company entered into a Securities Purchase Agreement (the “Oasis SPA”) by and between the Company and
Oasis Capital, LLC, a Puerto Rico limited liability company (“Oasis”), pursuant to which Oasis purchased from the
Company, for a purchase price of $
The Oasis Note accrues interest at a rate of
eight percent (
The Oasis Note is convertible into shares of
the Company’s Common Stock, subject to the adjustments described therein.
The Oasis Warrant is exercisable for a term of five-years from the date of issuance. The Oasis Warrant provides for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock. Until such time as there no longer an outstanding balance on the Oasis Note, if the Company shall, at any time while the Oasis Warrant is outstanding, sell any shares of Common Stock or securities entitling any person or entity to acquire shares of Common Stock at a price per share that is less than the Oasis Warrant Exercise Price (a “Dilutive Issuance”), than the Oasis Warrant Exercise Price shall be reduced to equal the Base Share Price (as defined in the Oasis Warrant) and the number of shares of Common Stock issuable under the Oasis Warrant shall be increased such that the aggregate exercise price payable under the Oasis Warrant, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.
On May 7, 2020, in connection with its entry
into the Oasis SPA, the Company issued
F-15
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Oasis Equity Purchase Agreement
On May 6, 2020 (the “Execution Date”),
the Company entered into an Equity Purchase Agreement (“Equity Purchase Agreement”) and a Registration Rights Agreement (“Registration
Rights Agreement”) with Oasis. Under the terms of the Equity Purchase Agreement, Oasis agreed to purchase from the Company up to
$
Following effectiveness of the Registration Statement,
and subject to certain limitations and conditions set forth in the Equity Purchase Agreement, the Company shall have the discretion
to deliver put notices to Oasis and Oasis will be obligated to purchase shares of the Company’s Common Stock based on
the investment amount specified in each put notice.
On May 7, 2020, in connection with its entry into
the Equity Purchase Agreement and the Registration Rights Agreement, the Company issued
In December 2020, Oasis converted the principal
balance of its promissory note plus accrued interest into
As of December 31, 2020, all of the Warrants held
by Auctus and Oasis have been exercised, resulting in total proceeds to the Company of $
Paycheck Protection Program Loan
On May 6, 2020, the Company executed an
unsecured promissory note (the “PPP Loan”) with BB&T/Truist Bank N.A. to evidence a loan to the Company in the
amount of $
In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan exclusively for qualified expenses under the PPP, including payroll costs, mortgage interest, rent and utility costs. The Company applied for forgiveness of the entire PPP Loan balance, and in June 2021 the SBA informed the Company that the full balance of the PPP Loan had been forgiven, along with accrued interest. Upon notification from the SBA that the PPP Loan balance had been forgiven, the Company reclassified the PPP Loan balance to other income.
Note 7 – Capital Stock:
In January 2021 the Company issued
In January 2021 holders of warrants for
F-16
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
In February 2021 the Company issued
In February 2021 the Company issued options for
In February 2021 an advisor exercised options
to purchase
In February 2021 an investor exercised warrants
for
In April 2021 an investor exercised warrants for
In May 2021 the Company issued
Stock issuance pursuant to settlement agreement
In May 2021, the Company entered into
settlement agreements with two former executives of Innovative Beverage Group Holdings, Inc. (IBGH), Mr. Peter Bianchi and Mr. Jan
Bonner (collectively the “IBGH Executives”), pursuant to which the Company received a release from any and all claims or
potential claims the IBGH Executives might have had against the Company, in exchange for facilitating the replacement of lost stock certificates in IBGH and the removal of any restrictions on transfer of
the shares represented by said certificates.
Note 8 – Related Party Transactions
Convergent Risk Group, LLC
To finance the acquisition of the control block
of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent) $
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.”
F-17
QUANTUM COMPUTING INC.
Notes to Financial Statements
(Unaudited)
Note 9 – Employee Benefits:
The Company offers a health and welfare benefit
plan to current full time employees that provides medical, dental, vision, life and disability benefits.
Note 10 – Subsequent Events:
On July 15, 2021 the Company commenced trading its common stock on the NASDAQ Exchange.
There are no other events of a subsequent nature that in management’s opinion are reportable.
F-18
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.
This section should be read in conjunction with other sections of this Quarterly Report, specifically, Selected Financial Statements and Supplementary Data.
This quarterly report on Form 10-Q and other reports filed Quantum Computing, Inc. (the “Company” “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Overview
At the present time, we are a development stage company. The Company is currently developing “quantum ready” software applications and solutions for companies that want to leverage the promise of quantum computing. Independent of when quantum computing delivers compelling performance advantage over classic computing, the software tools and applications to accelerate real-world problems must be developed to deliver quantum computing’s full promise. We specialize in quantum computer-ready software application, analytics, and tools, with a mission to deliver differentiated performance using non-quantum processors in the near-term.
Quantum computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum hardware. The pool of people with those skills today is limited and in high demand.
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By reducing the barriers to adoption for commercial and government entities to use quantum computing technologies to solve their most complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed with artificial intelligence.
Products and Products in Development
QATALYST
The Company’s primary offering is the Qatalyst platform. Qatalyst enables developers to create and execute quantum-ready applications on classical computers, while being ready to run on quantum computers where those systems achieve performance advantage. Qatalyst performs the complex problem transformations necessary to be executed on a variety of quantum platforms today, and users can call upon the same Qatalyst APIs (Application Programming Interfaces) to achieve optimization performance advantages on conventional computers using our cloud-based solution.
Qatalyst is the only quantum acceleration platform available today, dramatically reducing the time-to-quality results and the associated costs for both classical and quantum computers. Unlike more common toolsets that require deep level quantum expertise to build new quantum problems and workflows, Qatalyst is not a tool kit, but a complete platform. It accelerates performance and results on classic and quantum computers, with no additional quantum programming or quantum computing expertise required. This is why it is unique in its approach to the quantum computing industry. Instead of invoking a team of quantum specialists to transform an optimization problem, a subject matter expert (“SME”) or programmer submits their current problem via a software API to the Qatalyst cloud-based platform. Qatalyst manages the workflow, optimizations, and results, without any further intervention by the user. Qatalyst provides a unique advantage to reduce applications development risks and costs by eliminating the need for scarce high-end quantum programmers.
Qatalyst is integrated with the Amazon Cloud BRAKET API, offering access to multiple Quantum Processing Units (“QPUs”) including DWave, Rigetti, and IonQ. Qatalyst also integrates directly with IBM’s QPUs.
By using Qatalyst, application developers can run their applications on any or all of the available QPUs by merely selecting which QPU they prefer to run on based on the desired performance results of the application. This is an enormous advantage over any other toolkit or platform in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.
Qatalyst also eliminates the need for the low-level hardware programming expertise required by toolkits. This programming is time consuming and must be updated constantly as QPUs evolve and change, resulting in significant development costs. Qatalyst automatically optimizes the same problem submitted by a SME for multiple Quantum and Classical Processors. The SME or programmer selects one, or many, processing resources and the problem will be submitted by Qatalyst. This is an enormous advantage over any tool set in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.
SOLVERS
Built into Qatalyst are several solvers, primarily “QBSolv.” QBSolv addresses time-bound optimization problems where the outcome is driven by a hard time constraint. QBSolv is a highly optimized classical application that has demonstrated significant performance advantages over current solvers in the market today. The QBsolv application expands the range of solution option outcomes for optimization problems, presenting organizations with the capability to make better decisions. Furthermore, because of QBSolv’s performance advantages it is able to uncover new solution options for problems that are currently unattainable with today’s solvers.
It is important to note that our solvers deliver these performance advantages while running on today’s conventional computers and will significantly improve performance as better QPU technology becomes available. To that end, the Company is beginning to seek marketing and distribution partnerships where our current solver technologies can be deployed to enable industry-specific application performance.
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The Company is also working on software products to address community detection to aid researchers in discovering correlations that may not have been imagined. Community detection holds significant promise in pharmaceutical applications such as evaluating client trial outcomes, and in epidemiology to enable detection of common factors among a population.
In addition to commercial markets, the Company is pursuing a number of US government funded opportunities.
The US Government, through the National Quantum Initiative Act of 2018 (Public Law No: 115-368 - 12/21/2018) directed the President to implement a National Quantum Initiative Program to, among other things, establish the goals and priorities for a 10-year plan to accelerate the development of quantum information science and technology applications. (Sec. 103) The National Science and Technology Council shall establish a Subcommittee on Quantum Information Science, including membership from the National Institute of Standards and Technology (NIST) and the National Aeronautics and Space Administration (NASA), to guide program activities. (Sec. 104) The President must establish a National Quantum Initiative Advisory Committee to advise the President and subcommittee on the program and trends and developments in quantum information science and technology. Significant government funding has been allocated for research initiatives including a recent Department of Energy initiative of $625 million over the next five years to establish two to five multidisciplinary Quantum Information Science (QIS) Research Centers in support of the National Quantum Initiative. The Quantum Economic Development Consortium (QED-C), a consortium of stakeholders that aims to enable and grow the U.S. quantum industry. QED-C was established with support from the National Institute of Standards and Technology (NIST) as part of the Federal strategy for advancing quantum information science and as called for by the National Quantum Initiative Act enacted in 2018. Quantum Computing Inc. is one of the founding members of the QED-C.
The Company is pursuing a number of research areas funded by the government that directly relate to its capabilities. To strengthen its technology base, the Company has entered into a Technology Alliance Partnership agreement with Splunk, Inc. (NASDAQ: SPLK). The Company will partner with Splunk to do both fundamental and applied research and develop analytics that exploit conventional large-data cybersecurity stores and data-analytics workflows, combined with quantum-ready graph and constrained-optimization algorithms. These algorithms will initially be developed using the Company’s Qatalyst software platform, which enables quantum-ready algorithms to execute on classical hardware and also to run without modification on QC hardware when ready. Once proofs of concept are completed, The Company and Splunk will develop new analytics with these algorithms in the Splunk data-analytics platform, to evaluate quantum analytics readiness on real-world data. The Splunk platform/toolkits help customers address challenging analytical problems via neural nets or custom algorithms, extensible to Deep Learning frameworks through an open source approach that incorporates existing and custom libraries. The initial efforts of our partnership with Splunk will focus on three key challenges; network security and dynamic logistics and scheduling.
Results of Operations
Results of Operations
Three Months Ended June 30, 2021 vs. June 30, 2020
Revenues
For the Three Months Ended June 30, 2021 | For the Three Months Ended June 30, 2020 | |||||||||||||||||||
(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, 2021 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 sold any products or services to any customers. The Company, having recently commercialized several of its initial products, is currently focusing on sales and marketing of such products and has hired additional employees and retained consultants to engage in sales and marketing efforts.
3
Cost of Revenues
Cost of revenues for the three months ended June 30, 2021 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 sold any products or services.
Gross Margin
Gross margin for the three months ended June 30, 2021 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet sold any products or services.
Operating Expenses
Operating expenses for the three months ended June 30, 2021 were $4,328,701 as compared with $917,556 for the comparable prior year period, an increase of $3,411,145, or 371%. The increase in operating expenses is due in large part to the $2,322,947 increase in stock-based compensation, and a $230,019 increase research and development expenses in the three months ended June 30, 2021 compared with the comparable period in 2020. In addition, changes in the number and composition of staff resulted in a $374,482 increase in salary and benefit expenses, and a $164,302 increase in consulting expenses, primarily related to increased sales and marketing efforts, compared to the comparable prior year period.
Net Income (Loss)
Our net loss for the three months ended June 30, 2021 was $4,108,719 as compared with a net loss of $1,778,599 for the comparable prior year period, an increase of $2,330,120 or 131%. The increase in net loss is primarily due to the increase in operating expenses, noted above, offset in part by a net $868,545 decrease in interest expense largely associated with the mark to market repricing of a convertible promissory note derivative, granting warrants, and repricing existing warrants, and other financing related expenses recorded in the prior year period compared to the current year period. The net loss was partially offset by $218,371 in other income associated with the forgiveness of the SBA PPP Loan, compared with an offset of $7,500 in other income from a local government grant received during the comparable prior year period.
Six Months Ended June 30, 2021 vs. June 30, 2020
Revenues
For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2020 | |||||||||||||||||||
(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, 2021 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 sold any products or services. The Company, having recently commercialized several of its initial products, is currently focusing on sales and marketing of such products and has hired additional employees and retained consultants to engage in sales and marketing efforts.
Cost of Revenues
Cost of revenues for the Six months ended June 30, 2021 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 sold any products or services.
Gross Margin
Gross margin for the Six months ended June 30, 2021 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because the Company has not yet sold any products or services.
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Operating Expenses
Operating expenses for the Six months ended June 30, 2021 were $7,721,830 as compared with $2,655,949 for the comparable prior year period, an increase of $5,065,882 or 191%. The increase in operating expenses is due in large part to the $501,781 increase in research and development expenses and a $3,287,764 increase in stock-based compensation expense in the first half of 2021 compared with the comparable period in 2020. In addition, changes in the number and composition of staff resulted in a $448,127 increase in salary and benefit expenses, and a $400,610 increase in consulting expenses compared to the comparable prior year period, largely related to an increased focus on sales and marketing.
Net Income (Loss)
Our net loss for the Six months ended June 30, 2021 was $7,500,466 as compared with a net loss of $2,476,778 for the comparable prior year period, an increase of $5,023,688 or 203%. The increase in net loss is primarily due to the increase in operating expenses, noted above, offset by $218,371 in other income associated with the forgiveness of the SBA PPP Loan, compared with $432,500 in other income from a legal settlement and a local government grant received in the comparable prior year period. In addition, the net loss in the six months ended June 30, 2020 was increased by $253,356 in interest expense largely associated with the mark to market repricing of a convertible promissory note derivative, replacing one derivative with another, granting warrants, and repricing existing warrants, and other financing related expenses which were not incurred in the current six month period.
Liquidity and Capital Resources
Since commencing operations as Quantum Computing in February 2018, the Company has raised $19,259,904 through private placement of common stock and $5,133,000 through private placements of convertible promissory notes for a total of $24,392,904 in new investment. The Company has no bank lines of credit, and no long-term debt obligations. As of June 30, 2021, the Company had cash and equivalents of $12,625,370 on hand.
The following table summarizes total current assets, liabilities and working capital at June 30, 2021, compared to December 31, 2020:
June 30, 2021 | December 31, 2020 | Increase/ (Decrease) | ||||||||||
Current Assets | $ | 12,865,021 | $ | 15,237,095 | $ | (2,372,074 | ) | |||||
Current Liabilities | $ | 799,554 | $ | 693,207 | $ | 106,346 | ||||||
Working Capital (Deficit) | $ | 12,065,467 | $ | 14,543,888 | $ | (2,478,420 | ) |
At June 30, 2021, we had working capital of $12,065,467 as compared to working capital of $14,543,888 at December 31, 2020, a decrease of $2,478,420. The decrease in working capital is primarily attributable to i the use of cash to pay for operating expenses and capital investments.
Net Cash
Net cash used in operating activities for the six months ended June 30, 2021 and 2020 was $2,675,458 and $2,408,104, respectively. The net loss for the six months ended June 30, 2021 and 2020, was $7,500,466 and $2,476,778, respectively.
Net cash used in investing activities for the six months ended June 30, 2021 and 2020 were $7,152 and $3,258, respectively representing a $3,894 increase in investments for computer equipment and security deposits in 2021 compared with the first six months of 2020.
Net cash provided by financing activities for the six months ended June 30, 2021 was $111,658 and cash flows provided by financing activities in the same period of 2020 was $2,806,863. Cash flows provided in financing activities during the first six-month period in 2021 were primarily attributable to issuance of Common Stock for the exercise of options and the exercise of certain warrants. The cash flow provided by financing activities during the first six months of 2020 were related to the sale of convertible promissory notes, the granting of warrants, the conversion of convertible promissory notes to common stock and the exercise of warrants to purchase common stock.
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Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities. During the first six months of 2021, we have funded our operations through the use of cash on hand, coupled with funds received from the exercise of options and warrants. As of August 13, 2021, we had cash on hand of approximately $11,364,905. We have approximately $8,129 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses which are due monthly.
On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues.
Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. In as much as a major portion of our activities will be the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized below. 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.
We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.
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 are stated at cost or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment.
6
Operating Leases - ASC 842
On January 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires the recognition of the right-of-use assets and relating operating and finance lease liabilities on the balance sheet. As permitted by ASC 842, we elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840, Leases (“ASC 840”), which did not require the recognition of operating lease liabilities on the balance sheet, and is therefore not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in our results of operations presented in our consolidated income statement and consolidated statement of comprehensive income for each period presented.
We lease substantially all our office space used to conduct our business. For contracts entered into on or after the effective date, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. Leases entered into prior to January 1, 2019 are accounted for under ASC 840 and were not reassessed.
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2019 and June 30, 2020 we had no finance leases.
For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The Company is currently leasing space in three locations, Leesburg, VA, Minneapolis, MN and Vancouver, BC, and we have recognized right-of-use assets and lease liabilities accordingly.
The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured incremental borrowing rate. For our finance leases, we use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term.
7
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.
Off Balance Sheet Arrangements
During the six months ended June 30, 2021 and for fiscal 2020, 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. Specifically, the Company does not have sufficient accounting staff to enable proper segregation of duties. The Company plans to hire additional administrative and accounting staff to address this deficiency in the near term.
(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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 18, 2021, other than the following:
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.
Our business could be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments could cause disruption to our operations and sales activities. Our third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions which could adversely affect our business, operations and customer relationships. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop, design, market and sell our products and services in a timely manner or meet required milestones or customer commitments.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In April 2021 an investor exercised warrants for 125,000 shares of the Company’s common stock at $2.00 per share, resulting in proceeds to the Company of $250,000.
In May 2021 the Company issued 200,000 shares of common stock to a consultant as compensation for investor relations services pursuant to an agreement the Company entered into in May 2020.
On July 13, 2021 the Company entered into a three-month agreement with an investor relations firm, pursuant to which the firm will receive monthly payments of $20,000 and a grant of 15,000 shares of the Company’s common stock.
On July 14, 2021 the Company entered into a one year consulting agreement with a business development professional, pursuant to which the Company issued the consultant 86,113 shares of the Company’s common stock. These shares will vest at the rate of 5,000 shares per month over the term of the agreement.
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 Principal 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 Principal 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 Principal Executive Officer pursuant to 18 U.S.C. 1350. | X | ||||||||
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350. | X | ||||||||
101.INS | Inline XBRL Instance Document. | X | ||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | ||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
** | Indicates a management contract or compensatory plan or arrangement. |
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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 16, 2021 | By: | /s/ Robert Liscouski |
Robert Liscouski | ||
Principal Executive Officer | ||
By: | /s/ Christopher Roberts | |
Christopher Roberts | ||
Principal Financial Officer and Principal Accounting Officer |
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