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

QUANTUM COMPUTING INC.

Statement of Operations

(Unaudited)

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

QUANTUM COMPUTING INC.

Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 20202021

(Unaudited)

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

QUANTUM COMPUTING INC.

Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 20212022

(Unaudited)

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

QUANTUM COMPUTING INC.

Statement of Cash Flows

For the Three Months Ended March 31, 20212022 and 20202021

(Unaudited)

 

		Three Months Ended
		March 31,
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(3,391,746	)		$	(698,179	)
Adjustments to reconcile net income (loss) to net cash
Prepaid Expenses			(250,809	)			7,228
Depreciation			2,016				1,581
Accounts Payable			(119,744	)			(10,807	)
Accrued Expenses			26,690				60,950
Derivative Mark to Market			-				(504,708	)
Stock Based Compensation			2,227,162				1,012,350
Warrant Expense			-				(237,124	)
Beneficial Conversion Feature			-				100,000
CASH USED IN OPERATING ACTIVITIES			(1,506,431	)			(268,709	)
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets – Computer Software and Equipment			(4,043	)			(3,258	)
CASH USED IN INVESTING ACTIVITIES			(4,043	)			(3,258	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment/conversion) of Convertible Promissory Notes			-				(60,302	)
Proceeds from loans			-				-
Subscription Receivable			-				-
Proceeds from stock issuance			80,000				430,500
CASH PROVIDED BY FINANCING ACTIVITIES			80,000				370,198
Net increase (decrease) in cash			(1,430,474	)			98,231
Cash, beginning of period			15,196,322				101,100
Cash, end of period		$	13,765,848			$	199,331
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			2,227,162				229,250

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

March 31, 2022

(Unaudited)

Note 1 – Organization and Summary of Significant Accounting Policies:

Organization:

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

History

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

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

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

March 31, 2022

(Unaudited)

Nature of Business

(Unaudited)

Company

The Company is focused on providinga developer of quantum computing software toolsoffering ready-to-run software for complex optimization computations. The Company was founded in 2018 by leaders in supercomputing, mathematics, and applicationsmassively parallel programming to solve the enormous challenge with quantum computing in terms of the high cost and lengthy times required for quantum computers. We believe there is significant business opportunity insoftware development. While much of the quantum computing industry, andmarket focuses on Quantum Processing Unit (QPU) hardware, QCI’s experts realized that the quantum computer hasmarketplace and vendors were limiting access to quantum computers due to the potentialcomplexity of programming them. At the present time, only a very limited number of highly specialized quantum experts are able to disrupt several global industries. Independent of when quantum computing delivers compelling performance advantage over classical computing, theuse software toolsdevelopment toolkits (“SDKs”) to create these critical programs and applications necessary for accelerating real-world problems must be developedapplications. The Company’s software solution, Qatalyst, enables subject matter experts (SMEs) to deliverrun existing software on quantum computing’s full promise.processing units without the need for specialized programming with SDKs.

Significant Accounting Policies:

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.

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

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

The Company’s fiscal year end is December 31.

Basis of Presentation:

The accompanying audited Balance Sheet as of MarchDecember 31, 2021, which was derived from audited financial statements, and the unaudited interim financial statements of the Company hashave 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. Our significant accounting policies are summarized in Note 1 to our audited financial statements for the year ended December 31, 2021. In the opinion of management, the accompanying unaudited, financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2021,2022, and the cash flows and results of operations for the three and three months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the three months ended March 31, 20212022 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.

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 2020 Form 10-K, filed with Securities and Exchange Commission, and itfiscal year end is suggested that these financial statements be read in conjunction therewith.December 31.

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.America (U.S.GAAP”). 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 underCompany maintains its cash, and cash equivalents,in deposit accounts with high quality financial institutions which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

Accounts Receivable and Allowance for Doubtful Accounts

The Company records accounts receivable at their net realizable value. Periodically the Company evaluates its accounts receivable to establish an allowance for doubtful accounts, when deemed necessary, based on the history of past write-offs, collections and current credit conditions. As of March 31, 2022 accounts receivable were considered fully collectible and thus management has not recorded an allowance for doubtful accounts.

Revenue

The Company recognizes revenue in accordance with ASC 606 – Revenue from Contracts with Customers. Revenue from time and materials based contracts is recognized as the direct hours worked during the period times the contractual hourly rate, plus direct materials and other direct costs as appropriate, plus negotiated materials handling burdens, if any. Revenue from units-based contracts is recognized as the number of units delivered or performed during the period times the contractual unit price. Revenue from fixed price contracts is recognized as work is performed with estimated profits recorded on a percentage of completion basis. The Company has no cost-plus type contracts at this time.

Operating Leases - ASC 842

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

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

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for a major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. Substantially all our operating leases are comprised of office space leases and as of December 31, 2020 and September 30, 2021 we had no finance leases.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The Company is currently leasing space in three locations, Leesburg, VA, Minneapolis, MN and Vancouver, BC, and we have recognized right-of-use assets and lease liabilities accordingly.

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

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

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

Property and Equipment

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

Net Loss Per Share:

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

March 31, 2022

(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.

At March 31, 2021,2022, the Company had net operating loss carry forwards of approximately $3,209,535.$5,763,812.

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 FASB Codification ASC 740 requires changes in recognition and measurement for uncertain tax positions. The Company has analyzed its tax positions and concluded that it is not aware of any uncertain tax positions. If this conclusion changes, the novel strain of coronavirus (COVID-19) emerged globally. In March 2020,Company will assess 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-19any such changes on the Company is not reasonably estimable at this time.  Management is currently evaluating the recent introduction of the COVID-19 virus vaccinesits financial position and the related government mandates, and their impact onresults of operations.

Note 3 – Financial Accounting Developments:

Recently Issued Accounting Pronouncements

Except for the software industry andchanges discussed below, Quantum has concluded that while it is reasonably possible thatconsistently applied the virus and the associated government mandates restricting activity could have a negative effect on the ability of the Companyaccounting policies to meet with potential customers and to raise additional capital, the specific impact is not readily determinable as of the date ofall periods presented in these unaudited 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,evaluated all recently implemented accounting standards and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (the "SBA") as a responseconcluded that none currently apply 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 CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of March 31, 2021, the Company expects that the carryback of NOL's will not have an impact on its current tax attributes.

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

The Company elected not to implement the payroll tax deferral program under the CARES Act, but did apply for a PPP loan. On May 6, 2020, the Company executed an unsecured promissory note (the “Note”) with BB&T/Truist Bank N.A. to evidence a loan to the Company in the amount of $218,371 under the Paycheck Protection Program (the “PPP”) established under the CARES Act.

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

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

Note 3 – Financial Accounting Developments:

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASBFinancial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company adopts as of the specified effective date. Unless otherwise discussed, wethe Company does not believe that the impact of recently issued standards that are not yet effective will not have a material impact on ourits 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.

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Note 4 – 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 DecemberMarch 31, 2020. The promissory note was issued in payment for a promissory note from Convergent to the Initial Investor, which has also been assumed by the Company in exchange for a Convertible Promissory Note in the amount of $100,000, convertible to Company common shares at a conversion price of $0.10 per share. If the promissory note was paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note would convert and shares will be issued. If the promissory note was not paid in full on or before December 31, 2020, the Company’s Convertible Promissory Note held by this investor would be cancelled, and no shares would be issued.2022

(Unaudited)

In 2019 the Company engaged the Initial Investor as a consultant to provide advisory services for a one-year period. Upon satisfactory completion of the agreed services in July 2020, the Company deemed the services to be sufficiently valuable that in lieu of cash payment of invoice submitted the Company offset the invoice against the balance of the promissory note, which has been deemed paid in full. The Initial Investor converted the full $100,000 of its Convertible Promissory Note into 1,000,000 shares of common stock as of December 31, 2020.

Note 54 – Property and Equipment

The Company made Property and Equipment acquisitions of $4,043$3,383 during the three months ended March 31, 2021.2022. It is the Company’s policy to capitalize purchases of property and equipment with a cost of $2,500 or more that benefit future periods. The Company depreciates computer equipment over a period of five years and software over a period of three years. Maintenance and repairs are charged to operations when incurred. When property and equipment are sold or otherwise disposed, the asset account and related accumulated depreciation and amortization accounts are relieved, and any gain or loss is included in other income or expense.

Note 5 –Loans

Paycheck Protection Program Loan

Note 6 – Convertible Promissory Notes

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 Loans

In June 2019,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 for several years.  Some of the mandates have been lifted, but the ultimate impact of COVID-19 on the Company refunded $26,000 to a convertible promissory note investor. The accrued interest on that promissory note was written off by agreement with the investor.

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

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

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

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

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

The Auctus Notes and Warrants were not registered under the Securities Act, but qualified for exemption under Section 4(a)(2) and/or Regulation D of the Securities Act. The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, the investor had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since the investor agreed to, and received, the securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has metnot recorded any reserves relating to potential COVID-19 financial impacts.

On March 27, 2020, the requirements to qualify for exemption under Section 4(a)(2) ofUnited States enacted the Securities Act.

In connection with the SPA, the Company entered into a Registration Rights AgreementCoronavirus Aid, Relief, and Economic Security Act (the “RRA”“CARES Act”) 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, administered by the Commission within one hundred fifty (150) days of the Issuance Date. The Company filedU.S. Small Business Administration (the “SBA”) as a Registration Statement with the Commission in November 2019 and it was declared effective in December 2019, registering 1,625,000 shares.

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

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

In February 2020, the Company entered into an agreement with the Auctus Fund LLC to reduce the exercise price of the $2.75 per share Warrants to $1.50 per share. No other changes were maderesponse to the terms ofeconomic uncertainty resulting from COVID-19. Congress amended the Warrants or the Convertible Note held by the Auctus Fund. In February, the Auctus Fund LLC exercised 167,000 warrants at $1.50 per share, resulting in total proceeds to the Company of $250,500.

In February 2020, the Board authorized a private placement of convertible promissory notes in the aggregate amount up to $5,000,000 at a conversion price of $1.50 per share (the “2020 Convertible Note Offering”).  The Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at any time prior to or at the Maturity Date, twelve months from the Issuance Date.  In connection with the 2020 Convertible Note Offering, the Company has received funds of $100,000 as of June 30,CARES Act on December 27, 2020. The Board closedCARES Act established the 2020 Convertible Note Offering to further investment in June 2020.

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

Oasis Securities Purchase Agreement

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

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

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

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

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

Oasis Equity Purchase Agreement

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

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

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

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

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

In December 2020, Oasis converted the principal balance of its promissory note plus accrued interest into 596,869 shares of common stock.

Paycheck Protection Program Loan(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.

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

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

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

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

In April 2020 the Company applied to the US Small Business Administration (the “SBA”) for a loan under the Economic Injury Disaster Loan (EIDL) program. In May2021 the SBA informed the Company that the EIDL loan applicationfull balance of the PPP Loan had been declined, butforgiven, along with accrued interest. Upon notification from the SBA that the SBA would provide a $10,000 forgivable advance underPPP Loan balance had been forgiven, the EIDL program.Company reclassified the PPP Loan balance to other income.

In May 2020 the Company raised $30,000 from three stockholders in the form of short term, non-interest bearing, promissory notes, each in the amount of $10,000. The promissory notes were repaid by the Company prior

QUANTUM COMPUTING INC.

Notes to the DecemberFinancial Statements

March 31, 2020 maturity date.2022

(Unaudited)

Note Purchase Agreement Loan

As of December 31, 2020, all of the Warrants held by Auctus and Oasis have been exercised, resulting in total proceeds to the Company of $1,458,500.

In December 2020, two of the Company’s Initial Investors converted the remaining principal balance of their promissory notes, $159,000, into 1,590,000 shares of the Company’s common stock at $0.10 per share. In addition, one of the investors in the 2018 Convertible Note Offering converted the principal balance of his note plus accrued interest into 893,000 shares of the Company’s common stock.

Note 7 – Capital Stock:

In June 2020,On February 18, 2022, the Company entered into twelve month Lock Up – Leak Out agreementsa Note Purchase Agreement (the “Note Purchase Agreement”) with fifty holders of approximately 2 million shares of restricted stock in exchange for 443,273 incentive shares. UnderQPhoton, Inc. (“QPhoton”), pursuant to which the Lock Up-Leak Out agreements the stockholders are precluded from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of their shares until June 11, 2021 and after that date theyCompany agreed to limit daily salespurchase from QPhoton two unsecured promissory notes (each, a “Note”), each in the principal amount of $1,250,000, subject to no more than ten percent (10%)the terms and conditions of the average daily trading volume of the Company’s stock for the previous three trading days. Two additional holders of a total of 50,000 shares also entered into 12-month LockUp-Leak Out agreements, however, due to an administrative oversight, the Company did not issue their incentives shares, totaling 10,000 shares, until September 2020.

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

In June 2020 the Company issued 300,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for servicesNote Purchase Agreement. Also on February 18, 2022, pursuant to the terms of an agreementthe Note Purchase Agreement, the Company entered into with Capital Market Access, LLC in May 2020.

On July 24, 2020,purchased the Company entered into Restricted Stock Agreements (the “Restricted Stock Agreements”) with certainfirst Note from QPhoton and loaned the principal amount of its senior managers, including certain directors$1,250,000 to QPhoton and officers, listed inwould automatically be extended by an additional 30 days upon purchase of the table below (each, a “Grantee” and together, the “Grantees”),second Note pursuant to the 2019 Quantum Computing Inc. Equity and Incentive Plan (the “Incentive Plan”). Pursuant to the terms of the Restricted Stock Agreements,Note Purchase Agreement.

The Note Purchase Agreement contains customary representations and warranties by QPhoton and the stock grants are one hundred percent (100%) vestedCompany, as well as a “most favored nations” provision for the benefit of the dateCompany. The Notes issued under the Note Purchase Agreement, including the Note issued on February 18, 2022 April 1, 2022, provide that the indebtedness evidenced by the applicable Note bears simple interest at the rate of grant, but are6% per annum (or 15% per annum during the occurrence of an event of default, as defined in the Notes), and becomes due and payable in full on the earlier of (i) March 1, 2023, subject to extension by one year at the Company’s right to recoupoption of QPhoton, (ii) a change of control (as defined in the Notes) of QPhoton or “clawback” a portion(iii) an event of the shares if the Grantee terminates their employment prior to the second anniversary of the date of grant, in accordance with the following schedule: (i)default.

Note 6 – Capital Stock:

Series A Convertible Preferred Offering

From November 10, 2021 through November 17, 2021, the Company can recoup 100% of the shares until May 31, 2021, and (ii) the Company can recoup 50% of the shares between June 1, 2021 and May 31, 2022. As of June 1, 2022, the Company has no further recoupment rights to the shares. The stock grants are also subject to LockUp agreements for three years from the Grantee’s date of employment. The Lock Up Agreements preclude the Grantees from selling, granting, lending, pledging, offering or in any way, directly or indirectly disposing of the shares in the Restricted Stock Agreements. In the aggregate the Company issued 2,000,000 shares to its senior managers, including the directors and officers listed below. The shares were granted at $3.16 per share.

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

In August 2020 the Board authorizedconducted a private placement of common stock in the aggregate amount upoffering (the “Private Placement”) pursuant to $4,500,000 at a stock price of $1.00 per sharesecurities purchase agreements (the “2020 $1.00 Equity Offering”).  The Company entered into Stock Purchase Agreements (the “SPA”“Purchase Agreements”) with approximately 947 accredited investors (the “Investors”), whereby the Investors purchased from the Company an aggregate of 1,545,459 shares of the Company’s newly created Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and warrants to purchase 1,545,459 shares of the Company’s common stock infor an aggregate amount of 4,237,500 (the “Shares”), for a purchase price of $1.00 per$8,500,000. The Private Placement was completed and closed to further investment on November 17, 2021.

The number of shares of Common Stock issuable upon conversion of any share of Series A Preferred Stock pursuant shall be determined by dividing (x) the Conversion Amount of such share of Series A Preferred Stock by (y) the Conversion Price (the “Per Share Purchase Price”“Conversion Rate”) resulting in gross proceeds. Conversion Amount means, with respect to the companyeach share of $4,237,500.

Under the termsSeries A Preferred Stock, as of the SPA,applicable date of determination, the Investors shall have piggy-back registration rightssum of (1) the Stated Value thereof plus (2) any accrued dividends. “Conversion Price” means, with respect to have the shares issued pursuant to the SPA includedeach share of Series A Preferred Stock, as part of any registrationOptional Conversion Date, Mandatory Conversion Date or other date of securities filed by the Company (other than pursuantdetermination, $5.50, subject to Form S-4, Form S-8, or any equivalent form).adjustment for stock splits, dividends, recapitalizations and similar corporate events.

In connection with the Offering the Company issued an advisor 100,000The Warrants are two-year warrants to purchase shares of the Company’s common stock and warrants to purchase an additional 325,000 shares of the Company’s common stock,Common Stock at an initial exercise price)price of $3.40-$7.00 per share, subject to adjustment, (the “Warrants”).and are exercisable at any time on or after the date that is six (6) months following the issuance date. The Warrants will expire on September 11, 2025. The Board closedprovide for cashless exercise in the 2020 Units Offering to further investment in September, 2020.

In September 2020event the Company issued 20,000underlying shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for servicesare not registered.

In connection with the Purchase Agreement, the Company and the Investors entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to the terms of an agreementwhich the Company entered into with Capital Market Access, LLC in May 2020.

In September 2020agreed to file a registration statement to register the Company issued 50,000 shares of common stock and warrants to purchase an additional 150,000 shares of the Company’s common stock, at an initial exercise priceCommon Stock underlying the Series A Preferred Stock and Warrants within 180 days. Pursuant to the Registration Rights Agreement, the Investors received certain rights, including but not limited to piggyback registration rights, providing that the holder be given notice of $1.00 per share,any proposed registration of securities by the Company, and requiring that the Company register all or any portion of the registrable securities that the holders request to be registered, in each case, subject to adjustment (the “Warrants”), to Bridgewater Capital Corp, a financial and business strategy consulting firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Bridgewater Capital in August 2020. The Warrants will expire on September 11, 2025.

In October 2020 the Board authorized a private placement of common stock in the aggregate amount up to $12,500,000 at a stock price of $2.50 per share (the “2020 $2.50 Equity Offering”).  As of December 31, 2020, the Company has raised approximately $14.4 million in the 2020 $2.50 Equity Offering. The Board closed the 2020 $2.50 Equity Offering to further investment effective December 31, 2020.

In connection with the 2020 $2.50 Equity Offering the Company issued an advisor 367,678 sharesand conditions of the Company’s common stock and warrants to purchase an additional 367,678 shares of the Company’s common stock, at an initial exercise price) of $3.00 per share, subject to adjustment (the “Warrants”).   Warrants will expire on December 23, 2025.Registration Rights Agreement.

In December 2020 the Company issued 10,000 shares of common stock to Capital Market Access, LLC, an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Capital Market Access, LLC in May 2020.

In December 2020 the Company issued 170,000 shares of common stock to Bridgewater Capital Corp, a financial and business strategy consulting firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Bridgewater Capital in October, 2020.

In December 2020 the Company issued 250,000 shares each to its two independent directors as compensation for their services on the Company’s Board of Directors from September 2018 through December 2020.

QUANTUM COMPUTING INC.

Notes to Financial Statements

March 31, 2022

(Unaudited)

In January 2021 the Company issued 10,000 shares of common stock to Axis Partners, Inc., an investor relations firm, as compensation for services pursuant to the terms of an agreement the Company entered into with Axis Partners, Inc. in January 2021.

In January 2021 holders of warrants for 842,678 shares of common stock requested a cashless exercise of their warrants, resulting in the issuance of 616,273 shares of common stock.

In February 2021 the Company issued 5,556 shares of common stock to a consultant as compensation for business development services pursuant to an agreement the Company entered into in January 2021.

In February 2021 the Company issued options for 450,000 shares of common stock, vesting over twelve months, to two investor relations consultants pursuant to agreements the Company entered into in February 2021.

In February 2021 an advisor exercised options to purchase 30,000 shares of the Company’s common stock at $1.00 per share, resulting in proceeds to the Company of $30,000.

In February 2021 an investor exercised warrants for 25,000 shares of the Company’s common stock at $2.00 per share, resulting in proceeds to the Company of $50,000.

Note 7 – Related Party Transactions

There were no related party transactions during the period ended March 31, 2022. 

Note 8 – Related Party Transactions

Convergent Risk Group, LLC

To finance the acquisition of the control block of shares in IBGH, an investor group (the “Initial Investors.”), loaned Convergent Risk Group, LLC (Convergent) $275,000, in exchange for Promissory Notes from Convergent (the “Promissory Notes”) in the total amount of $275,000. Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the “Promissory Notes” in the total amount of $275,000 and certain liabilities (the “Liabilities”). The Liabilities and the Promissory Notes are collectively the “Convergent Liabilities.” The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for).    The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019.    The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019.   All of the Initial Investors have converted their Convertible Promissory Notes to the Company’s common stock as of December 31, 2020. 

REMTC, Inc.

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

QUANTUM COMPUTING INC.

Notes to Financial Statements

(Unaudited)

JLS Ventures

To provide the Company with advertising and marketing services, the Company verbally contracted with JLS Ventures LLC. (“JLS”), an entity wholly owned by Justin Schreiber, a member of the Company’s board of directors, to procure and manage the advertising services. The agreement with JLS was terminated in October 2020 and no further expenses are anticipated under this contract. During the year ending December 31, 2020 the Company paid JLS $140,698 for advertising services.

Note 9 – Employee Benefits:

The Company offers a health and welfare benefit plan to current full time employees that provides medical, dental, vision, life and disability benefits. The Company also offers a 401K retirement savings plan to all full timefull-time employees. There are no unpaid liabilities under the Company’s benefit plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired employees.

Note 9 – Subsequent Events:

On April 1, 2022, pursuant to the terms of the Note Purchase Agreement, the Company purchased the second Note from QPhoton and loaned the principal amount of $1,250,000 to QPhoton.

On April 27, 2022 the Company filed a Resale Form S-3 as required by the Registration Rights Agreement with the Preferred Investors, pursuant to which the Company agreed to file a registration statement to register the shares of the Company’s Common Stock underlying the Series A Preferred Stock and Warrants within 180 days from the Closing of the Preferred investment round.

Note 10 – Subsequent Events:On May 19, 2022, Quantum Computing Inc. (the “Company”), Project Alpha Merger Sub I, Inc., a Delaware corporation (“Merger Sub I”), Project Alpha Merger Sub II, LLC, a Delaware limited liability company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), QPhoton, Inc., a Delaware corporation (“QPhoton”), and Yuping Huang, the principal stockholder of QPhoton (“Mr. Huang”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which the Company agreed to acquire QPhoton through a series of merger transactions (collectively with the other transactions contemplated by the Merger Agreement, the “Transactions”).

In April 2021 an investor exercised warrants for 125,000Pursuant to the Merger Agreement, immediately following the closing of the Transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub I will merge with and into QPhoton, with QPhoton surviving the merger as a wholly-owned subsidiary of the Company, immediately after which the surviving corporation would merge with and into Merger Sub II, with Merger Sub II surviving the merger as a wholly-owned subsidiary of the Company (the “Surviving Company”). The merger consideration to be paid to the stockholders of QPhoton (the “Merger Consideration”) consists of (i) 5,802,206 shares of the Company’s common stock, at $2.00par value $0.0001 per share resulting in proceeds to the Company(“Common Stock”), (ii) 2,377,028 shares of $250,000.

In April 2021 the Company entered into employment agreements with two executive officers, Mr. Robert Liscouski and Mr. Christopher Roberts, listed in the table below (each, a “Officer” and together, the “Officers”). Pursuant to the terms of the Employment Agreements, the Officers were granted options to purchase sharesnew series of the Company’s common stock. The options were granted at $6.40preferred stock, par value $0.0001 per share.share, to be designated Series B convertible preferred stock (“Series B Preferred Stock”), and (iii) warrants to purchase up to 7,028,337 shares of Common Stock (the “Warrants”).

The Company has agreed, following the Closing and QPhoton’s delivery of its required financial statements, to prepare and file with the SEC a proxy statement with respect to a meeting of the stockholders of the Company to be held to seek approval and adoption of (i) the issuance of the shares of Common Stock underlying the Series B Preferred Stock and the Warrants, (ii) the election of three people to the Board of Directors of the Company designated by Mr. Huang (or, if Mr. Huang holds less than a specified number of shares of Common Stock, other key QPhoton stockholders and certain transferees thereof) as contemplated by that certain stockholders agreement to be entered into by the Company, the key QPhoton stockholders and the key Company stockholders and (iii) any other proposals the Company and QPhoton deem necessary or appropriate to effectuate the Transactions (the “Stockholder Approval”).

The Company has agreed to use reasonable best efforts to take all actions necessary to obtain a final non-appealable order from the Court of Chancery of the State of Delaware pursuant to Section 205 of the General Corporation Law of the State of Delaware (the “DGCL”) validating and declaring effective in all material respects certain specified corporate acts previously taken by the Company and its predecessor that may have been the subject of a failure of authorization (as defined in Section 204 of the DGCL) and certain subsequent corporate acts (the “Section 205 Order”).

If the Company does not obtain the Section 205 Order with respect to matters that require validation under Section 205 of the DGCL within 100 days of the signing of the Merger Agreement, QPhoton may elect to terminate the Merger Agreement; provided, that the Company may, in its sole discretion, extend such date for termination by one or more consecutive one month periods by loaning QPhoton, for each month of extension, $500,000 pursuant to a promissory note to be issued under the Note Purchase Agreement entered into on February 18, 2022 (the “Note Purchase Agreement”), between the Company and QPhoton (which Note Purchase Agreement would be amended and restated to provide for the issuance of any such additional promissory note).

QUANTUM COMPUTING INC.

Notes to Financial Statements

March 31, 2022

(Unaudited)

The obligations of the parties to consummate the Transactions are subject to the satisfaction or waiver (where permissible) at or prior to the Closing of a number of conditions, including but not limited to, the following:

The Merger Agreement may be terminated and the Transactions may be abandoned at any time prior to the Closing, for a number of reasons, including but not limited to, the following:

If the Merger Agreement is terminated, it will become void, and there will be no liability or obligation under the Merger Agreement on the part of any party thereto, except as set forth in the Merger Agreement or in the case of termination subsequent to a willful material breach of the Merger Agreement by a party thereto.

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

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

This quarterly report on Form 10-Q and other reports filed Quantum Computing, Inc. (the “Company” “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2021, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

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

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

Overview

Overview

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 computercomputing 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 provideprovides the advantages of advanced computing hardware for forward thinkingforward-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.

The Company’s flagship software solution, Qatalyst, is the industry’s only quantum application accelerator. It ensures that today’s SMEs can continue to create and solve the complex computations demanded by organizations to optimize supply chains, logistics, emergency responses, clinical trials, and more. Qatalyst software masks the complexity of quantum programming via the Q API (Qatalyst Application Programming Interface), a powerful API comprised of six function calls for complex computations. Instead of spending months or years developing new applications and workflows requiring complex and extremely low-level coding, users or applications can submit a problem to Qatalyst after licensing the software, via the Q API. In practice, users have utilized Qatalyst’s simple API and familiar constructs to solve their first complex problem within a week, as compared to the 6-12 months or more associated with writing a single quantum software program using vendor toolkits.

The Company is focused on solving real-world problems with Qatalyst, including supply chain and logistics optimization and crisis management, as well as community detection opportunities such as drug discovery and fraud detection.

The Company is actively partnering with quantum computing leaders in both hardware and software. As an Amazon AWS partner, the Company uses the AWS Braket service to connect to multiple quantum computers, including Rigetti, DWave, and IonQ. The same problem can be submitted to any of these QPUs or classical processing units (CPUs) with no need for API call changes. Users seamlessly can submit the same problem to diverse quantum computers (QPUs) to determine which QPU will provide the best answers to their complex problem.

The Company believes that the development of real-world use cases, not just science projects, is critical to the forward momentum of quantum computing as a practical technology. To that end, the Company has created an internally funded program called QikStart. It will provide access to Qatalyst and cloud-based resources, experts, and funding to explore quantum applications to push the boundaries of quantum computing for delivering practical business results, right now. 

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:

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:

Products and Products in Development

Qatalyst

Qatalyst (formerly Mukai) is our answer to the current state of the quantum computing industry. As the industry’s first publicly available Quantum Application Accelerator, Qatalyst enables developers to create and execute quantum-ready applications on conventional 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 dramatically reduces the time-to-quality results and the associated costs for both conventional 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, an 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. We believe this provides a substantial 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 Conventional Processors. The SME or programmer selects one, or many, processing resources and the problem will beis 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.

The Company’s innovative Qatalyst software masks the complexity of quantum programming via the Q API, a powerful six call API that users can learn in a day. Instead of spending months or years developing new applications and workflows requiring complex and extremely low-level coding, users, workflows or applications can immediately submit a problem to Qatalyst within a day, using the same familiar constructs they use right now, via the Q API. Users have utilized Qatalyst’s simple API and familiar constructs to solve their first complex problem within a week, as compared to the 6-12 months associated with quantum software toolkits.

Qatalyst Features

Today, SMEs can leverage the power of Qatalyst to solve high-value discrete optimization problems present in banking & finance, bio/pharma,insurance underwriting, life sciences (bio/pharma), oil & gas, logistics & supply chain and cybersecurity. Currently, Qatalyst offers the following features:

Results of Operations

Three Months Ended March 31, 20212022 vs. March 31, 20202021

Revenues

Revenues for the three months ended March 31, 20212022 were $31,240 as compared with $0 for the comparable prior year period. There is no revenue comparison for the comparable prior year period because the Company had not yet sold any products or services. Revenue in the current reporting period is derived from professional services provided to multiple commercial customers under multi-month contracts.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2022 was $11,568 as compared with $0 for the comparable prior year period, a change of $0, or 0%. The lack$11,568. There is no cost of revenue is due torevenues comparison for the fact thatcomparable prior year period because the Company hashad not yet sold any products or services to any customers.

Cost of Revenues

services. Cost of revenues for the three months ended March 31, 2021 was $0 as compared with $0 for the comparable prior yearcurrent reporting period a changeconsists primarily of $0 or 0%. There was no cost of revenues recorded because the Company has not yet sold any products or services.salary expense.

Gross Margin

Gross margin for the three months ended March 31, 20212022 was $0$19,672 or 63% as compared with $00% for the comparable prior year period. There wasis no gross margin comparison for the comparable prior year period because the Company hashad not yet sold any products or services.

Operating Expenses

Operating expenses for the three months ended March 31, 20212022 were $3,393,129$6,728,603 as compared with $1,738,392$3,393,129 for the comparable prior year period, an increase of $1,654,676,$3,335,473 or 95%98%. The increase in operating expenses is due in large part to the $964,819$738,458 increase in stock-based compensation, a $280,763legal expense related to investment transaction expenses, $870,716 increase research and development expenses, partially offset by a $31,073 decrease in legal fees in the first three months of 2021 compared with the comparable period in 2020. In addition,salary expense due to changes in the number and composition of staff, resulted in a $80,689$1,102,633 increase in salary and benefit expenses, and a $227,308stock-based compensation related in large part to hiring additional staff, $399,142 increase in consultingresearch and development expenses related primarily related to increased saleshiring additional technical staff, and marketing efforts,$67,411 increase in consultant and professional services expense compared towith the comparable prior year period.

Net Income (Loss)

Our net loss for the three months ended March 31, 20212022 was $3,391,746$7,133,692 as compared with a net loss of $698,179$3,391,746 for the comparable prior year period, an increase of $2,693,568$3,741,946 or 644%110%. The increase in net loss is primarily due to the increase in operating expenses, noted above, plus a $615,188 decreaseas well as $435,625 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. In addition,accrual of dividends and amortization of Original Issue Discount for the Series A Convertible Preferred and Warrants recorded during the three months ended March 31, 2022 compared with interest expense of $0 during the comparable prior year period, the net loss from operations was offset in part by $425,000 in other income from a legal settlement.period.

Liquidity and Capital Resources

Since commencing operations as Quantum Computing in February 2018, the Company has raised $19,259,904$27,759,904 through private placement of equity and $5,133,000 through private placements of Convertible Promissory Notes for a total of $24,392,904$32,892,904 in new investment. The Company has one SBA PPP bank loan in the amount of $218,371 but no bank lines of credit, and no long-term debt obligations.obligations outstanding. As of March 31, 2021,2022, the Company had cash and equivalents of $13,765,848$11,513,369 on hand.

The following table summarizes total current assets, liabilities and working capital at March 31, 2021,2022, compared to December 31, 2020:2021:

At March 31, 2021,2022, we had working capital of $13,457,277$12,212,704 as compared to working capital of $14,543,888$16,139,357 at December 31, 2020,2021, a decrease of $1,086,610.$3,926,653. The decrease in working capital is primarily attributable to in the use of cash to pay for operating expenses and capital investments.investments, including the Note Purchase Agreement with QPhoton.

Net Cash

Net cash used in operating activities for the three months ended March 31, 2022 and 2021 was $4,193,833 and 2020 was $1,506,431, and $268,709, respectively. The net loss for the three months ended March 31, 2022 and 2021, was $7,133,692 and 2020, was $3,391,746, and $698,179, respectively.

Net cash used in investing activities for the twelvethree months ended March 31, 2022 and 2021 were $1243,955 and 2020 were $4,043 and $3,258, respectively representing a $785$4,043. The increase in investments forinvestment in the current period is due primarily toa $1,250,000 investment related to the Note Purchase Agreement with QPhoton, and $3,383 invested in computer equipment in 2021 compared with the first three months of 2020.equipment.

Net cash provided by financing activities for the three months ended March 31, 20212022 was $212,500 compared with $80,000 and cash flows provided induring the same period of 2020 was $370,198.2021. Cash flows provided in financing activities during the first thee-monththree months ended March 31, 2022 were attributable to the amortization of the original issue discount for the Series A Convertible Preferred stock.  The cash flow provided by financing activities during the period inended March 31, 2021 werewas primarily attributable to issuance of common stock for the exercise of options and the exercise of warrants.  The cash flow used in financing activities during the first three months of 2020 were related to the sale of a convertible promissory note, the conversion of convertible promissory notes to common stock and the exercise of warrants to purchase common stock.

Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities. During the first three months of 2021,2022, we have funded our operations primarily through the use of cash on hand, coupled with funds received from the exercise of options and warrants.hand. As of May 7, 2021,April 30, 2022, we had cash on hand of approximately $13,545,102.$8,538,480. We have approximately $6,743$38,384 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 in Note 1 to our audited financial statements for the year ended December 31, 2020. 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

Revenue

The Company recognizes revenue in accordance with generally accepted accounting principles inASC 606 – Revenue from Contracts with Customers. Revenue from time and materials based contracts is recognized as the United Statesdirect hours worked during the period times the contractual hourly rate, plus direct materials and other direct costs as appropriate, plus negotiated materials handling burdens, if any. Revenue from units-based contracts is recognized as the number of America. Becauseunits delivered or performed during the period times the contractual unit price. Revenue from fixed price contracts is recognized as work is performed with estimated profits recorded on a precise determinationpercentage 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.completion basis. The Company has not experienced any losses in such accounts.

Property and Equipment

Property and equipment are statedno cost reimbursement (“cost-plus”) type contracts 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.this time.

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 three months ended March 31, 20212022 and for fiscal 2020,2021, 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 has commenced hiring 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.

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,subsidiaries, 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 continued 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 impactedCOVID-19, which was declared a global health pandemic by the effectsWorld Health Organization in March 2020, has driven the implementation and continuation of significant government-imposed measures to prevent or reduce its spread, including travel restrictions, “shelter in place” orders, and business closures. Although to date, the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects,Company has not been adversely affected by COVID-19, 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 disruptedmeasures taken 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 whichthe governments of countries affected could adversely affect the Company’s business, financial condition, and results of operations.

The U.S. has recently seen decreases in total new COVID-19 infections; however, it is unknown whether such decreases will continue, new strains of the virus will cause numbers to increase, currently projected vaccine efficacy numbers will hold, or new strains of the virus will become dominate in the future, and/or whether jurisdictions in which we operate, will issue new or expanded stay-at-home orders, or how those orders, or others, may affect our business, operations and customer relationships. In addition,operations. Any such actions by jurisdictions in which we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement andoperate that place restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.

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

In January 2021, the Company issued 616,273 shares upon the cashless exercise of warrants issued to two advisory firms. The Company also issued 2,778 shares to a consultant as payment for business development services.None

In February 2021, the Company issued 10,000 shares as compensation to a consultant for investor relations services and 40,000 shares to legal advisors as compensation for services and issued 2,778 shares to a consultant as payment for business development services. In addition, the Company issued 30,000 shares upon exercise of options granted to an advisor. The Company received proceeds of $30,000 upon exercise of the options.

In March 2021, the Company issued 25,000 shares upon exercise of warrants issued to an investor in 2020. The Company received proceeds of $50,000 upon exercise of the warrants. The Company also issued 37,777 shares to two consultants as payment for business development services.

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

On February 9, 2022, the Company and QPhoton entered into a letter agreement (the “Exclusivity Agreement”), pursuant to which QPhoton agreed to negotiate exclusively with the Company regarding a potential sale of QPhoton or its assets (or similar transaction) for an initial period of 14 days, which period was automatically extended by 45 days upon the execution of the Note Purchase Agreement pursuant to the terms of the Note Purchase Agreement. The exclusivity period was automatically extended for an additional thirty days upon the Company’s purchase of the second Note.

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

Item 6. Exhibits