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.





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Results of Operations

Twelve Months Ended December 31, 2020 vs. December 31, 2019





Revenues



                           For the                         For the
                     Twelve Months Ended             Twelve Months Ended
                      December 31, 2020               December 31, 2019
(In thousands)   Amount             Mix          Amount             Mix          Change
Products               0                   0 %         0                   0 %         0 %

Services               0                   0 %         0                   0 %         0 %
Total            $     0               100.0 %   $     0               100.0 %         0 %

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.





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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.

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