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, 2021 and 2020 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.
Results of Operations
Twelve Months Ended December 31, 2021
vs. December 31, 2020
Revenues
(In thousands) Amount Mix Amount Mix Change
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Revenues for the Twelve
Months ended December 31, 2021 were $0 as compared with $0 for the comparable prior year period, a change of $0, or 0%. In 2021, QCI
continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems. Much progress was
made toward this overarching objective, but the generation of revenue from customers has been slower to develop. The lack of revenue
is due in part to the fact that quantum computing hardware is still emerging and only beginning to scale to levels that are closer to
solving important optimization problems at a commercial scale, and in part due to the fact that quantum computing is a novel idea for
most potential customers. Accordingly, the Company has focused on developing software technology to amplify the performance of existing
quantum hardware, and on customer education and building customer awareness as a precursor to generating sales. We have developed and
released two products and are now in the process of marketing and commercialization. We expect to generate revenue in 2022.
Cost of Revenues
Cost of revenues for
the twelve months ended December 31, 2021 was $0 as compared with $0 for the comparable prior year period, a change of $0 or 0%. There
was no cost of revenues recorded because the Company has not yet commenced generating revenue from sales of products or services.
Gross Margin
Gross margin for the
twelve months ended December 31, 2021 was $0 as compared with $0 for the comparable prior year period. There was no gross margin because
the Company has not yet commenced generating revenue from sales of products or services.
Operating Expenses
Operating expenses for
the twelve months ended December 31, 2021 were $17,130,093 as compared with $17,343,007 for the comparable prior year period, a decrease
of $212,914 or 1.23%. The decrease in operating expenses is due to a decrease in stock-based compensation expense of $1,775,766, a decrease
in consulting expense of $606,511, a decrease in legal expense of $169,889, and a decrease in other SG&A expense of $582,419 compared
to the comparable prior year period. These decreases were offset in part by an increase of $1,846,201 in salary expense and an increase
in R&D expense of $1,046,279, as the Company hired additional staff during the twelve months ended December 31, 2021 and reduced
its use of consultants compared with the prior year period.
Net Loss
Our net loss for the
twelve months ended December 31, 2021 was $27,898,847 as compared with a net loss of $24,734,280 for the comparable prior year period,
an increase of $3,164,567 or 12.8%. The increase in net loss is primarily due to an increase in interest expense of $3,160,703 relating
to the offering of Series A Convertible Preferred and Warrants, coupled with a decrease in other income of $225,749, incurred during
the twelve months ended December 31, 2021 compared with the prior year period.
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Liquidity and Capital Resources
We fund our working capital with cash from investment.
Since commencing operations as Quantum Computing in February 2018, the Company has raised $27,759,904 through private placement of equity
and $5,133,000 through private placements of Convertible Promissory Notes for a total of $32,892,904 in new investment. The Company has
no lines of credit, and no long-term debt obligations outstanding. As of February 28, 2022, the Company had cash and equivalents of $13,229,380
on hand. We believe that our current cash position and other available financing resources, coupled with our ongoing operating activities,
will provide sufficient liquidity to fund our business needs over the next twelve months and beyond. To the extent the sources of capital
described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt,
dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities.
Critical Accounting
Policies
Basis of Presentation:
The accompanying audited Balance Sheet as of
December 31, 2021, and the audited 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, 2021,
and the cash flows and results of operations for the three and twelve months then ended. Such adjustments consisted only of normal recurring
items. The results of operations for the twelve months ended December 31, 2021 are not necessarily indicative of the results for subsequent
periods.
Accounting Changes
Except for the changes discussed below, Quantum
has consistently applied the accounting policies to all periods presented in these unaudited financial statements. The Company has evaluated
all recently implemented accounting standards and concluded that none currently apply to the Company.
Use of Estimates:
These financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of assets
and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements for any
period necessarily involves the use of estimates and assumption an example being assumptions in valuation of stock options. Actual amounts
may differ from these estimates. These financial statements have, in management’s opinion, been properly prepared within reasonable
limits of materiality and within the framework of the accounting policies summarized below.
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Cash and Cash Equivalents
The Company’s policy is to present bank
balances under cash and cash equivalents, which at times, may exceed federally insured limits. The Company has not experienced any losses
in such accounts.
Operating Leases - ASC 842
On January 1, 2019, we adopted FASB Accounting
Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires the recognition of the right-of-use assets and
relating operating and finance lease liabilities on the balance sheet. 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.
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 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, 2021 and 2020 we
had no finance leases.
For all leases at the lease commencement date,
a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the
lease term. The lease liability represents the present value of the lease payments under the lease. The Company is currently leasing
space in three locations, Leesburg, VA, Minneapolis, MN and Vancouver, BC, and we have recognized right-of-use assets and lease liabilities
accordingly.
The right-of-use asset is initially measured
at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly
of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability
is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease, or if that
rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For our real estate
and other operating leases, we use our secured incremental borrowing rate. For our finance leases, we use the rate implicit in the lease
or our secured incremental borrowing rate if the implicit lease rate cannot be determined.
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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.
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.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements are contained
in pages F-1 through [F-20]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.
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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, 2021, 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, 2021 due to limited resources for
adequate personnel to prepare, review and file reports under the Securities Exchange Act of 1934 within the required periods 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:
34
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, 2021 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, 2021, a material weakness
existed in our internal control over financial reporting. 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.
35
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, 2021 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.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS.
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.
Directors and Executive Officers
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
William J. McGann 63 Chief Operating Officer and Chief Technology Officer
Bertrand Velge 63 Director
Robert Fagenson 73 Director
Michael Turmelle 62 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 68, 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.
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Christopher Roberts, Chief Financial Officer
Mr. Roberts, age 68, 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.
William J. McGann, Chief Operating Officer
and Chief Technology Officer
Mr. McGann, age 63, is the Chief Technology Officer
for the Security, Detection and Automation business at Leidos Corporation. Central to his role is the creation of innovative customer
solutions driven by a strong portfolio of physics, chemistry, and software-based products. Mr. McGann has a strong, directed passion for
transforming credible science into practical technology solutions in solving some of the world’s greatest challenges. Prior to joining
Leidos, Mr. McGann held numerous business and technology leadership positions and roles including: (a) Founder of the first explosives
trace detection company, Ion Track Instruments, (b) Chief Technology Officer for GE Security, (c) VP of Engineering for United Technologies
Fire and Security business, (d) CEO and board member of Implant Sciences Corp., and (e) Chief Technology Officer at L3Harris Aviation
Security and Detection business. Mr. McGann holds a Ph.D. in Chemical Physics from the University of Connecticut and undergraduate degrees
in Chemistry and Biology.
38
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.
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.
Michael Turmelle, Director
Mr. Turmelle has served on the board of directors
of Ideal Power Inc. since December 2017. Since January 2018, Mr. Turmelle has served as the Managing Director of Hayward Tyler, which
he joined in February 2015. Hayward Tyler designs, manufactures and services performance-critical electric motors and pumps to meet the
most demanding of applications for the global energy industry, as both an original equipment manufacturer supplier and trusted partner.
Previously, Mr. Turmelle ran his own consulting company working with start-ups and turn-arounds in the areas of renewable energy, medical
and other advanced technologies. Mr. Turmelle has served on numerous Board of Directors including the Board of Directors of Implant Sciences
Corp., an explosive and narcotic trace detection company, where he served as Chairman of the Board from 2015 to 2017. Mr. Turmelle was
Chief Financial Officer and Chief Operating Officer and a member of the Board of Directors of SatCon. Mr. Turmelle was also on the Board
of Directors of Beacon Power, a SatCon spin-off company dealing in flywheel energy storage. Mr. Turmelle has a BA in Economics from Amherst
College and is a graduate of General Electric’s Financial Management Program. Mr. Turmelle brings to our Board years of public company
executive experience as well as extensive experience in finance and operations and in the field of electrical technology.
39
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, 2021 were made
on a timely basis, other than: a Form 3 filed by William J McGann on November 5, 2021, and a Form 3 filed by Robert B Fagenson on November
10, 2021, a Form 4 filed by Justin Schreiber on April 1, 2021, reporting purchases of 250,000 shares of common stock back to January 21,
2021, a Form 4 filed by Robert Liscouski on May 19, 2021, reporting exercise of options to purchase 250,000 shares of common stock back
to April 26, 2021, and a Form 4 filed by Christopher Roberts on May 19, 2021, reporting exercise of options to purchase 400,000 shares
of common stock back to April 26, 2021.
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, Robert Fagenson and Michael Turmelle are qualified as independent and that they
have no material relationship with us that might interfere with his or her exercise of independent judgment.
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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.
Members will serve on these committees until their
resignation or until otherwise determined by our Board of Directors.
Bertrand Velge, Robert Fagenson and Michael Turmelle
are our independent directors.
The members of each committee are, as follows:
Audit Committee: Bertrand Velge, Robert Fagenson
and Michael Turmelle 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, Robert
Fagenson and Michael Turmelle. Mr. Turmelle serves as Compensation Committee Chairman.
Nominating and Governance Committee: Bertrand
Velge, Robert Fagenson and Michael Turmelle. 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;
41
● 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:
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.
42
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.
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.
43
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:
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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, 2021
and 2020.
2021 EXECUTIVE OFFICER COMPENSATION TABLE
Officer (PEO) — — — — — — — —
— — — — — — — —
Officer and Chief Technology Officer (1) — — — — — — — —
Officer — — — — — — — —
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Employment Agreements and Change-in-Control Provisions
Executive Employment Agreements
Mr. Liscouski Employment Agreement
On April 26, 2021, Quantum Computing Inc. (the
“Company”) entered into an amended and restated employment agreement (the “Liscouski Amended and Restated Employment
Agreement”) with Mr. Robert Liscouski, the Company’s Chief Executive Officer. The Liscouski Amended and Restated Employment
Agreement supersedes and replaces Mr. Liscouski’s prior employment agreement with the Company. The Liscouski Amended and Restated
Employment Agreement is for an initial term of three years and it will be automatically renewed for consecutive one-year terms at the
end of the initial term. The Liscouski Amended and Restated Employment Agreement may be terminated with or without cause. Mr. Liscouski
will receive an annual base salary of $400,000.00 and shall be eligible to earn a performance bonus of up to fifty percent (50%) of his
base salary. Mr. Liscouski shall also receive 150,000 stock options per annum to purchase shares of common stock of the Company, beginning
on the first anniversary of the Liscouski Amended and Restated Employment Agreement (the “Liscouski Equity Compensation”).
The Liscouski Equity Compensation will vest over three years from date of its grant with one-third of the Liscouski Equity Compensation
vesting on the date of grant, and the remainder of the Liscouski Equity Compensation vesting in equal monthly installments thereafter.
To induce Mr. Liscouski to enter into the Liscouski Amended and Restated Employment Agreement, Mr. Liscouski received (i) 250,000 stock
options to purchase shares of common stock of the Company (the “Liscouski Inducement Options”); and (ii) 250,000 stock options
to purchase shares of common stock of the Company pursuant the Company’s listing on Nasdaq.
Upon termination of Mr. Liscouski without cause,
or as a result of Mr. Liscouski’s resignation for Good Reason (as such term is defined in the Liscouski Amended and Restated Employment
Agreement) the Company shall pay or provide to Mr. Liscouski severance pay equal to his then current monthly base salary for 12 months
from the date of termination and all stock options granted by the Company and then held by Mr. Liscouski shall be accelerated and become
fully vested and exercisable as of the date of Mr. Liscouski’s termination.
As a full-time employee of the Company, Mr. Liscouski
will be eligible to participate in the Company’s benefit programs.
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Mr. Roberts Employment Agreement
We entered into an employment agreement with Christopher
Roberts, our Chief Financial Officer, on April 26, 2021 (the “Roberts Employment Agreement”) whereby Mr. Roberts
is to provide the Company with financial and accounting and business strategy services. The agreement is for an indefinite term, subject
to periodic review by the Board of Directors, stipulates a base salary of $300,000 per year. For the fiscal year ending December 31,
2021 and for subsequent fiscal years, the Roberts Employment Agreement allows for an annual incentive bonus in the amount up to $150,000
per year, subject to Mr. Roberts achieving certain performance based milestones that are established by the Board of Directors. In
connection with the Roberts Employment Agreement, Mr. Roberts was issued options for 400,000 restricted shares of the Company’s
common stock in 2021.
Upon termination of Mr. Roberts without cause,
or as a result of Mr. Roberts’ resignation for Good Reason (as such term is defined in the Roberts Employment Agreement) the Company
shall pay or provide to Mr. Roberts severance pay equal to his then current monthly base salary for 12 months from the date of termination
and all stock options granted by the Company and then held by Mr. Roberts shall be accelerated and become fully vested and exercisable
as of the date of Mr. Roberts’ termination.
As a full-time employee of the Company, Mr. Roberts
will be eligible to participate in the Company’s benefit programs.
Mr. McGann Employment Agreement
We entered into an employment agreement with William
J. McGann, our Chief Operating Officer and Chief Technology Officer. Mr. McGann’s employment agreement is for an indefinite term
and may be terminated with or without cause.
Pursuant to the McGann Employment Agreement, Mr.
McGann will receive an annual base salary of $400,000. Mr. McGann shall be eligible to earn an annual cash bonus in an amount of up to
thirty seven and one half percent (37.5%) of Base Salary, subject to achieving certain performance milestones that are to be established
and approved by the Board. Pursuant to the McGann Employment Agreement, Mr. McGann was granted a stock option to purchase up to 535,000
shares of the Company’s common stock (the “McGann Stock Options”). The McGann Stock Options shall vest as follows (i)
178,333 options shall vest immediately upon grant (ii) 178,333 options shall vest on the 12-month anniversary of the date of grant (iii),
178,334 options shall vest on the 24-month anniversary of the date of grant. Upon termination of Mr. McGann without cause, the Company
shall pay or provide to Mr. McGann severance pay equal to his then current monthly base salary for twelve (12) months from the date of
termination. As a full-time employee of the Company, Mr. McGann will be eligible to participate in all of the Company’s benefit
programs.
Mr. Morris Employment Agreement
We entered into an employment agreement with David
Morris, our Chief Revenue Officer. Mr. Morris’s employment agreement (the “Morris Employment Agreement”) is for an initial
term of three years and it may be terminated with or without cause.
Pursuant to the Morris Employment Agreement, Mr.
Morris will receive an annual base salary of $415,000.00 and shall be eligible to earn a performance bonus subject to Mr. Morris achieving
the performance milestones set forth in the Morris Employment Agreement. Mr. Morris shall also receive 200,000 stock options to purchase
shares of common stock of the Company (the “Morris Options”), which shall vest as follows: (i) 50,000 options shall vest on
the first anniversary of the Morris Employment Agreement (ii) 50,000 shall vest on the second anniversary of the Morris Employment Agreement
(iii), 100,000 options shall vest on the third anniversary of the Morris Employment Agreement. Upon termination of Mr. Morris within twelve
(12) months after a Change of Control (as such term is defined in the Morris Employment Agreement), the Company shall pay or provide to
Mr. Morris severance pay equal to his then current monthly base salary for 6 months from the date of termination.
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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, 2021:
Option Awards(1) Stock Awards
Director Compensation
The Company’s independent directors received
compensation of $5,000 per quarter for their services as directors in fiscal year 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information
as of March 11, 2022 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.
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Beneficial ownership has been determined in accordance
with the rules of the SEC and is calculated based on 29,156,815 shares of our common stock issued and outstanding as of March 11, 2022.
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 11, 2022, 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.
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 11,
2022, 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 29,156,815
shares of Common Stock outstanding as of March 11, 2022. 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 11, 2022.
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Named Executive Officers and Directors
Robert Liscouski, Chief Executive Officer and Chairman (1) 1,287,500 4.37
Christopher Roberts, Chief Financial Officer (2) 890,000 3.04
David Morris (4) 0 0
Michael Turmelle (7) 0 0
All directors and officers as a group (7 persons) 4,623,721 15.80
5% or greater shareholders (none) 0 0
* Less than 1%
(1) Includes 1,012,500 shares of common stock
and 275,000 vested options to purchase shares of common stock.
(2) Includes 725,000 shares of common stock and
165,000 vested options to purchase shares of common stock
(3) Includes 175,333 vested options to purchase
shares of common stock.
(4) Includes 0 shares of common stock and unvested
options to purchase 200,000 shares of common stock.
(5) Includes 2,167,888 shares of common stock.
(6) Includes 100,000 shares of common stock.
(7) Includes 0 shares of common stock.
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.
On July 22, 2021, the
Board of Directors approved an amendment to the Plan (the “Amended Plan”) to increase the maximum number of shares of the
Company’s common stock available for issuance under the Plan to 3,000,000 shares. The Amended Plan was approved by a majority of
the shareholders in November 2021.
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The table below sets forth certain information
as of our fiscal year ended December 31, 2021 regarding the shares of our common stock available for grant or granted under our equity
compensation plan.
Equity compensation not approved by shareholders (1) 3,696,640 $ 5.40 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS; AND DIRECTOR INDEPENDENCE.
The following is a summary of transactions since
January 1, 2019 to which we have been or will be a party in which the amount involved exceeded or will exceed $162,761 (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