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

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

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

Overview

The Company is focused on providing software tools and applications for quantum computers. We believe there is significant business opportunity in the quantum computing industry, and that the quantum computing has the potential to disrupt several global industries. Independent of when quantum computing delivers compelling performance advantage over classical computing, the software tools and applications necessary for accelerating real-world problems must be developed to deliver on quantum computing's full promise.

Quantum computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum hardware. The pool of people with those skills today is limited and in high demand.

In order to address the steep learning curve and highly particular skillset associated with quantum computing, the Company is developing "quantum ready" software applications and solutions for commercial and government entities looking to leverage the expected future performance of quantum computing. We are focused on being an enabler - creating software that provides the advantages of advanced computing hardware for forward-thinking clients.

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By reducing the barriers to adoption for commercial and government entities in using quantum computing technologies to solve their most complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed with artificial intelligence. To this end, we are leveraging our collective expertise in finance, computing, mathematics and physics to develop a suite of applications that may enable global industries to utilize quantum computers, quantum annealers and digital simulators to improve their processes, profitability, and security.

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

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

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

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

Strategy

While the majority of the quantum computing market is focused on quantum computing hardware, the Company realized the traditional software development toolkit ("SDK") approach to creating quantum computing software is poorly suited for non-quantum experts, given the completely new programming paradigm.

This represents a significant barrier to entry for companies looking to leverage novel quantum computing capabilities for their business needs. Utilizing quantum computers for real-world problems requires an abstract blend of a wide range of computing and non-computing expertise, including:

  ? Subject Matter Expertise (SME): As with any problem, the first step is for a
    business expert to rigorously define and describe what information and/or
    results the business requires.




  ? Programming Excellence: In the classical computing world, a programmer will
    take the problem defined by a SME (subject matter expert) and implement it
    using standardized applications to run on the computer. In quantum computing,
    programmers are required to explicitly program it for the quantum computer
    they have access to, requiring a deep understanding of sophisticated areas of
    expertise as described below.




  ? Mathematics: The problems that are attractive for being solved using quantum
    computers require significant mathematical expertise to a) optimize the data
    and problem for quantum computers, b) create the quantum-specific algorithms
    and formulas required to solve the problem, c) iterate upon the results in a
    way that optimizes the performance, cost and quality of result. Mathematics is
    at the core of the many steps involved in quantum computing for optimizing,
    compressing and applying algorithms to the data for obtaining truly optimal
    results.




  ? Quantum Mechanics: Quantum computing demands deep knowledge of the principles
    driving the computing itself. Unlike classical computers which utilize 0 or 1
    bits, quantum computers utilize qubits, which leverage concepts of quantum
    mechanics such as probabilistic computation, superposition, and entanglement.
    Experts much understand these concepts to create the algorithms necessary to
    solve problems on a quantum computer. They must know how to "map" problems and
    their associated data into problems that are optimized in the specific way
    required for a quantum computer to accept and process the problem.




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  ? Quantum Hardware Knowledge: QPUs (Quantum Processing Units) require that
    programmers manage the configuration, actions, and overall operations of all
    the underlying circuits utilized in solving the problem. For example, the
    programming to configure and access QPUs is low level and extremely
    complicated. This coding is proprietary to each vendor's QPU idiosyncratic
    requirements, not to mention, unique to the specific count and version of QPUs
    in the system, right now. When the system is expended or a QPU upgraded, all
    the code has to be rewritten.

As one would expect given the dramatic differences in quantum computer hardware architectures currently under development, quantum software requires a dramatic shift from classic software. A user would have to literally have to create every single circuit, gate, algorithm, action and process in low level software. Moreover, the collective requirements imposed upon companies looking to utilize quantum computers can require a training period of a year or longer, even for a highly qualified subject matter expert. Consequently, the time, difficult and expense of hiring such a diverse and deeply knowledgeable team to create quantum applications and workflows limits any organization's ability to move forward quickly with the power of quantum computing.

The Company's strategic goals are as follows:

1) Deliver production-ready software that de-risks the shift to quantum

    computing.

2) Empower SMEs and programmers to access the power of quantum computing without

    the prerequisite quantum expertise.

3) Eliminate the vendor lock-in created by the low-level coding required for

    individual QPUs by allowing users to freely select the best QPU for their
    specific problem with no low-level coding or programming changes.

4) Deliver the best performance results (speed, quality and diversity) at the

    lowest cost for our users.

5) Provide software and the required hardware in the cloud to make it simple and

    cost effective for organizations to begin leveraging quantum computing.

Products and Products in Development

Qatalyst

Qatalyst (formerly Mukai) is our answer to the current state of the quantum computing industry. As the industry's first publicly available Quantum Application Accelerator, Qatalyst enables developers to create and execute quantum-ready applications on conventional computers, while being ready to run on quantum computers where those systems achieve performance advantage. Qatalyst performs the complex problem transformations necessary to be executed on a variety of quantum platforms today, and users can call upon the same Qatalyst APIs (Application Programming Interfaces) to achieve optimization performance advantages on conventional computers using our cloud-based solution.

Qatalyst dramatically reduces the time-to-quality results and the associated costs for both conventional and quantum computers. Unlike more common toolsets that require deep level quantum expertise to build new quantum problems and workflows, Qatalyst is not a tool kit, but a complete platform. It accelerates performance and results on classic and quantum computers, with no additional quantum programming or quantum computing expertise required. This is why it is unique in its approach to the quantum computing industry. Instead of invoking a team of quantum specialists to transform an optimization problem, an SME or programmer submits their current problem via a software API to the Qatalyst cloud-based platform. Qatalyst manages the workflow, optimizations, and results, without any further intervention by the user. Qatalyst provides a unique advantage to reduce applications development risks and costs by eliminating the need for scarce high-end quantum programmers.

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Qatalyst is integrated with the Amazon Cloud BRAKET API, offering access to multiple Quantum Processing Units ("QPUs") including DWave, Rigetti, and IonQ. Qatalyst also integrates directly with IBM's QPUs.

By using Qatalyst, application developers can run their applications on any or all of the available QPUs by merely selecting which QPU they prefer to run on based on the desired performance results of the application. We believe this provides a substantial advantage over any other toolkit or platform in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.

Qatalyst also eliminates the need for the low-level hardware programming expertise required by toolkits. This programming is time consuming and must be updated constantly as QPUs evolve and change, resulting in significant development costs. Qatalyst automatically optimizes the same problem submitted by a SME for multiple Quantum and Conventional Processors. The SME or programmer selects one, or many, processing resources and the problem is submitted by Qatalyst. This is an enormous advantage over any tool set in the market today. These advantages are significant not just for application developers but for any company that is considering using or exploring quantum computing technology for business applications.

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

Qatalyst Features

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

? Quantum-ready engines tuned for complex computations. These engines

automatically optimize, submit, and iterate to return excellent, diverse

results for supply chain and other constrained optimization problems.

? Transparent abstraction from quantum hardware variance. Qatalyst eliminates the

need to write low-level, assembly-type code to support different vendors'

quantum hardware architectures, such as D-Wave, Rigetti, IBM and ION-Q. The

same problem can run seamlessly across all quantum types and architectures.

? Qatalyst Core: an engine that utilizes sophisticated mathematics, quantum

transformation and iterative processing to find highly optimal answers across

both classic and quantum computers. For example, LaGrange multipliers, which

work to compress and simplify the problem prior to constraint optimization. The

Core applies these advanced mathematical techniques, based on the type of

problem and processing required.

? Q Graph: a powerful transformation engine that empowers SMEs to submit and

analyze graph models as part of their complex optimizations. Q Graph accepts

familiar graph models and functions including Clique Cover, Community Detection

   and Partitioning.

? Qontrol: a portal that provides administrative management tools for user

administration, request control, statuses and alerts. Qontrol also enables

system administrators and users to import Qatalyst results into popular

analysis applications such as Excel or Tableau.

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Results of Operations

Three Months Ended March 31, 2022 vs. March 31, 2021

Revenues



                   For the Three Months           For the Three Months
                           Ended                          Ended
                      March 31, 2022                 March 31, 2021
(In thousands)      Amount            Mix      Amount             Mix           Change
Products                     0           0 %         0                   0 %          0 %
Services                31,240         100 %         0                   0 %        100 %
Total            $      31,240         100 %   $     0               100.0 %        100 %

Revenues for the three months ended March 31, 2022 were $31,240 as compared with $0 for the comparable prior year period. There is no revenue comparison for the comparable prior year period because the Company had not yet sold any products or services. Revenue in the current reporting period is derived from professional services provided to multiple commercial customers under multi-month contracts.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2022 was $11,568 as compared with $0 for the comparable prior year period, a change of $11,568. There is no cost of revenues comparison for the comparable prior year period because the Company had not yet sold any products or services. Cost of revenues for the current reporting period consists primarily of salary expense.

Gross Margin

Gross margin for the three months ended March 31, 2022 was $19,672 or 63% as compared with 0% for the comparable prior year period. There is no gross margin comparison for the comparable prior year period because the Company had not yet sold any products or services.

Operating Expenses

Operating expenses for the three months ended March 31, 2022 were $6,728,603 as compared with $3,393,129 for the comparable prior year period, an increase of $3,335,473 or 98%. The increase in operating expenses is due in large part to the $738,458 increase in legal expense related to investment transaction expenses, $870,716 increase in salary expense due to changes in the number and composition of staff, $1,102,633 increase in stock-based compensation related in large part to hiring additional staff, $399,142 increase in research and development expenses related primarily to hiring additional technical staff, and $67,411 increase in consultant and professional services expense compared with the comparable prior year period.

Net Income (Loss)

Our net loss for the three months ended March 31, 2022 was $7,133,692 as compared with a net loss of $3,391,746 for the comparable prior year period, an increase of $3,741,946 or 110%. The increase in net loss is primarily due to the increase in operating expenses, noted above, as well as $435,625 in interest expense related to the accrual of dividends and amortization of Original Issue Discount for the Series A Convertible Preferred and Warrants recorded during the three months ended March 31, 2022 compared with interest expense of $0 during the comparable prior year period.

Liquidity and Capital Resources

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 March 31, 2022, the Company had cash and equivalents of $11,513,369 on hand.

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

                             March 31,       December 31,
                                2022             2021           Increase/(Decrease)
Current Assets              $ 13,249,630     $  17,221,654     $          (3,972,024 )
Current Liabilities         $  1,036,926     $   1,082,298     $             (45,372 )

Working Capital (Deficit) $ 12,212,704 $ 16,139,357 $ (3,926,653 )

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

Net Cash

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

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

Net cash provided by financing activities for the three months ended March 31, 2022 was $212,500 compared with $80,000 during the same period of 2021. Cash flows provided in financing activities during the three months ended March 31, 2022 were attributable to the amortization of the original issue discount for the Series A Convertible Preferred stock. The cash flow provided by financing activities during the period ended March 31, 2021 was primarily attributable to issuance of common stock for the exercise of options and the exercise of warrants.

Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities. During the first three months of 2022, we have funded our operations primarily through the use of cash on hand. As of April 30, 2022, we had cash on hand of approximately $8,538,480. We have approximately $38,384 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses which are due monthly.

On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. In as much as a major portion of our activities will be the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.

Critical Accounting Policies and Estimates

Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements. In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.

We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

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Revenue

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

Off Balance Sheet Arrangements

During the three months ended March 31, 2022 and for fiscal 2021, we did not engage in any material off-balance sheet activities or have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

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