ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following discussion and analysis
of the results of operations and financial condition for the years ended December 31, 2020 and 2019 should be read in conjunction
with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere
in this Annual Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ
materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Forward-Looking
Statements.”
Management’s discussion and analysis
of results of operations and financial condition (“MD&A”) is a supplement to the accompanying condensed financial
statements and provides additional information on Quantum Computing Inc.’s (“Quantum” or the “Company’)
business, current developments, financial condition, cash flows and results of operations.
When we say “we,” “us,”
“our,” “Company,” or “Quantum,” we mean Quantum Computing Inc.
Overview
At the present
time, we are a development stage company with limited operations. The Company plans to enter the market for high performance
computers and software applications, specifically focusing on what are known as “quantum computers”. The Company has
assembled a team of experts in quantum computing software technology and quantum mathematics, which will focus on the design and
development of several quantum software applications targeting solutions to non-deterministic polynomial applications. The Company’s
development team has initially focused on addressing computational problems in the financial services, supply chain and logistics
management; pharmaceutical design, heavy manufacturing, and computer security (cyber) market segments. The Company’s
development team includes mathematicians, physicists, and software developers.
20
Results of
Operations
Twelve Months Ended December
31, 2020 vs. December 31, 2019
Revenues
(In thousands) Amount Mix Amount Mix Change
Revenues for the
Twelve Months ended December 31, 2020 were $0 as compared with $0 for the comparable prior year period, a change of $0, or 0%.
The lack of revenue is due to the fact that quantum computing is a novel idea for most potential customers, so the Company was
focused on building customer awareness rather than pressing for immediate sales. We have developed and released two products and
are now in the process of marketing and commercialization. We expect to generate revenue in 2021.
Cost of Revenues
Cost of revenues
for the Twelve Months ended December 31, 2020 was $0 as compared with $0 for the comparable prior year period, a change of $0 or
0%. There was no cost of revenues recorded because the Company has not yet commenced marketing and selling products or services.
Gross Margin
Gross margin for
the Twelve Months ended December 31, 2020 was $0 as compared with $0 for the comparable prior year period. There was no gross margin
because the Company has not yet commenced marketing and selling products or services.
Operating Expenses
Operating expenses
for the Twelve Months ended December 31, 2020 were $17,343,007 as compared with $2,547,652 for the comparable prior year period,
an increase of $14,795,355 or 581%. The increase in operating expenses is due to a $10,962,226 increase in stock based compensation
expenses, a $1,322,310 increase in consulting expenses, a $648,391 increase in R&D expenses, an increase of $195,062 in legal
fees, an increase of $140,698 in related party marketing expenses, and a $147,533 increase in salaries expense, compared to the
comparable prior year period. In addition, there was an increase of $1,574,197 in other SG&A expenses compared to the comparable
prior year period.
Net Loss
Our net loss for
the Twelve Months ended December 31, 2020 was $24,734,280 as compared with a net loss of $8,381,088 for the comparable prior year
period, an increase of $16,353,193 or 195%. The increase in net loss is primarily due to the increase in operating expenses recorded
in the current period compared to the comparable prior year period, as noted above, and the increase of $5,681,612 in interest
expense, primarily related to financing cost that was incurred in connection with several offerings of the Company’s common
stock, which was offset in part by a $1,961,460 decrease in interest expense relating to derivative mark to market and a $1,100,777
decrease in warrant expense in the current period.
Liquidity and Capital Resources
Since commencing operations as Quantum
Computing in February 2018, the Company has raised $17,226,000 through private placement of equity and $5,158,550 through private
placements of Convertible Promissory Notes for a total of $22,384,550 in new investment. The Company has one bank loan outstanding
under the Small Business Administration’s Paycheck Protection Program (“PPP”) in the amount of $218,371, no lines
of credit, and no long-term debt obligations outstanding. As of March 17, 2021, the Company had cash and equivalents of $14,296,102
on hand.
21
Critical Accounting
Policies
Basis of Presentation:
The accompanying Balance Sheet as of December
31, 2020, which was derived from audited financial statements, and the unaudited interim financial statements of the Company have
been prepared in accordance with U.S. GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation
S-X. In the opinion of management, the accompanying audited, financial statements contain all adjustments necessary to present
fairly the financial position of the Company as of December 31, 2020, and the cash flows and results of operations for the twelve
months then ended. Such adjustments consisted only of normal recurring items. The results of operations for the twelve months ended
December 31 are not necessarily indicative of the results for subsequent periods. The accounting policies followed by the Company
are set forth in Note 1 to the Company’s consolidated financial statements contained herein, and it is suggested that these
financial statements be read in conjunction therewith.
Accounting Changes
Quantum has consistently applied the accounting
policies to all periods presented in these unaudited financial statements.
Use of Estimates:
These financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of
assets and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements
for any period necessarily involves the use of estimates and assumptions, 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. 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 and agreements, 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
Cash and Cash Equivalents
The Company’s policy is to present
bank balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Property and Equipment
Property and equipment are stated at cost
or contributed value. Depreciation of furniture, software and equipment is calculated using the straight-line method over their
estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful
lives or the lease term. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts
and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment.
Net Loss Per Share:
Net loss per share is based on the weighted
average number of common shares and common shares equivalents outstanding during the period.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are not required to provide the information
required by this Item because we are a smaller reporting company.
22
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements are
contained in pages F-1 through F-23 which appear at the end of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 filings are recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer)
and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours
are designed to do, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
As of December 31, 2020, we carried out
an evaluation, under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December
31, 2020 due to limited resources for adequate personnel to prepare and file reports under the Securities Exchange Act of 1934
within the required periods, and material weaknesses in our internal control over financial reporting relating to our accounting
for complex equity transactions as described below under the heading “Report of Management on Internal Control over Financial
Reporting”. Management plans to remediate this weakness by taking the actions described below.
Report of Management on Internal Control
over Financial Reporting
We are responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f)
and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of our principal executive and principal
financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
23
Our internal control system is designed
to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of financial
statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have assessed the effectiveness of our
internal control over financial reporting as of December 31, 2020. In making this assessment, we used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on this assessment, management believes
that, as of December 31, 2020, the Company did not maintain effective internal control over financial reporting because of the
effect of material weaknesses in our internal control over financial reporting discussed below.
Public Company Accounting Oversight Board
Auditing Standard No. 2 defines a material weakness as a significant deficiency, or combination of significant deficiencies, that
results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements
will not be prevented or detected on a timely basis. Based upon this definition, our management concluded that, as of December
31, 2020, a material weakness existed in our internal control over financial reporting related to accounting for complex equity
transactions.
Specifically, we identified material weaknesses
in our internal control over financial reporting related to the following matters:
● Lack of multiple levels of review over the financial reporting process
● Our plan to remediate those material weaknesses is as follows:
Notwithstanding the assessment that our
ICFR was not effective and that there are material weaknesses as identified herein, we believe that our consolidated financial
statements contained in this Annual Report fairly present our financial position, results of operations and cash flows for the
years covered thereby in all material respects.
This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered public accounting firm as we are a smaller
reporting company and are not required to provide the report.
Changes in Internal Control Over Financial
Reporting
There
has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule
13a-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2019 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting, except the implementation of the controls identified
above.
ITEM 9B. OTHER INFORMATION.
None.
24
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
Directors
The following table contains information
with respect to our directors and executive officers. To the best of our knowledge, none of our directors or executive officers
have an arrangement or understanding with any other person pursuant to which he or she was selected as a director or officer. There
are no family relationships between any of our directors or executive officers. Directors serve one year terms. Our executive officers
are appointed by and serve at the pleasure of the Board of Directors.
Name Current Age Position
Bertrand Velge 62 Director
Justin Schreiber 39 Director
Robert Fagenson 72 Director
The following noteworthy experience, qualifications,
attributes and skills for each Board member, led to our conclusion that the person should serve as a director in light of our business
and structure:
Robert Liscouski, President, Chief Executive
Officer and Chairman of the Board
Mr. Liscouski, age 67, is the Chairman
and CEO of Quantum Computing. Mr. Liscouski is CEO and Founder of Convergent Risk Group LLC and a proven security professional,
thought leader and successful entrepreneur with over 35 years of senior level security operational and company leadership experience
in government and public and private companies.
Mr. Liscouski is a recognized Security
Industry leader in assessing, mitigating and managing physical and cyber security risk in private sector enterprises and state
and federal government agencies. Mr. Liscouski has extensive experience in leading innovative start up and turn around companies
as well as building programs for large government organizations and is recognized as a leader in identifying emerging security
technologies. He serves as a “Trusted Advisor” to senior officials within government and private sector, providing
guidance in areas such as physical and cyber security, crisis management, organizational development and strategic planning. Mr.
Liscouski’s career has spanned local law enforcement, senior government and private sector positions from operations to senior
leadership and Boards of Directors. He started his career as an undercover and homicide investigator, and Special Agent with the
Diplomatic Security Service and progressed to senior federal government positions where he served as a senior advisor to the intelligence
community and was appointed by President George W. Bush as the first Assistant Secretary for Infrastructure Protection at the Department
of Homeland Security. He most recently was President of a public company that became a leader in the explosive trace detection
industry culminating in the sale of the technology to L3 Communications. Mr. Liscouski is a frequent contributor to CNBC, CNN,
Fox News, and other business and security media on Homeland Security and Terrorism issues.
25
Christopher Roberts, Chief Financial
Officer and Director
Mr. Roberts, age 67, is the Company’s
Chief Financial Officer. Mr. Roberts has a law degree from the University of Virginia Law School and a B.S, in Electrical Engineering
and an M.B.A., both from the Massachusetts Institute of Technology. His M.B.A. was concentrated in Finance and Management of Technology.
He started his career working for Raytheon Co. (a Fortune 500 company). Thereafter, he practiced law at two large NYC law firms.
Since leaving the private practice of law, Mr. Roberts has worked primarily in financial management roles with a number of government
contractors in the aerospace, defense and Information technology sectors.
Mr. Roberts has more than 37 years’
experience in public and private corporate finance and government contracting, including professional services, software products,
and hardware manufacturing businesses. Mr. Roberts has served as the Chief Financial Officer of both public and private companies
during the course of his career, including Secure Point Technologies, Systems Made Simple, Inc. (now a subsidiary of Leidos), Integral
Systems Inc. (a publicly company traded on NASDAQ under the symbol “ISYS.” now a subsidiary of Kratos), and Pearson
Analytic Solutions (now a subsidiary of General Dynamics). From 2012 to November 2016, he worked first as the CFO, and later as
the President of Systems Made Simple, Inc., a wholly owned subsidiary of Leidos. Mr. Roberts is a co-author of Antitrust for Business,
and has published articles on antitrust and patent law, space policy, information technology, and corporate finance.
Justin Schreiber, Director
Mr. Schreiber, age 39, is the President
and founder of JLS Ventures, a venture capital and capital markets advisory firm that partners with entrepreneurs and emerging
growth companies to build disruptive products and technologies in the technology, healthcare and consumer products verticals. Since
February 2018, Mr. Schreiber has been the President, CEO and a Director of Conversion Labs Inc., a publicly traded direct to consumer
telehealth company. Prior to founding JLS Ventures, Mr. Schreiber ran a consulting business that provided investor relations, advisory
services and capital raising solutions to small publicly traded companies. In addition to his capital markets experience, Mr. Schreiber
previously worked for a global healthcare consulting firm as well as in the foreign currency trading business. He holds a BS in
International Business from Elizabethtown College and a BA in International Management from the ICN École de management
in Nancy, France.
Bertrand Velge, Director
Mr. Velge, age 62, is the Managing Director
of Graftyset, Ltd., a privately held company based in the United Kingdom. Graftyset is a wholesale distributor of wine, beer and
other alcoholic and non-alcoholic beverage, based in Sidcup, Kent (UK). Mr. Velge has served as Managing Director since the company
was incorporated in 2003 under the name of Otterden Vintners, Ltd. Mr. Velge also served as Director for Aliunde Ltd. since 2005.
Mr. Velge has over twenty years of experience in multi-disciplinary venture investing and was managing director and co-founder
of a fund that trades equities in Europe, Asia and the US focusing on IPOs. He speaks English, Flemish and French, and is a graduate
of the Universite Catholique de Louvain.
Robert Fagenson, Director
Mr. Fagenson serves as a member of the
board of directors of National Holdings Corporation (“NHS”) since March 2012. He serves as vice chairman of the board
of directors of NHS since September 2016. Mr. Fagenson previously served as co-chief executive officer of NHS from January 3, 2017
to January 31, 2017, as chief executive officer and chairman of the board of directors of NHS from December 2014 to September 2016,
and as executive vice-chairman of the board of directors of NHS from July 2012 to December 2014. Mr. Fagenson has been a branch
owner at NHS, an operating company of NHS, since 2012, and president of Fagenson & Co., Inc., a family investment company,
since 1982. Mr. Fagenson spent the majority of his career at the New York Stock Exchange (NYSE), where he was managing partner
of one of the exchange’s largest specialist firms. While at the NYSE, Mr. Fagenson served as a governor on the trading floor
and was elected to the NYSE board of directors in 1993, where he served for six years, eventually becoming vice chairman of the
NYSE board of directors from 1998 to 1999 and 2003 to 2004. Mr. Fagenson has served as director of the New York City Police Museum
since 2005, and as director of the Federal Law Enforcement Officers Association Foundation since 2009. He has also served on the
board of directors of Sigma Alpha Mu Foundation since 2011 and on the board of directors of New York Edge since 2015. In addition,
Mr. Fagenson served as the non-executive chairman of Document Security Systems, Inc. from 2012 to 2018 (NYSEMKT: DSS). He is currently
a member of the alumni boards of the Whitman School of Business at Syracuse University.
26
Mr. Fagenson received his B.S. in Transportation
Sciences & Finance from Syracuse University in 1970. The Board believes that Mr. Fagenson’s experience in the securities
industry and knowledge of the Company as its former chief executive officer qualifies him to serve as a member of the board.
Family Relationships.
There are no family relationships between
any of our directors or executive officers.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires
the Company’s executive officers and directors, and persons who own more than 10% of the Company’s common stock, to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Based solely on the Company’s review
of the copies of such Forms and written representations from certain reporting persons, the Company believes that all filings required
to be made by the Company’s Section 16(a) reporting persons during the Company’s fiscal year ended December 31, 2020
were made on a timely basis.
Code of Ethics
The Company currently maintains a Code
of Ethics which applies to all directors, officers, and employees. A copy of our Code of Ethics can be found on our website at
www.quantumcomputinginc.com.
Board Composition and Director Independence
Our board of directors consists of five
members. The directors will serve until our next annual meeting and until their successors are duly elected and qualified. The
Company defines “independent” as that term is defined in Rule 5605(a)(2) of the NASDAQ listing standards.
In making the determination of whether
a member of the board is independent, our board considers, among other things, transactions and relationships between each director
and his immediate family and the Company, including those reported under the caption “Certain Relationships and Related-Party
Transactions”. The purpose of this review is to determine whether any such relationships or transactions are material
and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding
of such relationships and transactions, our board affirmatively determined that Bertrand Velge, Justin Schreiber and Robert Fagenson
are qualified as independent and that they have no material relationship with us that might interfere with his or her exercise
of independent judgment.
Board Committees; Audit Committee Financial
Expert; Stockholder Nominations
Our
board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee.
Each committee has its own charter, which is available on our website at www.quantumcomputing.com. Each of the
board committees has the composition and responsibilities described below.
27
Members will serve on these committees
until their resignation or until otherwise determined by our Board of Directors.
Bertrand Velge, Justin Schreiber and Robert
Fagenson are our independent directors.
The members of each committee are, as follows:
Audit Committee: Bertrand Velge, Justin
Schreiber and Robert Fagenson with Mr. Fagenson serving as the Chairman. Our Board has determined the Mr. Fagenson is currently
qualified as an “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K.
Compensation Committee: Bertrand Velge,
Justin Schreiber and Robert Fagenson. Mr. Schreiber serves as Compensation Committee Chairman.
Nominating and Governance Committee: Bertrand
Velge, Justin Schreiber and Robert Fagenson. Mr. Velge serves as Chairman of the Nominating and Governance Committee.
Audit Committee
The Audit Committee oversees our accounting
and financial reporting processes and oversee the audit of our consolidated financial statements and the effectiveness of our internal
control over financial reporting. The specific functions of this Committee include, but are not limited to:
● overseeing the integrity of our financial statements;
● reviewing and approving all related-party transactions; and
● overseeing compliance with legal and regulatory requirements.
Compensation Committee
Our Compensation Committee assists the
board of directors in the discharge of its responsibilities relating to the compensation of the board of directors and our executive
officers.
The Committee’s compensation-related
responsibilities include, but are not limited to:
28
Nominating and Corporate Governance
Committee
The purpose of the Nominating and Corporate
Governance Committee is to recommend to the board nominees for election as directors and persons to be elected to fill any vacancies
on the board, develop and recommend a set of corporate governance principles and oversee the performance of the board.
The Committee’s responsibilities
include:
The Nominating and Corporate Governance
Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Nominating and Corporate Governance
Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter
within the scope of its duties.
Code of Business Conduct and Ethics
We have adopted a code of business conduct
and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions.
A copy of that code is available on our corporate website at www.quantumcomputing.com. We expect that any amendments
to such code, or any waivers of its requirements, will be disclosed on our website.
29
Disclosure of Commission Position on
Indemnification of Securities Act Liabilities
Our directors and officers are indemnified
as provided by the Delaware corporate law and our bylaws. We have agreed to indemnify each of our directors and certain officers
against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described
above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
We have been advised that in the opinion
of the SEC indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one
of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion
of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification
is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.
Involvement in Certain Legal Proceedings.
Our Chief Executive Officer, Mr. Robert
Liscouski, was President of Implant Sciences Corporation, which filed a petition for bankruptcy on October 11, 2016 in the Delaware
Bankruptcy Court.
With the exception
of the foregoing, to the best of our knowledge, none of our directors or executive officers has, during the past ten years:
30
Except as set forth in our discussion below
in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the Commission.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table
sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December
31, 2020 and 2019.
2020 EXECUTIVE OFFICER COMPENSATION TABLE
Officer (PEO) — — — — — — — —
— — — — — — — —
Employment Agreements and Change-in-Control Provisions
Executive Employment Agreements
Mr. Liscouski Employment Agreement
We entered into an employment agreement
with Robert Liscouski, our Chief Executive Officer, on February 15, 2018 (the “Liscouski Employment Agreement”). The
agreement is for an indefinite term, subject to periodic review by the Board of Directors, stipulates a base salary (the “Base
Salary”) of $360,000 per year. For the fiscal year ending December 31, 2019 and for subsequent fiscal years, the Liscouski
Employment Agreement allows for an annual incentive bonus in the amount up to $150,000 per year, subject to Mr. Liscouski achieving
certain performance based milestones that are established by the Board of Directors. In connection with the Liscouski Employment
Agreement, Mr. Liscouski was issued 100,000 restricted shares of the Company’s common stock in 2018.
As a full-time employee of the Company,
Mr. Liscouski will be eligible to participate in the Company’s benefit programs.
31
Mr. Liscouski’s employment may be
terminated by the Company with or without “Cause”. “Cause” shall mean (i) conviction or entry of nolo contendere
to any felony or a crime involving moral turpitude, fraud or embezzlement of Company property; (ii) dishonesty, gross negligence
or gross misconduct that is materially injurious to the Company or material failure to perform her/his duties under this Agreement
which has not been cured by Mr. Liscouski within 10 days after he shall have received written notice from the Company stating with
reasonable specificity the nature of such failure to perform; and (iii) illegal use or use of drugs, alcohol, or other related
substances that is materially injurious to the Company. If the Company terminates Mr. Liscouski’s employment without “Cause”
the Company will continue payment of Mr. Liscouski’s Base Salary for an additional twelve (12) months from the date Mr. Liscouski
is terminated.
Severance Arrangements
Robert Liscouski is entitled to receive
a severance payment, upon the execution of a release in favor of the Company, if terminated by us without cause. The severance
benefits would include a payment in an amount equal to one year of such executive officer’s annualized base salary compensation
plus accrued paid time off. Additionally, the he would also be entitled to receive medical and dental insurance coverage for one
year following the date of termination.
Mr. Roberts Consulting Agreement
We entered into a consulting agreement
with Christopher Roberts, our Chief Financial Officer, on March 1, 2018 (the “Roberts Agreement”) whereby Mr. Roberts
is to provide the Company with financial and accounting and business strategy services. Mr. Roberts is to be paid $150.00 on an
hourly basis. In connection with the Roberts Agreement, Mr. Roberts was issued 300,000 restricted shares of the Company’s
common stock.
The Roberts Agreement may be terminated
by either party at will, for any reason or no reason, upon fourteen (14) days prior written notice.
Outstanding Equity Awards at Fiscal
Year End
The following table sets forth information
regarding equity awards held by the Named Executive Officers as of December 31, 2020:
Option Awards(1) Stock Awards
Director Compensation
The Company’s directors did
not receive compensation for their services as directors in fiscal year 2020. Beginning in 2021, Directors will receive cash compensation
of $5,000 per quarter for their service.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain
information as of March 17, 2021 concerning the beneficial ownership of common stock for: (i) each director and director nominee,
(ii) each Named Executive Officer in the Summary Compensation Table under “Executive Compensation” above, (iii) all
executive officers and directors as a group, and (iv) each person (including any “group” as that term is used in Section
13(d)(3) of the Exchange Act) known by us to be the beneficial owner of 5% or more of our common stock. The address for each of
the persons below who are beneficial owners of 5% or more of our common stock is our corporate address at 215 Depot Court SE #215,
Leesburg, VA 20175.
Beneficial ownership has been determined
in accordance with the rules of the SEC and is calculated based on 28,667,925 shares of our common stock issued and outstanding
as of March 17, 2021. Shares of common stock subject to options, warrants, preferred stock or other securities convertible into
common stock that are currently exercisable or convertible, or exercisable or convertible within 60 days of March 17, 2021, are
deemed outstanding for computing the percentage of the person holding the option, warrant, preferred stock, or convertible security
but are not deemed outstanding for computing the percentage of any other person.
32
Except as indicated by the footnotes below,
we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and
investment power with respect to all shares of common stock that they beneficially own.
The following table sets forth, as of March
15, 2021, the number of shares of common stock owned of record and beneficially by our executive officers, directors and persons
who hold 5% or more of the outstanding shares of common stock of the Company.
The amounts and percentages of our common
stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities.
Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting
power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which
includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any
stock option, warrant or other right. Under these rules, more than one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise
indicated, each of the shareholders named in the table below, or his or her family members, has sole voting and investment power
with respect to such shares of our common stock. Except as otherwise indicated, the address of each of the shareholders listed
below is: c/o Quantum Computing Inc., 215 Depot Court SE #215, Leesburg, VA 20175.
Applicable percentage ownership is based
on 28,667,925 shares of Common Stock outstanding as of March 15, 2021. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of Common Stock as held by
that person or entity that are currently exercisable or that will become exercisable within 60 days of March 15, 2021.
Named Executive Officers and Directors
Robert Liscouski, Chief Executive Officer and Chairman (1) 1,012,500 3.53
Christopher Roberts, Chief Financial Officer (2) 725,000 2.53
All directors and officers as a group (5 persons) 5,255,388 18.33
5% or greater shareholders
None
* Less than 1%
(1) Includes 1,012,500 shares of common stock.
(2) Includes 725,000 shares of common stock.
(3) Includes 2,167,888 shares of common stock.
(5) Includes options for 100,000 shares of common stock.
33
Changes in Control
We are not aware of any arrangements that
may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.
Equity Compensation Plan Information
On February 19,
2019, the Board of Directors adopted the 2019 Quantum Computing Inc. Equity and Incentive Plan (the “Plan”) which provides
for the issuance of up to 1,500,000 shares of the Company’s common stock, The principal purpose of the Plan is to provide
an incentive to designated employees, certain consultants and advisors who perform services for us and non-employee directors to
contribute to our growth by continuing to align the interests of participants with the interests of our stockholders. The Plan
was approved by a majority of the shareholders in September 2019.
The table below sets forth certain information as of our fiscal
year ended December 31, 2020 regarding the shares of our common stock available for grant or granted under our equity compensation
plan.
Equity compensation not approved by shareholders (1) 888,640 $ 2.28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS; AND DIRECTOR INDEPENDENCE.
The following is a summary of transactions
since January 1, 2018 to which we have been or will be a party in which the amount involved exceeded or will exceed $ (one percent
of the average of our total assets at year-end for our last two completed fiscal years) and in which any of our directors, executive
officers or beneficial holders of more than 5% of any class of our capital stock, or any immediate family member of, or person
sharing a household with, any of these individuals, had or will have a direct or indirect material interest, other than compensation
arrangements that are described under the section captioned “Executive compensation.”
Other than as disclosed below, there have
been no transactions involving the Company since the beginning of the last fiscal year, or any currently proposed transactions,
in which the Company was or is to be a participant and the amount involved exceeds $120,000 or one percent of the average of the
Company’s total assets at year-end for the last two completed fiscal years, and in which any related person had or will have
a direct or indirect material interest.
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 were convertible into common stock of the Company at a conversion price of $0.10 per share. As of December 31,
2020 all of the Convertible Promissory Notes had been converted to common stock.
34
To provide the Company with advertising and marketing services,
the Company contracted with JLS Ventures LLC (“JLS”), an entity wholly owned by Justin Schreiber, a member of the Company’s
board of directors, to procure and manage advertising services. The agreement with JLS is for a period of one year and is terminable
upon thirty days’ notice. During the year ending December 31, 2021, the Company reimbursed JLS $140,698 for costs associated
with advertisement procurement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
BF Borgers CPA PC served as our independent
registered public accountants for the years ended December 31, 2019 and 2020.
Audit Fees
For the Company’s fiscal years ended
December 31, 2020 and 2019, we were billed approximately $43,200 and $57,100, respectively, for professional services rendered
by our independent auditors for the audit and review of our financial statements.
Tax Fees
For the Company’s fiscal years ended
December 31, 2020 and 2019, there were no fees for professional services rendered by our independent auditors for tax compliance,
tax advice, and tax planning.
All Other Fees
For the Company’s fiscal years ended
December 31, 2020 and 2019, we were billed approximately $5,400 and $20,000, respectively, for professional services rendered by
our independent auditors related to the Registration Statement on Form 10-12(g) and amendments thereto filed with the SEC in those
years.
Pre-Approval Policies
All
of the above services and fees were reviewed and approved by the entire Board. No services were performed before or without approval.
35
PART IV
ITEM 15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES.
Exhibit Reference Filed or Furnished
Number Exhibit Description Form Exhibit Filing Date Herewith
4.4 Description of Securities X
21.1 List of Subsidiaries X
101.INS XBRL Instance Document. X
101.SCH XBRL Taxonomy Extension Schema Linkbase Document. X
101.CAL XBRL Taxonomy Calculation Linkbase Document. X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB XBRL Taxonomy Label Linkbase Document. X
101.PRE XBRL Taxonomy Presentation Linkbase Document. X
* Indicates a management contract or compensatory plan or arrangement.
36
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 18, 2021 Quantum Computing Inc.
By: /s/ Robert Liscouski
Robert Liscouski
Chief Executive Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity
and on the dates indicated.
Name Capacity Date
Robert Liscouski (Principal Executive Officer)
/s/ Christopher Roberts Chief Financial Officer March 18, 2021
/s/ Justin Schreiber Directors March 18, 2021
Justin Schreiber
/s/ Bertrand Velge Director March 18, 2021
Bertrand Velge
/s/ Robert Fagenson Director March 18, 2021
Robert Fagenson
37
QUANTUM
COMPUTING INC.
AUDITED
FINANCIAL STATEMENTS
December
31, 2020 and 2019
QUANTUM
COMPUTING INC.
Index
to the Financial Statements
(Audited)