Quantum Computing Inc. (QUBT)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of the
results of operations and financial condition for the years ended December 31, 2024 and 2023 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.”

You should read the following discussion and
analysis of our financial condition and results of operations together with our audited consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K,

Overview

QCi is a development stage company with limited operations and revenue.
The Company is developing quantum and ancillary non-quantum products for high-performance computing applications based on proprietary
photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas
of high-performance computing, sensing and imaging, and quantum cybersecurity. The Company has generated some revenue based on sales of
products and related services to date and is expanding its sales and marketing efforts. The Company’s development team includes
optical engineers, mathematicians, physicists, and software developers.

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Results of Operations

Our results of operations for the years ended
December 31, 2024 and 2023 is as follows (in thousands, except percentages):

Revenues

The Company’s revenues during the years ended December 31, 2024
and 2023 consisted of (in thousands):

Revenues for the year ended December 31, 2024
were $373 thousand compared to $358 thousand for the year ended December 31, 2023, an increase of $15 thousand, or 4%. Revenue was derived
from sales of hardware products and professional services in 2024 and 2023, in each case provided to multiple commercial and government
customers under multi-month contracts. The year-over-year change was driven by changes in the number of, size of and level of effort performed
on active customer proof of concept and research and development services and customer hardware contracts. In 2024, the Company continued
to execute its business strategy to provide quantum-ready solutions for solving real-world problems. While we have made significant progress
toward this overarching objective, the generation of revenue from customers has been slow to develop, in part due to the fact that quantum
computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small, exploratory contracts
to better understand its applicability to their requirements. Accordingly, the Company has focused on providing professional services
and research and development offerings to introduce customers to quantum-based solutions to their operating needs as well as on customer
education and building customer awareness as a means to generating sales. We have developed and released multiple products, including
commercial and research and development offerings and foundry services for TFLN Optical Chips manufacturing that we are now in the process
of marketing. As a result, we expect product revenues to continue to increase going forward.

Cost of Revenues

Cost of revenues, which consists of direct labor
expenses, primarily salary costs for engineering and solutions staff delivering services, and other direct component costs for custom
hardware on research and development contracts, was $261 thousand for the year ended December 31, 2024, compared to $196 thousand for
the prior year, an increase of $65 thousand, or 33%. Cost of revenues for each of the years ended December 31, 2024 and 2023 consists
primarily of salary expense. The increase for 2024 was predominantly driven by the increases in direct labor expenses and other direct
costs required to perform on the contracts during 2024 compared to the prior year.

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Gross Margin

Gross margin for the year ended December 31, 2024
was $112 thousand compared to $162 thousand for the prior year, a decrease of $50 thousand, or 31%. On a percentage basis, gross margin
was 30%, a decrease of 15% year-over-year. The change was the result of a new custom hardware contract that had lower margins due to its
cost of revenues being comprised of other direct component costs in addition to direct labor expenses. Our lack of a scaled and distributed
base of revenue generation by product and sales channel can result in significant differences in gross margin between reporting periods.

Operating Expenses

Operating expenses of approximately $26.0 million
in 2024 decreased as compared to approximately $26.4 million in 2023 primarily as a result of a decrease in general and administrative
expenses, partially offset by an increase in research and development expenses, as set forth in the below tables (in thousands, except
percentages).

General and administrative expenses consist primarily
of compensation expenses for employees performing administrative functions, and professional fees incurred for legal, auditing and other
consulting services.

General and administrative expenses in 2024 decreased
$2.8 million or 27% compared with 2023 primarily due to lower employee- and advisor-related expenses, including stock-based compensation,
payroll, bonus and travel expenses, as well as lower legal fees and consulting services driven by changes made within and by the Company’s
management team, offset by increased audit fees driven by the Company retaining a new independent registered public accounting firm in
May 2024and such firm’s re-audit of the Company’s consolidated financial statements for the years ended December 31, 2023
and 2022.

Research and development expenses consist primarily
of compensation for employees that primarily engage in research and development efforts and fees for the development of hardware products
and supporting software. We focus the bulk of our research and development activities on the continued development of existing products
and the development of new offerings for emerging market opportunities.

Research and development expenses in 2024 increased
$2.4 million or 27% compared with 2023 primarily due to higher employee-related expenses, primarily as a result of higher stock-based
compensation and bonus expenses to incentivize and retain key technologists, as well as higher depreciation for long-lived laboratory
equipment, offset partially by lower professional and hosting services.

Selling and marketing expenses consist primarily
of employee compensation as well as customer lead generation activities, tradeshow participation, advertising and other marketing and
selling costs.

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Net selling and marketing expenses in 2024 were
largely unchanged as compared with 2023, with increases primarily due to higher stock-based compensation, offset by lower outsourced professional
services costs, related marketing program costs, and lower trade show and travel-related costs in 2024.

Non-operating Income (Expense)

The following table summarizes our non-operating
income (expense) for the years ended December 31, 2024 and 2023 (in thousands, except percentages).

Non-operating expense increased to $42.6 million
for 2024 compared to $779 thousand for 2023, primarily as the result of a $40.5 million decrease in the change in fair value of the derivative
liability for the QPhoton Warrants, as defined below, during 2024 compared to a $528 thousand increase in 2023.

The loss on change in value of warrant liability
is entirely comprised of mark-to-market adjustments for the QPhoton Warrants, as defined below in the accompanying notes to our consolidated
financial statements appearing elsewhere in this report, which had no carrying value as of December 31, 2023. Future mark-to-market adjustments
may result in continued losses if the price of the Company’s common stock increases above the closing bid price of $16.55 per share
at December 31, 2024; such adjustments may alternatively result in gains if the closing bid share price of the Company’s common
stock decreases. See Note 10, Capital Stock, in the accompanying notes to our consolidated financial statements appearing elsewhere
in this report for additional information on the QPhoton Warrants.

In addition, interest expense, net, which consists of interest on financial
liabilities and amortization of debt issuance costs, increased $128 thousand or 43% in 2024 compared to 2023, which increase was primarily
attributable to interest paid on the secured convertible promissory note in the original principal amount of $8.25 million that we issued
to Streeterville Capital, LLC in August 2024 (the “Streeterville Convertible Note”), which we paid in full as of December
31, 2024. See Note 7, Financial Liabilities, in the accompanying notes to our consolidated financial statements appearing elsewhere
in this report for additional information.

Liquidity and Capital Resources

We have incurred net losses and experienced negative
cash flows from operations since inception. Through December 31, 2024, the Company has raised $167.8 million through its issuance of common
stock and $20.1 million through its issuance of convertible promissory notes and other debt for a total of $187.9 million. The Company
has no lines of credit or short-term debt obligations outstanding. We expect to incur additional losses and higher operating expenses
for the foreseeable future as we continue to invest in research and development and go-to-market programs. As of December 31, 2024, the
Company had cash and cash equivalents of $78.9 million.

Our primary uses of cash are to fund and invest
in our operations as we continue to grow our business. We will require a significant amount of cash for continued investment in our Foundry
Services offering, including but not limited to our AZ Chips Facility and any future-identified space for expansion, as well as ongoing
research and development for our non-linear quantum optical products and photonics chips. Until such time as we can generate significant
revenue from sales or subscriptions of our hardware offerings, we expect to finance our operating and investing needs through our cash
and cash equivalents and, equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and
loan programs. We may, however, be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms,
or at all. In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary
pressures, rising interest rates, bank failures, and financial and credit market fluctuations, could reduce our ability to access capital
on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, or substantially reduce our product development and go-to-market efforts. There can be no
assurances that the Company will be able to secure additional equity and/or debt investments or achieve an adequate sales level. We believe,
however, that the Company’s existing cash and cash equivalents, together with any cash generated from operations and the proceeds
from any additional equity or debt issuances will be sufficient to meet the Company’s liquidity needs for at least the next 12 months.

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The following table summarizes total current assets,
liabilities and working capital at December 31, 2024, compared to December 31, 2023 (in thousands):

At December 31, 2024, we had working capital of
$74.6 million as compared to working capital deficit of $2.2 million at December 31, 2023, an increase of $76.8 million. The increase
in working capital is primarily attributable to an increase in cash from the net proceeds of our sales of 16 million shares of common
stock for an aggregate of $40 million in November 2024 and 10 million shares of common stock for an aggregate of $50 million in December
2024, and our issuance of 23.7 million shares of common stock for an aggregate of $23.8 million through the Company’s ATM, as defined
below, managed by Ascendiant Capital Markets, LLC during 2024, offset by the use of cash to pay for operating expenses and capital investments
in property and equipment. For more information on the November and December issuances, please see Note 10, Capital Stock, in the
accompanying notes to our consolidated financial statements appearing elsewhere in this report.

Cash Flows

The following table summarizes our cash flow for
the years ended December 31, 2024 and 2023 (in thousands):

Net cash used in operating activities for the
years ended December 31, 2024 and 2023 was $16.2 million and $18.3 million, respectively, in each case primarily as a result of our net
loss in each period offset by noncash adjustments for stock-based compensation, mark-to-market valuation adjustments on financial liabilities,
and depreciation and amortization.

Net cash used in investing activities for the
years ended December 31, 2024 and 2023 was $6.0 million and $2.6 million, respectively, and was attributable to our purchase of TFLN Optical
Chips manufacturing equipment for our AZ Chips Facility, as well as computer hardware and laboratory equipment. The increase in 2024 is
primarily due to the purchase of additional equipment in connection with establishing the AZ Chip Facility.

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Net cash provided by financing activities for
the years ended December 31, 2024 and 2023 was $99.1 million and $17.7 million, respectively. Cash flows provided by financing activities
during year ended December 31, 2024 were attributable to proceeds from our stock issuances in November and December 2024, and the proceeds
from our sale of shares of common stock pursuant to the ATM facility and our issuance of the Streeterville Convertible Note, partially
offset by repayments on the Streeterville Unsecured Note, as defined below, and the Streeterville Convertible Note as well as redemptions
of shares of Series A Preferred Stock.

On a long-term basis, our liquidity is dependent
on continuation and expansion of operations and receipt of revenues. Demand for the Company’s 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. As much revenues will be derived from the sales of our products and services, our business operations may
be adversely affected by the products and services offered by our competitors and any prolonged recession periods.

Critical Accounting 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 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 consolidated financial statements.

Fair Value of Stock-based Compensation

We recognize stock-based compensation expense
for all share-based payment awards in accordance with ASC 718, Compensation – Stock Compensation. Stock-based compensation
expense for expected-to-vest awards is valued under the single-option approach and amortized on a straight-line basis, accounting for
actual forfeitures as they occur. We utilize the Black-Scholes pricing model in order to determine the fair value of stock-based option
awards. The Black-Scholes pricing model requires various highly subjective assumptions including volatility, expected option life, and
risk-free interest rate. The assumptions used in calculating the fair value of share-based payment awards represent management’s
best estimates. These estimates involve inherent uncertainties and the application of management judgment. If factors change and different
assumptions are used, our stock-based compensation expense could be materially different in the future.

Fair Value of Warrant Liabilities and Derivatives

Determining the fair market value of the QPhoton Warrants, which were
included in the merger consideration paid to the stockholders of QPhoton (the “QPhoton Merger Consideration”), is a critical
accounting estimate. The QPhoton Warrants are comprised of warrants to purchase up to 7,028,337 shares of the Company’s common stock
at an exercise price of $0.0001 per share (the “QPhoton Warrants”) and are exercisable when and if stock options and warrants
issued by the Company and outstanding as of June 15, 2022 are exercised. The Merger Consideration for shareholders Yuping Huang and The
Trustees of the Stevens Institute of Technology was issued in 2022. A third alleged shareholder, BV Advisory, rejected the Merger Consideration
and commenced litigation in Delaware Chancery Court (see Note 8, Contingencies – Legal Proceedings, in this Form 10-K for
additional information and Item 3, Legal Proceedings, in this Form 10-K for a full discussion), and to date that litigation has
not been resolved. Accordingly, as of December 31, 2024 and 2023, we had only issued 6,325,503 of the QPhoton Warrants. In determining
the fair market value of the QPhoton Warrants, the Company determines which underlying options and warrants are in-the-money or out-of-the-money
at period end by comparing to the bid price of the Company’s common stock, then accounts for changes period-over-period by realizing
a mark-to-market gain or loss for the period.

An additional critical accounting estimates involves
determining the fair value of the conversion features ingerent in the Streeterville Convertible Note (the “Streeterville Derivative
Liability”), which involves inherent uncertainties and the application of management judgement. The Streeterville Derivative Liability
will be mark-to-market adjusted on a quarterly basis and accreted as interest expense while the Streeterville Convertible Note is outstanding.

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Fair Market Value and Useful Life of Intangible
Assets

Determining the fair market value and useful life
of the intangible assets acquired by the Company through the QPhoton Merger is another critical accounting estimate. In the absence of
market pricing for the intangible assets, the Company relied on independent third-party appraisal experts and comparison with similar
transactions to arrive at estimates of value as well as useful life. The Company will perform periodic assessments of the intangible assets
for impairment, but if any of the initial estimates are incorrect, that could result in a calculation of amortization expense that is
too high or too low.

Valuation Allowances for Deferred Taxes

Our income tax expense, deferred tax assets and
liabilities, and reserves for unrecognized tax benefits reflect management’s assessment of estimated current and future income taxes
to be paid. We are subject to income taxes in the United States. Significant judgments and estimates are required in determining the consolidated
income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits.

Deferred tax assets and liabilities arise from
temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements,
which are expected to result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets
within the jurisdiction from which they arise, for all material jurisdictions, we consider all available positive and negative evidence,
including scheduled reversals of deferred tax balances, projected future taxable income, tax-planning strategies and results of recent
operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future
state, federal and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future
taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying businesses.
In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating results.

As of December 31, 2024,
we had federal and state net operating loss (“NOL”) carryforwards of approximately $89.4 million, or $19.6 million on a tax-effected
basis. We believe that it is more likely than not that the benefit from these NOL carryforwards will not be realized. Accordingly, we
have provided a full valuation allowance on any potential deferred tax assets relating to these NOL carryforwards. If our assumptions
change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on
deferred tax assets as of December 31, 2024, will be accounted for as a reduction of income tax expense.

The calculation of our
tax liabilities involves evaluating uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions
across our global operations. ASC 740, Income Taxes, states that a tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be sustained upon examination, including the resolution of any related appeals
or litigation processes, on the basis of the technical merits.

We record unrecognized tax benefits as liabilities
in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not
previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a tax payment that
is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as
increases or decreases to income tax expense in the period in which new information is made available.

We believe that none of the unrecognized tax benefits
may be recognized by the end of 2024.

Legal and Other Contingencies

The outcomes of legal
proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a
legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred
and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors,
the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these
factors could materially impact our consolidated financial statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of the
results of operations and financial condition for the years ended December 31, 2023 and 2022 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.”

You should read the following discussion and
analysis of our financial condition and results of operations together with our audited consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K,

When we say “we,” “us,”
“our,” “Company,” or “QCi,” we mean Quantum Computing Inc.

Overview

QCi is a development stage company with limited
operations and revenue.  The Company is developing quantum machines for high-performance computing applications based on proprietary
photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas
of high-performance computing, sensing and imaging, and quantum cybersecurity. The Company has generated some revenue based on sales
of products and related services to date and is expanding its sales and marketing efforts. The Company’s development team includes
optical engineers, mathematicians, physicists, and software developers.

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Results of Operations

Years Ended December 31, 2023 vs. December
31, 2022

Revenues

Revenues for the year ended December 31, 2023
were $358,047 compared to $135,648 for the year ended December 31, 2022, an increase of $222,399, or 164%. Revenue was derived from sales
of hardware products and professional services in 2023, and solely from professional services in 2022, in each case provided to multiple
commercial and government customers under multi-month contracts; the year-over-year change was riven by increases in short-term contractual
service revenue. In 2023, QCi continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems.
While we have made significant progress toward this overarching objective, the generation of revenue from customers has been slow to develop,
in part due to the fact that quantum computing is a cutting-edge technology for most potential customers, who are therefore proceeding
cautiously with small, exploratory contracts to better understand its applicability to their requirements. Accordingly, the Company has
focused on providing professional services to introduce customers to quantum-based solutions to their operating needs, and on customer
education and building customer awareness as a means to generating sales. The Company has completed its discovery and research phase and
is now transitioning towards commercialization. We have developed and released multiple products and are now in the process of marketing
them. We expect revenues to increase meaningfully in 2024 as we continue to emphasize our hardware capability.

Cost of Revenues

Cost of revenues, which consists of labor consumed
to fulfill our obligations under contractual service agreements as well as the component parts of finished goods sold, was $195,640 for
the year ended December 31, 2023 compared to $60,934 for the prior year, an increase of $134,706, or 221%. Cost of revenues for each of
the years ending December 31, 2023 and 2022 consists primarily of salary expense. The increase for 2023 was predominantly driven by the
execution of new government service contracts. Cost of revenue for these services was contractually structured and limited to the direct
salaries and actual hours worked to fulfill the work orders. Rates for these services remained materially unchanged year over year, with
contract volume being the driver of growth.

Gross Margin

Gross margin for the year ended December 31, 2023
was $162,407 compared to $74,714 for the prior year, an increase of $87,693, or 117%. On a percentage basis, gross margin was 45%, a decrease
of 10% year-over-year. The change was nearly entirely the result of the shift to contractual service revenue where the cost of goods sold
was defined under the terms of our general professional services obligation. Our lack of a scaled and distributed base of revenue generation
by product and sales channel can result in large swings in gross margin between reporting periods.

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Operating Expenses

Operating expenses for the year ended December
31, 2023 were $27,383,684 compared to $36,654,056 for the year ended December 31, 2022, a decrease of $9,270,372 or 25%. The decrease
in operating expenses was almost entirely driven by a $9,038,701 decrease in stock-based compensation expenses, which was driven mainly
by higher value stock option awards in 2022 compared to 2023. Decreases of $1,399,208 in selling, general and administrative expenses,
primarily as a result of $574,428 through stream-lining of marketing activities and sales roles, and $704,975 in professional services,
primarily as a result of non-recurring legal expenses during 2022 related to the QPhoton Merger, also contributed to the decrease in operating
expenses during 2023 compared to the prior year. These decreases were partially offset by an increase in research and development spending
year-over-year of $1,885,909 driven by increased salary expenses as the Company expanded its capability to deliver commercialized hardware
products.

Net Loss

Our net loss for the year ended December 31, 2023
was $29,730,672 compared to a net loss of $38,593,700 for the prior year, a decrease of $8,863,029 or 23%. The decrease in net loss is
primarily due to the decrease in operating expenses, noted above, partially offset by $513,709 net increase in financing costs driven
by amortization of the $750,000 original issue discount included in the principal balance of the unsecured promissory note (the “Streeterville
Unsecured Note”) that we issued to Streeterville Capital, LLC in the initial principal amount of $8,250,000 in September 2022, which
bears interest at 10% per annum.

Liquidity and Capital Resources

We have incurred net losses and experienced negative
cash flows from operations since inception. To date, since February 2018, the Company has raised $57,424,924 through private placements
of equity and $12,633,000 through private placements of Convertible Promissory Notes and other debt for a total of $70,057,924 through
December 31, 2023. The Company has no lines of credit, and $2,496,480 in short-term debt obligations outstanding. We expect to incur additional
losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market
programs. We have determined that additional financing will be required to fund our operations for the next 12 months and our ability
to continue as a going concern is dependent upon obtaining additional capital and financing. As of December 31, 2023, the Company had
cash and cash equivalents of $2,059,285.

Our primary uses of cash are to fund our operations
as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and
development and non-linear quantum optical chips and fund business operations. Until such time as we can generate significant revenue
from sales or subscriptions of our hardware offerings, we expect to finance our cash needs through public and/or private equity and/or
debt financings or other capital sources, including but not limited to U.S. government grant and loan programs. However, we may be unable
to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all. In particular, uncertain
and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest
rates, banking collapses, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms,
or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest
of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to
delay, limit, or substantially reduce our quantum computing development and go-to-market efforts.

The following table summarizes total current assets,
liabilities and working capital at December 31, 2023, compared to December 31, 2022:

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At December 31, 2023, we had a working capital
deficit of $2,546,788 as compared to working capital of $409,29 at December 31, 2022, a decrease of $1,847,180. The decrease in working
capital is primarily attributable to the use of cash to pay for operating expenses and capital investments in property and equipment,
satisfaction of accrued expense liabilities and the Streeterville Unsecured Note becoming a current portion of long-term debt payable.

Our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December
31, 2023, noting the existence of substantial doubt about our ability to continue as a going concern. This uncertainty arose from management’s
review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient
existing working capital to sustain operations for a period of twelve months from the date of the issuance of these financial statements.

Cash Flows

Net cash used in operating activities for the
years ended December 31, 2023 and 2022 was $19,940,521 and $17,240,117, respectively, in each case primarily as a result of our net loss
in each year offset by noncash adjustments for stock-based compensation, depreciation of property, plant and equipment and amortization
of intangibles.

Net cash used in investing activities for the
years ended December 31, 2023 and 2022 was $2,617,990 and $2,225,758, respectively. Cash used in investing activities during the year
ended December 31, 2023 was attributable to acquisition of laboratory and production equipment for $2,117,990 and our $500,000 loan to
millionways, Inc (“millionways”). in June 2023. On June 6, 2023, the Company entered into a Note Purchase Agreement with millionways
pursuant to which the Company agreed to purchase from millionways up to three unsecured promissory in an aggregate principal amount of
up to $2,000,000, subject to the terms and conditions thereof. On June 6, 2023, the Company purchased the notes from millionways and loaned
it an aggregate principal amount of $500,000. This followed the Company’s entry into a Summary of Proposed Terms with millionways
on May 16, 2023, to provide bridge loans to millionways and enter into due diligence to acquire up to 100% of the AI firm.

Net cash provided by financing activities for
the year ended December 31, 2023 was $19,309,330 compared to $8,035,684 during the year ended December 31, 2022. Cash provided by financing
activities during the year ended December 31, 2023 was attributable to $25,496,364 received from the sale of shares of our common stock
through our At-The-Market (ATM) facility, managed by Ascendiant Capital Markets, LLC (net the 3% fee paid to Ascendiant Capital Markets,
LLC), partially offset by repayments of $6,187,034 on the Streeterville Unsecured Note. During the year ended December 31, 2022, cash
provided by financing activities was primarily attributable to the funds we received from the issuance of the Streeterville Unsecured
Note.

The Company has funded our operations primarily
through the sale of our equity (or equity linked) and debt securities. As of March 28, 2024, we had cash on hand of approximately $6,554,651.
We have approximately $74,977 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
and services, our business operations may be adversely affected by our competitors and prolonged recession periods.

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Critical Accounting 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.

Fair Value of Options and Derivatives

The Company uses the Black-Scholes model to calculate
the fair value of stock options and derivatives. The Black-Scholes model, developed in 1973, is a differential equation which requires
five input variables, the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility
of the Company common stock. The Black-Scholes model is widely used for pricing options but it does rely on certain assumptions about
the market which may not be correct over time. Specifically,

To the extent that any of these assumptions is
not correct, that could result in the overpricing or underpricing of the stock options involved. The assumption that the risk-free rate
(the Company uses the one-year U.S. Treasury Bill rate as a proxy for the risk-free rate) can vary over time, and if the T-Bill rate varies
substantially over the life of the stock option that could affect the pricing. Similarly, the volatility of the Company’s common
stock, also known as the Beta, has moved within a limited range over the past year, but the volatility of any security can change over
time, which would affect the option pricing calculation. Another critical estimate relating to option pricing is the default rate, which
means the estimate of granted options that will either expire unexercised, or be forfeited, over the life of the stock options. If the
Company’s estimate of the default rate turns out to be substantially different from the actual, experienced default rate, that could
result in over- or under-estimating the total option expense.

The Black-Scholes model is not the only available
approach for pricing stock options, the Company could have used a Binomial pricing model or a Monte Carlo simulation model. However, there
is no assurance that either a Binomial or Monte Carlo pricing approach would be more accurate than the Black-Scholes model over time.
Moreover, both the Binomial model, which calculates the price of an option at each point in time during the option period, or the Monte
Carlo model, which simulates the possible movements in future stock prices and uses them to calculate the option value, rely on critical
assumptions. The Binomial model assumes that stock markets are perfectly efficient, which may not hold for all periods of time. The Monte
Carlo simulation model assumes changes in stock prices over time cannot be predicted from the historical trends (known as a “random
walk”), which also may not hold for all periods.

34

Fair Market Value and Useful Life of Intangible
Assets

Another area of critical accounting estimates
involves determining the fair market value and useful life of the intangible assets acquired by the Company through the merger with QPhoton.
In the absence of market pricing for the intangible assets, the Company relied on independent third-party appraisal experts and comparison
with similar transactions to arrive at estimates of value as well as useful life. The Company will perform periodic assessments of the
intangible assets for impairment, but if any of the initial estimates are incorrect, that could result in a calculation of amortization
expense that is too high or too low.

Legal and Other Contingencies

The outcomes of legal
proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a
legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred
and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued we evaluate, among other factors,
the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these
factors could materially impact our consolidated financial statements.

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, 2022 and 2021 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.

33

Results of Operations

Twelve Months Ended December 31, 2022 vs. December 31, 2021

Revenues

Revenues for the Twelve Months ended December
31, 2022 were $135,648 as compared with $0 for the comparable prior year period, a change of $135,648, or 100%. There is no revenue comparison
for the prior year period because the Company had not yet sold any products or services. All revenue in the current reporting period is
derived from professional services provided to multiple commercial and government customers under multi-month contracts. In 2022, 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 slow to develop, in part due to the fact
that quantum computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small,
exploratory contracts to better understand its applicability to their requirements. Accordingly, the Company has focused on providing
professional services to introduce customers to quantum-based solutions to their operating needs, and on customer education and building
customer awareness as a means to generating sales. The Company has completed its discovery and research phase and is now transitioning
towards commercialization. We have developed and released multiple products and are now in the process of marketing them. We expect revenues
to increase meaningfully in 2023 as we emphasize our hardware capability.

Cost of Revenues

Cost of revenues for the twelve months ended December
31, 2022 was $60,934 as compared with $0 for the comparable prior year period, a change of $60,934, or 100%. There is no cost of revenues
comparison for the 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 twelve months ended December
31, 2022 was $74,714 as compared with $0 for the comparable prior year period, a change of $74,714, or 100%. There is no gross margin
comparison for the comparable prior year period because the Company had not yet sold any products or services in 2021.

Operating Expenses

Operating expenses for the twelve months ended
December 31, 2022 were $36,654,056 as compared with $17,130,093 for the comparable prior year period, an increase of $19,523,963 or 114%.
The increase in operating expenses is due in large part to a $1,837,856 increase in salary and benefits expense due to an increase in
the number and composition of staff following the QPhoton Merger, a $201,269 increase in consulting expenses, a $1,975,998 increase in
research and development expenses related primarily to hiring additional technical staff following the QPhoton Merger, a $8,360,122 increase
in stock-based compensation, largely related to hiring additional staff and the QPhoton Merger, and a $7,148,718 increase in other SG&A
costs compared with the comparable prior year period. The increase in other SG&A costs was largely due to increased legal, audit and
other fees associated with the QPhoton Merger.

Net Loss

Our net loss for the twelve months ended December
31, 2022 was $36,593,700 as compared with a net loss of $27,898,847 for the comparable prior year period, an increase of $10,694,853 or
38%. The increase in net loss is primarily due to the increase in operating expenses, noted above, as well as $1,782,545 increase in interest
expense related to preferred stock dividends, amortization of the Original Issue Discount for the Series A Convertible Preferred Stock,
financing costs and accrued interest on term loans, offset by a $10,715,799 decrease in interest expense related to the warrant issuance
that occurred in 2021. In addition, there was a decrease in other income of $178,860 in the current year, primarily related to the forgiveness
of the SBA PPP Loan in 2021.

34

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 $12,633,000 through private placements of Convertible Promissory Notes and other debt for a total of $40,392,904 in new investment.
The Company has no lines of credit, and $535,684 and $8,250,000 in short and long-term debt obligations outstanding, respectively. We
believe that our current cash position and other available financing resources such as our ATM facility, 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.

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

At December 31, 2022, we had a working capital
deficit of $957,673 as compared to working capital of $16,139,357 at December 31, 2021, a decrease of $17,097,030. The decrease in working
capital is primarily attributable to the use of cash to pay for operating expenses, capital investments, including the Note Purchase Agreement
with QPhoton, and the costs relating to the merger with QPhoton.

Our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December
31, 2022, noting the existence of substantial doubt about our ability to continue as a going concern. This uncertainty arose from management’s
review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient
existing working capital to sustain operations for a period of twelve months from the date of the issuance of these financial statements.

Net Cash

Net cash used in operating activities for the
twelve months ended December 31, 2022 and 2021 was $17,557,368 and $6,804,960, respectively. The net loss for the twelve months ended
December 31, 2022 and 2021, was $38,593,700 and $27,898,847, respectively.

Net cash used in investing activities for the
twelve months ended December 31, 2022 and 2021 were $2,227,257 and $40,584, respectively. The increase in investment in the current period
is primarily due to acquisition of laboratory equipment and the merger with QPhoton.

Net cash provided by financing activities for
the twelve months ended December 31, 2022 was $8,354,434 compared with $8,387,879 during the twelve months ended December 31, 2021. Cash
flows provided in financing activities during the twelve months ended December 31, 2022 were attributable to the amortization of the original
issue discount for the Series A Convertible Preferred stock, conversion of some shares of Series A Convertible Preferred stock to common
stock, the returned payoff of the BV Advisory loan, and the funds received from the Streeterville Unsecured Note. The cash flow provided
by financing activities during the period ended December 31, 2021 was primarily attributable to the issuance of Series A Convertible Preferred
stock, the issuance of common stock for the exercise of options and the exercise of warrants.

35

Previously, we have funded our operations primarily through the sale
of our equity (or equity linked) and debt securities. During the twelve months ended December 31, 2022, we have funded our operations
primarily through the use of cash on hand. As of March 28, 2023, we had cash on hand of approximately $7,423,898. We have approximately
$104,772 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
and services, our business operations may be adversely affected by our competitors and prolonged recession periods.

Critical Accounting Policies

Basis of Presentation:

Our consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States (U.S. 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
reasonably 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 consolidated financial statements
as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated 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.
We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

Accounting Changes

Except for the changes discussed below, Quantum
has consistently applied the accounting policies to all periods presented in these consolidated 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. 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. 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. 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.
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.

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.

36

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 twelve months ended December 31, 2022
and 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.

Critical Accounting Estimates

We have identified the following critical accounting
estimates. An accounting estimate is “critical” if it (a) requires Company management to make assumptions about matters that
are highly uncertain at the time of the estimate, and also (b) Company management reasonably could have used different estimates in the
current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material
impact on the presentation of the Company’s financial condition, changes in financial condition or results of operations.

The Company uses the Black-Scholes model to calculate
the fair value of stock options and derivatives. The Black-Scholes model, developed in 1973, is a differential equation which requires
five input variables, the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility
of the Company common stock. The Black-Scholes model is widely used for pricing options but it does rely on certain assumptions about
the market which may not be correct over time. Specifically,

To the extent that any of these assumptions is
not correct, that could result in the over or under pricing of the stock options involved. The assumption that the risk-free rate (the
Company uses the one-year US Treasury Bill rate as a proxy for the risk-free rate) can vary over time, and if the T-Bill rate varies substantially
over the life of the stock option that could affect the pricing. Similarly, the volatility of the Company’s common stock, also known
as the Beta, has moved within a limited range over the past year, but the volatility of any security can change over time, which would
affect the option pricing calculation. Another critical estimate relating to option pricing is the default rate, which means the estimate
of granted options that will either expire unexercised, or be forfeited, over the life of the stock options. If the Company’s estimate
of the default rate turns out to be substantially different from the actual, experienced default rate, that could result in over or under
estimating the total option expense.

The Black-Scholes model is not the only available
approach for pricing stock options, the Company could have used a Binomial pricing model or a Monte Carlo simulation model. However, there
is no assurance that either a Binomial or Monte Carlo pricing approach would be more accurate than the Black-Scholes model over time.
Moreover, both the Binomial model, which calculates the price of an option at each point in time during the option period, or the Monte
Carlo model, which simulates the possible movements in future stock prices and uses them to calculate the option value, rely on critical
assumptions. The Binomial model assumes that stock markets are perfectly efficient, which may not hold for all periods of time. The Monte
Carlo simulation model assumes changes in stock prices over time cannot be predicted from the historical trends (known as a “random
walk”), which also may not hold for all periods.

37

Another area of critical accounting estimates
involves determining the fair market value and useful life of the intangible assets acquired by the Company through the merger with QPhoton.
In the absence of market pricing for the intangible assets, the Company relied on comparison with similar transactions to arrive at estimates
of value as well as useful life. The Company will perform periodic assessments of the intangible assets for impairment, but if any of
the initial estimates are incorrect, that could result in a calculation of amortization expense that is too high or too low.

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, 2022 and 2021 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 four locations, Leesburg, VA, Arlington, VA, Minneapolis, MN and Hoboken, NJ, 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.

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.

38

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 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

29

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.

30

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.

31

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.