/Quantum Computing Inc. files 10-Q (via Qpute.com)

Quantum Computing Inc. files 10-Q (via Qpute.com)


Quantum Computing Inc. revealed 10-Q form on Aug 02, 2019.

On January 1, 2019, we adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax effects from Accumulated Other Comprehensive Income (‘ASU 2018-02’), which requires the reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects arising from the reduction of the U.S. federal statutory income tax rate from 35% to 21%, effective January 1, 2018. ASU 2018-02 modifies ASC 740, Income Taxes (‘ASC 740), which requires businesses to adjust the value of deferred tax assets and liabilities upon a change in the tax law. ASC 740 specifies that changes in tax assets and liabilities related to the tax rate change must be presented in earnings, even when the corresponding deferred taxes relate to items initially recognized in accumulated other comprehensive income such as pension adjustments, gains or losses on cash flow hedges, foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. The Company had no deferred tax assets or liabilities as of December 31, 2017, accordingly there were no stranded tax effects to reclassify and the adoption of ASU 2018-02 had no impact on the Company’s financial statements.

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

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

To finance the acquisition of the control block of shares in IBGH, an investor group (the ‘Initial Investors’), loaned Convergent Risk Group, LLC (Convergent) $275,000, in exchange for promissory notes from Convergent (the ‘Promissory Notes’) in the total amount of $275,000. Convergent, a Virginia limited liability company, is owned 100% by Mr. Robert Liscouski, who is the CEO and currently the majority shareholder of the Company. To induce Mr. Liscouski to serve as CEO of the Company, the Company assumed the Promissory Notes in the total amount of $275,000 and certain liabilities (the ‘Liabilities’, and together with the Promissory Notes the ‘Convergent Liabilities’). The Convergent Liabilities assumed by the Company were exchanged for Convertible Promissory Notes issued by the Company for $275,000 (the same amount that Convergent had issued them for). The Convertible Promissory Notes accrue interest at eight percent (8%) per annum and are convertible into common stock of the Company at a conversion price of $0.10 per share at any time prior to or at August 10, 2019. The Company also assumed a promissory note from one of the Initial Investors to Convergent in the amount of $100,000, which is payable on or before June 30, 2019. While the conversion of the Convertible Promissory Notes is mandatory at the maturity date, August 10, 2020, the election to convert is at the option of the Initial Investor. The Company has no obligation to repay the Initial Investors in cash. However, the conversion of the Convertible Promissory Notes will result in dilution of other shareholders once the Initial Investors convert their notes into the Company’s common stock.

Revenues for the three months ended June 30, 2019 were $0 as compared with $0 for the comparable prior year period, a change of $0, or 0%. The lack of revenue is due to the fact that the Company has not yet completed the development and testing of any products for sale or sold any products or services to any customers.

Cost of revenues for the three months ended June 30, 2019 was $0 as compared with $0 for the comparable prior year period, a change of $0 or 0%. There was no cost of revenues recorded because the Company has not yet commenced marketing and selling products or services.

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

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

Revenues for the six months ended June 30, 2019 were $0 as compared with $0 for the comparable prior year period, a change of $0, or 0%. The lack of revenue is due to the fact that the Company has not yet completed the development and testing of any products for sale or offered services to any customers.

Cost of revenues for the six months ended June 30, 2019 was $0 as compared with $0 for the comparable prior year period, a change of $0 or 0%. There was no cost of revenues recorded because the Company has not yet commenced marketing and selling products or services.

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

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

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