Business Context and Reporting Period
Company: Quantum Computing Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 6, 2020
Event: Entry into material definitive agreements with Oasis Capital, LLC to secure financing and establish a future equity purchase facility.
Key Financial Metrics and Transaction Details
- Immediate Capital Raised: $500,000 (received May 8, 2020).
- Debt Instrument: Convertible Promissory Note with a principal amount of $563,055.
- Interest Rate: 8% per annum (increases to 18% upon default).
- Note Maturity: 9 months from issuance (February 2021).
- Warrant Coverage: Warrant to purchase up to 187,685 shares at an exercise price of $1.50 per share.
- Future Financing Facility: Equity Purchase Agreement allowing the company to sell up to $10,000,000 of common stock to Oasis.
- Equity Issued as Compensation: 37,537 Inducement Shares and 133,334 Commitment Shares issued to Oasis.
Material Changes and Terms
The filing details the creation of a new direct financial obligation and the issuance of unregistered equity securities.
- Convertible Note Terms: The note is convertible at $1.50 per share for the first six months. After six months, the conversion price becomes the lower of $1.50 or 70% of the lowest 25-day volume-weighted average price (30% discount).
- Prepayment Penalty: Prepayment of the note incurs a penalty ranging from 105% to 135% of principal and interest, depending on the timing.
- Equity Purchase Agreement (EPA): Oasis is obligated to purchase shares upon the company's "put notice." The purchase price is 90% of the market price. The company can put up to $500,000 or 250% of the 10-day average daily trading volume per notice.
- Ownership Cap: Transactions under the EPA are limited to prevent Oasis's beneficial ownership from exceeding 9.99%.
- Registration Rights: The company must file a Form S-1 registration statement by June 1, 2020, and use best efforts to have it declared effective within 60 days.
Guidance, Risks, and Contingencies
- Liquidity Contingency: The $10 million equity facility is contingent upon the effectiveness of a registration statement. If the S-1 is not effective, the company cannot utilize the put mechanism.
- Dilution Risk: The warrant includes a "full ratchet" anti-dilution provision. If the company issues stock below the $1.50 exercise price, the exercise price will be reduced to the new lower price, and the share count will increase to maintain the aggregate exercise value.
- Default Risk: An Event of Default triggers immediate repayment in cash or stock at Oasis's election and raises the interest rate to 18%.
- Management Commentary: The filing does not contain forward-looking guidance on revenue or earnings, focusing solely on the terms of the financing agreements.
Investor Verification Checklist
- Verify the status of the Form S-1 registration statement required by June 1, 2020, to confirm the $10 million facility is active.
- Monitor the company's stock price relative to the $1.50 conversion and exercise prices to assess potential dilution triggers.
- Review the company's cash burn rate to determine if the $500,000 immediate proceeds are sufficient to reach the next funding milestone.
- Check for any subsequent filings regarding the utilization of the "put" notices under the Equity Purchase Agreement.
- Confirm the exact number of shares outstanding post-issuance of the 170,871 total inducement and commitment shares.