ITEM 1A. RISK
FACTORS.
This Annual Report
on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations
and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as applicable to all forward-looking
statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this
Annual Report on Form 10-K.
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Risks Related to Our Business
WE
HAVE A LIMITED OPERATING HISTORY.
The Company was incorporated under the
laws of the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart operated as a seller of ink-jet printer cartridges
until July 2007, when Ticketcart acquired Innovative Beverage Group, Inc. and changed the name of the business to Innovative Beverage
Group Holdings, Inc. (“IBGH”), IBGH operated as a producer and distributor of non-alcoholic beverages until it ceased
operations in 2013. A group of investors acquired control of IBGH in January 2018 and redomiciled the business to Delaware on February
22, 2018 under the name Quantum Computing Inc. The Company has been engaged in developing and marketing quantum software products
since it was redomiciled to Delaware, but has not recorded any revenue from sales of products or services to date. Accordingly,
the Company has a limited operating history with which you can evaluate its business and prospects. An investor in the Company
must consider its business and prospects in light of the risks, uncertainties and difficulties frequently encountered by early-stage
companies, including limited capital, delays in product development, possible marketing and sales obstacles and delays, inability
to gain customer and merchant acceptance or inability to achieve significant distribution of our products and services to customers.
The Company cannot be certain that it will successfully address these risks. Its failure to address any of these risks could have
a material adverse effect on its business.
WE ARE NOT PROFITABLE
AND MAY NEVER BE PROFITABLE.
To date, we have not yet recorded revenues
from the sale of our products. If we are unable to generate revenues, we will not be able to achieve and maintain profitability.
Beyond this, we may incur significant losses in the future for a number of reasons including other risks described in this document,
and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. We incurred negative cash
flows from operating activities and recurring net losses in fiscal years 2020 and 2019. As of December 31, 2020 and 2019, our accumulated
deficit was $53,469,235 and $28,760,955, respectively.
Since inception through the present, we
have been dependent on raising capital to support our working capital needs. During this same period, we have recorded net accumulated
losses and are yet to achieve profitability. Our ability to achieve profitability depends upon many factors, including our ability
to develop and commercialize our products. There can be no assurance that we will ever achieve any significant revenues or profitable
operations.
OUR
OPERATING EXPENSES EXCEED OUR REVENUES AND WILL LIKELY CONTINUE TO DO SO FOR THE FORESEEABLE FUTURE.
We are in an early stage of our development
and we have not generated any revenues to offset our operating expenses. Our operating expenses will likely continue to exceed
our operating income for the foreseeable future, until such time as we are able to monetize our brands and generate substantial
revenues, particularly as we undertake payment of the increased costs of operating as a public company.
WE
WILL NEED ADDITIONAL CAPITAL, WHICH MAY BE DIFFICULT TO RAISE AS A RESULT OF OUR LIMITED OPERATING HISTORY OR ANY NUMBER OF OTHER
REASONS.
We expect that we will have adequate financing
for the next 24-30 months at the current level of operations. However, in the event that we exceed our expected growth rate, we
would need to raise additional capital. There is no assurance that additional equity or debt financing will be available to us
when needed, on acceptable terms or even at all. Our limited operating history makes investor evaluation and an estimation of our
future performance substantially more difficult. As a result, investors may be unwilling to invest in us or such investment may
be on terms or conditions which are not acceptable. In the event that we are not able to secure financing, we may have to scale
back our growth plans or cease operations.
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FAILURE TO IDENTIFY ERRORS IN THE
QUANTITATIVE MODELS WE UTILIZE TO MANAGE OUR BUSINESS COULD ADVERSELY IMPACT PRODUCT PERFORMANCE AND CLIENT RELATIONSHIPS.
We employ various quantitative models to
manage our business. Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences
on our business and reputation.
WE MAY BE UNABLE TO DEVELOP NEW PRODUCTS
AND SERVICES AND THE DEVELOPMENT OF NEW PRODUCTS AND SERVICES MAY EXPOSE US TO ADDITIONAL COSTS OR OPERATIONAL RISK.
Our financial performance depends, in part,
on our ability to develop, market and manage new products and services. The development and introduction of new products and services
require continued innovative efforts and may require significant time and resources as well as ongoing support and investment.
Substantial risk and uncertainties are associated with the introduction of new products and services, including the implementation
of new and appropriate operational controls and procedures, shifting client and market preferences, the introduction of competing
products or services and compliance with regulatory requirements.
OUR
PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO CLAIMS FOR INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
OR MAY BE INFRINGED OR MISAPPROPRIATED BY OTHERS.
We rely, and may rely in the future, upon
a combination of license agreements, confidentiality policies and procedures, confidentiality provisions in employment agreements,
confidentiality agreements with third parties and technical security measures to maintain the confidentiality, exclusivity and
trade secrecy of our proprietary information. We also rely, and most likely will rely in the future, on trademark and copyright
laws to protect our intellectual property rights in the United States and abroad. Despite our protective measures and intellectual
property rights, we may not be able to adequately protect against theft, copying, reverse engineering, misappropriation, infringement
or unauthorized use or disclosure of our intellectual property, which could have an adverse effect on our competitive position.
WE
MAY BECOME SUBJECT TO LEGAL PROCEEDINGS THAT COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS.
From time to time and in the ordinary course
of our business, we and certain of our subsidiaries may become involved in various legal proceedings. All such legal proceedings
are inherently unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming and disruptive
to our operations and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts,
injunctive relief or other equitable relief that may affect how we operate our business. Similarly, if we settle such legal proceedings,
it may affect how we operate our business. Future court decisions, alternative dispute resolution awards, business expansion or
legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial noneconomic
remedies or punitive damages may be sought. Although we maintain liability insurance coverage, there can be no assurance that such
coverage will cover any particular verdict, judgment or settlement that may be entered against us, that such coverage will prove
to be adequate or that such coverage will continue to remain available on acceptable terms, if at all. If we incur liability that
exceeds our insurance coverage or that is not within the scope of the coverage in legal proceedings brought against us, it could
have an adverse effect on our business, financial condition and results of operations.
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WE
INTEND TO CONTINUE EXPLORING STRATEGIC BUSINESS ACQUISITIONS AND OTHER COMBINATIONS, WHICH ARE SUBJECT TO INHERENT RISKS.
In order to expand our solutions, services,
and grow our market and client base, we may continue to seek and complete strategic business acquisitions and other combinations
that we believe are complementary to our business. Acquisitions have inherent risks which may have a material adverse effect on
our business, financial condition, operating results or prospects, including, but not limited to: 1) failure to successfully integrate
the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to maintain
uniform standard controls, policies and procedures; 2) diversion of management’s attention from other business concerns;
3) entry into markets in which we have little or no direct prior experience; 4) failure to achieve projected synergies and performance
targets; 5) loss of clients or key personnel; 6) incurrence of debt or assumption of known and unknown liabilities; 7) write-off
of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; 8) dilutive issuances
of equity securities; and, 9) accounting deficiencies that could arise in connection with, or as a result of, the acquisition of
an acquired company, including issues related to internal control over financial reporting and the time and cost associated with
remedying such deficiencies. If we fail to successfully integrate acquired businesses or fail to implement our business strategies
with respect to these acquisitions, we may not be able to achieve projected results or support the amount of consideration paid
for such acquired businesses.
IF
WE ARE UNABLE TO MANAGE OUR GROWTH IN THE NEW MARKETS IN WHICH WE OFFER SOLUTIONS OR SERVICES, OUR BUSINESS AND FINANCIAL RESULTS
COULD SUFFER.
Our future financial results will depend
in part on our ability to profitably manage our business in the new markets that we enter. Difficulties in managing future growth
in new markets could have a significant negative impact on our business, financial condition and results of operations.
WE
RELY HEAVILY ON OUR MANAGEMENT, AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS.
Our success is highly dependent upon the
continued services of our management including our Chief Executive Officer, Robert Liscouski, and our Chief Financial Officer,
Mr. Christopher Roberts. The loss of Mr. Liscouski’s and/or Mr. Roberts’ services would have a material adverse effect
on the Company and its business operations.
OUR CHIEF FINANCIAL OFFICER IS NOT
A FULL-TIME EMPLOYEE.
Our Chief Financial Officer, Mr. Christopher
Roberts, is an independent contractor and shares time with other clients. The inability to retain a full-time Chief Financial Officer,
Principal Financial Officer or governor of the financial responsibilities of the Company may impair our ability to meet our reporting
obligations and implement financial controls to protect the Company.
WE MAY NOT BE ABLE TO IMPLEMENT OUR
GROWTH AND MARKETING STRATEGY SUCCESSFULLY OR ON A TIMELY BASIS OR AT ALL.
Our future success depends, in large part,
on our ability to implement our growth strategy of expanding distribution and sales of our product portfolio, attracting new consumers
and introducing new product lines and product extensions.
Our sales and operating results will be
adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves
unsuccessful.
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CYBER SECURITY RISKS AND THE FAILURE
TO MAINTAIN THE INTEGRITY OF DATA BELONGING TO OUR COMPANY COULD EXPOSE US TO DATA LOSS, LITIGATION AND LIABILITY, AND OUR REPUTATION
COULD BE SIGNIFICANTLY HARMED.
We may from time to time collect and retain
large volumes of data relating to our business and from our customers for business purposes, including for transactional and promotional
purposes, and our various information technology systems enter, process, summarize and report such data. The integrity and protection
of this data is critical to our business. Maintaining compliance with the evolving regulations and requirements applicable to data
security and information privacy protection could be difficult and may increase our expenses. In addition, a penetrated or compromised
data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent
or unlawful use of data relating to our company or our employees, independent distributors or preferred customers, which could
harm our reputation, disrupt our operations, or result in remedial and other costs, fines or lawsuits.
COMPUTER MALWARE, VIRUSES, HACKING,
PHISHING ATTACKS AND SPAMMING COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
Computer malware, viruses, physical or
electronic break-ins and similar disruptions could lead to interruption and delays in our services and operations and loss, misuse
or theft of data. Computer malware, viruses, computer hacking and phishing attacks against online networking platforms have become
more prevalent and may occur on our systems in the future.
Any attempts by hackers to disrupt our
internal systems, if successful, could harm our business, be expensive to remedy and damage our reputation or brand. Our network
security business disruption insurance may not be sufficient to cover significant expenses and losses related to direct attacks
on our website or internal systems. Efforts to prevent hackers from entering our computer systems are expensive to implement and
may limit the functionality of our services. Though it is difficult to determine what, if any, harm may directly result from any
specific interruption or attack, any failure to maintain performance, reliability, security and availability of our products and
services and technical infrastructure may harm our reputation, brand and our ability to attract customers. Any significant disruption
to our website or internal computer systems could result in a loss of customers and could adversely affect our business and results
of operations.
We have previously experienced, and may
in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure
changes, third-party service providers, human or software errors and capacity constraints. If our mobile application is unavailable
when customers attempt to access it or it does not load as quickly as they expect, customers may seek other services.
Our platform functions on software that
is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in
our software code may only be discovered after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our
code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or
difficultly maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage
to our reputation or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial
results.
We expect to continue to make significant
investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products.
To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our
technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results
may be harmed.
GROWING OUR CUSTOMER BASE DEPENDS
UPON THE EFFECTIVE OPERATION OF OUR APPLICATIONS WITH OPERATING SYSTEMS, NETWORKS AND STANDARDS THAT WE DO NOT CONTROL.
We will be dependent on the interoperability
of our applications with operating systems that we do not control, and any changes in such systems that degrade our potential products’
functionality or give preferential treatment to competitive products could adversely affect the usage of our applications on mobile
devices. Additionally, in order to deliver high quality products, it is important that our products work well with a range of mobile
technologies, systems, networks and standards that we do not control. We may not be successful in developing relationships with
key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks
or standards.
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WE MAY NEVER SUCCESSFULLY COMMERCIALIZE
ANY PRODUCTS.
We have invested a substantial amount of
our time and resources in developing various new products and computing technologies. Commercialization of these products will
require additional development, clinical evaluation, beta testing, significant marketing efforts and substantial additional investment
before they can provide us with any revenue. Despite our efforts, these products may not become commercially successful products
for a number of reasons, including but not limited to:
● our products or technologies may not prove to be effective in trials;
● we may experience delays in our development program;
● rapid technological change may make our products obsolete;
THE MARKET OPPORTUNITY FOR OUR PRODUCTS
AND TECHNOLOGIES MAY NOT DEVELOP IN THE WAYS THAT WE ANTICIPATE.
The demand for our products and technologies
can change quickly and in ways that we may not anticipate because the market in which we operate is characterized by rapid, and
sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements,
changes in customer requirements and a limited ability to accurately forecast future customer orders. Our operating results may
be adversely affected if the market opportunity for our products and services does not develop in the ways that we anticipate or
if other technologies or products become more accepted or standard in our industry or disrupt our technologies and products.
WE FACE SIGNIFICANT COMPETITION AND
MANY OF OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO.
Some of our product offerings and technologies
compete and will compete with other similar products from our competitors. These competitive products could be marketed by well-established,
successful companies that possess greater financial, marketing, distributional, personnel and other resources than we possess.
In certain instances, competitors with greater financial resources also may be able to enter a market in direct competition with
us offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features
that our target end users may find attractive.
OUR INABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY COULD IMPAIR OUR COMPETITIVE ADVANTAGE, REDUCE OUR REVENUE, AND INCREASE OUR COSTS.
Our success and ability to compete depends
and will depend in part on our ability to obtain and maintain the proprietary aspects of our technologies and products. We intend
to rely on a combination of trade secrets, patents, copyrights, trademarks, confidentiality agreements, and other contractual provisions
to protect our intellectual property, but these measures may provide only limited protection. We may not always be able to enforce
these agreements and may fail to enter into any such agreement in every instance when appropriate. We may from time to time license
from third party’s their brands or certain technology used in and for our products. These third-party licenses are granted
with restrictions; therefore, such third-party technology may not remain available to us on terms beneficial to us. Our failure
to enforce and protect our intellectual property rights or obtain from third parties the right to use necessary technology could
have a material adverse effect on our business, operating results, and financial condition. In addition, the laws of some foreign
countries do not protect proprietary rights as fully as do the laws of the United States.
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Patents may not issue from the patent applications
that we may file in the future. Our issued patents may be challenged, invalidated, or circumvented, and claims of our patents may
not be of sufficient scope or strength, or issued in the proper geographic regions, to provide meaningful protection or any commercial
advantage. We plan to register certain of our trademarks in the United States and other countries. We cannot assure you that we
will obtain registrations of principal or other trademarks in key markets in the future. Failure to obtain registrations could
compromise our ability to protect fully our trademarks and brands, and could increase the risk of challenge from third parties
to our use of our trademarks and brands.
WE MAY NOT BE ABLE TO PROTECT OUR
SOURCE CODE FROM COPYING IF THERE IS AN UNAUTHORIZED DISCLOSURE OF SOURCE CODE.
Source code, the detailed program commands
for our operating systems and other software programs, is critical to our business. Although we license portions of our application
and operating system source code to several licensees, we take significant measures to protect the secrecy of large portions of
our source code. If a significant portion of our source code leaks, we might lose future trade secret protection for that source
code. It may become easier for third parties to compete with our products by copying functionality, which could adversely affect
our revenue and operating margins.
OUR FAILURE TO KEEP PACE WITH RAPID
TECHNOLOGY CHANGES COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION AND FINANCIAL RESULTS.
The markets for our products and services
are characterized by rapid technological developments and frequent changes in customer requirements. We must continually improve
the performance, features and reliability of our products and services, particularly in response to competitive offerings, to keep
pace with these developments. We must ensure that our products and services address evolving operating environments, devices, industry
trends, certifications and standards. We also may need to develop products that are compatible with new operating systems while
remaining compatible with existing, popular operating systems. Our business could be harmed by our competitors announcing or introducing
new products and services that could be perceived by customers as superior to ours. We spend considerable resources on technology
research and development, but our research and development resources are more limited than many of our competitors.
Our failure to introduce new or enhanced
products on a timely basis, to keep pace with rapid industry, technological or market changes or to gain customer acceptance for
our new and existing products and services, such as mobile device data protection, could have a material adverse effect on our
business, financial condition and financial results.
WE MAY FAIL TO RECRUIT AND RETAIN
KEY PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO MEET KEY OBJECTIVES.
Our success depends on our ability to attract
and retain highly-skilled technical, managerial, sales, and marketing personnel. Changes in key personnel may be disruptive to
our business. It could be difficult, time consuming and expensive to replace key personnel. Integrating new key personnel may be
difficult and costly. Volatility, lack of positive performance in our stock price or changes to our overall compensation program
including our stock incentive program may adversely affect our ability to retain key employees, many of whom are compensated, in
part, based on the performance of our stock price. The loss of services of any of our key personnel, the inability to retain and
attract qualified personnel in the future or delays in hiring required personnel could make it difficult to meet key objectives.
Any of these impairments related to our key personnel could negatively affect our business, financial condition and financial results.
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To remain competitive in our industries,
we must attract, motivate and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including
executives, consultants, programmers and systems architects skilled in quantum computing, computing, and the technical environments
in which our solutions, devices and services are needed. Competition for such personnel in our industries is intense in both the
United States and abroad. Our failure to attract additional qualified personnel to meet our needs could have a material adverse
effect on our prospects for long-term growth. In addition, we invest significant time and expense in training our associates, which
increases their value to clients and competitors who may seek to recruit them and increases the cost of replacing them. Our success
is dependent to a significant degree on the continued contributions of key management, sales, marketing, consulting and technical
personnel. The unexpected loss of key personnel could have a material adverse impact on our business and results of operations,
and could potentially inhibit development and delivery of our solutions, devices and services and market share advances.
IF WE FAIL TO ESTABLISH AND MAINTAIN
AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR PREVENT FRAUD. ANY INABILITY
TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE
OF OUR COMMON STOCK.
Effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely
affect our financial condition, results of operations and access to capital.
THE QUANTUM COMPUTING INDUSTRY IS
IMMATURE AND VOLATILE, AND IF IT DOES NOT DEVELOP, IF IT DEVELOPS MORE SLOWLY THAN WE EXPECT, IF IT ENCOUNTERS NEGATIVE PUBLICITY
OR IF OUR SOLUTION DOES NOT DRIVE COMMERCIAL ENGAGEMENT, THE GROWTH OF OUR BUSINESS WILL BE HARMED.
With respect to our quantum computing application
services, the quantum computing industry is relatively new and unproven, and it is uncertain whether it will achieve and sustain
high levels of demand, consumer acceptance and market adoption. Our success will depend to a substantial extent on the willingness
of our potential customers to use, and increase their utilization of, our solution, as well as on our ability to demonstrate the
value of quantum computing to their respective organization, government agencies, and other purchasers of quantum computing offerings.
Negative publicity concerning our solution or the quantum computing industry as a whole could limit market acceptance of our solution.
If our clients and partners do not perceive the benefits of our solution, or if our solution does not drive member engagement,
then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual and industry concerns
or negative publicity regarding technophobic views in the context of quantum computing could limit market acceptance of our quantum
computing services. If any of these events occur, it could have a material adverse effect on our business, financial condition
or results of operations.
RAPID TECHNOLOGICAL CHANGE IN OUR
INDUSTRY PRESENTS US WITH SIGNIFICANT RISKS AND CHALLENGES.
The quantum computing market is characterized
by rapid technological change, changing user requirements, uncertain product lifecycles and evolving industry standards. Our success
will depend on our ability to enhance our solution with next-generation technologies and to develop or to acquire and market new
services to access new consumer populations. There is no guarantee that we will possess the resources, either financial or personnel,
for the research, design and development of new applications or services, or that we will be able to utilize these resources successfully
and avoid technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of
our competitors or future competitors will not results in present or future applications and services becoming uncompetitive or
obsolete.
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Risks Related to Our Common Stock
OUR STOCK PRICE MAY BE VOLATILE OR
MAY DECLINE REGARDLESS OF OUR OPERATING PERFORMANCE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
The market price of our common stock may
fluctuate widely in response to various factors, some of which are beyond our control, including:
● actions by competitors;
● actual or anticipated growth rates relative to our competitors;
● economic, legal and regulatory factors unrelated to our performance;
● speculation by the press or investment community regarding our business;
● litigation;
● changes in key personnel; and
In addition, the stock markets, including
the over-the-counter markets where we are quoted, have experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many companies. These broad market fluctuations may materially affect
our stock price, regardless of our operating results. Furthermore, the market for our common stock historically has been limited
and we cannot assure you that a larger market will ever be developed or maintained. The price at which investors purchase shares
of our common stock may not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility,
as well as general economic, market and political conditions, could reduce our market price. As a result, these factors may make
it more difficult or impossible for you to sell our common stock for a positive return on your investment. In the past, shareholders
have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation,
we could incur substantial costs and our resources and the attention of management could be diverted from our business.
FUTURE SALES OF SHARES OF OUR COMMON
STOCK, OR THE PERCEPTION IN THE PUBLIC MARKETS THAT THESE SALES MAY OCCUR, MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could
decline significantly as a result of sales of a large number of shares of our common stock. In addition, if our significant shareholders
sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Any issuance
of additional common stock by us in the future, or warrants or options to purchase our common stock, if exercised, would result
in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount or a premium to the
then-current trading price of our common stock. Moreover, the perception in the public market that shareholders might sell shares
of our stock or that we could make a significant issuance of additional common stock in the future could depress the market for
our shares. These sales, or the perception that these sales might occur, could depress the market price of our common stock or
make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
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We have issued shares of common stock and
convertible notes which are convertible into shares of our common stock in connection with our private placements and certain employment,
director and consultant agreements. In addition, we issued shares of our common stock and convertible notes which are convertible
into shares of our common stock, in financing transactions and pursuant to employment agreements that are deemed to be “restricted
securities,” as that term is defined in Rule 144 promulgated under the Securities Act. From time to time, certain of our
shareholders may be eligible to sell all or some of their restricted shares of common stock by means of ordinary brokerage transactions
in the open market pursuant to Rule 144, subject to certain limitations. The resale pursuant to Rule 144 of shares acquired from
us in private transactions could cause our stock price to decline significantly.
“PENNY STOCK” RULES MAY
MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT.
If the market price for our common stock
is below $5.00 per share, trading in our common stock may be subject to the “penny stock” rules. The SEC has adopted
regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. These rules would require that any broker-dealer that would recommend our common stock to persons
other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination
for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available,
the regulations would require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining
the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose
commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they
offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions
in our common stock, which could severely limit the market price and liquidity of our common stock.
SALES OF OUR CURRENTLY ISSUED AND
OUTSTANDING STOCK MAY BECOME FREELY TRADABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND HAVE A DEPRESSIVE
EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK.
A substantial majority of our outstanding
shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted
shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or
other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides
in essence that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted securities for a
period of at least six months (one year after filing Form 10 information with the SEC for shell companies and former shell companies)
may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the
greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar
weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTC Bulletin Board). Rule 144 also
permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate of the
Company and who has satisfied a one-year holding period. A sale under Rule 144 or under any other exemption from the Act, if available,
or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares
of common stock in any active market that may develop.
POTENTIAL FUTURE FINANCINGS MAY DILUTE
THE HOLDINGS OF OUR CURRENT SHAREHOLDERS.
In order to provide capital for the operation
of our business, in the future we may enter into financing arrangements. These arrangements may involve the issuance of new shares
of common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock
or warrants for the purchase of common stock. Any of these items could result in a material increase in the number of shares of
common stock outstanding, which would in turn result in a dilution of the ownership interests of existing common shareholders.
In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could
affect the value of our existing common stock.
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WE CURRENTLY DO NOT INTEND TO PAY
DIVIDENDS ON OUR COMMON STOCK. AS A RESULT, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT IS IF THE PRICE OF OUR
COMMON STOCK APPRECIATES.
We currently do not expect to declare or
pay dividends on our common stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability
to declare or pay dividends on our common stock. As a result, your only opportunity to achieve a return on your investment will
be if the market price of our common stock appreciates and you sell your shares at a profit.
YOU MAY EXPERIENCE DILUTION OF YOUR
OWNERSHIP INTEREST DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK.
We are in a capital intensive business
and we do not have sufficient funds to finance the growth of our business or the costs of our development projects or to support
our projected capital expenditures. As a result, we will require additional funds from future equity or debt financings, including
tax equity financing transactions or sales of preferred shares or convertible debt, to complete the development of new projects
and pay the general and administrative costs of our business. We may in the future issue our previously authorized and unissued
securities, resulting in the dilution of the ownership interests of holders of our common stock. We are currently authorized to
issue 250,000,000 shares of common stock. The potential issuance of such additional shares of common stock or preferred stock or
convertible debt may create downward pressure on the trading price of our common stock. We may also issue additional shares of
common stock or other securities that are convertible into or exercisable for common stock in future public offerings or private
placements for capital raising purposes or for other business purposes. The future issuance of a substantial number of common shares
into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of
our common shares. A decline in the price of our common shares could make it more difficult to raise funds through future offerings
of our common shares or securities convertible into common shares.
FUTURE ISSUANCE OF OUR COMMON STOCK,
PREFERRED STOCK, OPTIONS AND WARRANTS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS.
We may issue additional shares of our common
stock, preferred stock, options and warrants in the future. The issuance of a substantial amount of common stock, options and warrants
could have the effect of substantially diluting the interests of our current stockholders. In addition, the sale of a substantial
amount of common stock or preferred stock in the public market, or the exercise of a substantial number of warrants and options
either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such common stock
as consideration or by investors who acquired such common stock in a private placement could have an adverse effect on the market
price of our common stock.
OUR EXECUTIVE OFFICERS AND DIRECTORS
POSSESS SIGNIFICANT VOTING POWER WITH RESPECT TO OUR COMMON STOCK, WHICH WILL LIMIT YOUR INFLUENCE ON CORPORATE MATTERS.
As of March 12, 2021, our directors and
executive officers collectively beneficially own approximately 18.33% of the shares of our common stock including the beneficial
ownership of Mr. Liscouski of 3.53% of the shares of our common stock.
As a result, our insiders have the ability
to significantly influence our management and affairs through the election and removal of our Board and all other matters requiring
stockholder approval, including any future merger, consolidation or sale of all or substantially all of our assets. This concentrated
voting power could discourage others from initiating any potential merger, takeover or other change-of-control transaction that
may otherwise be beneficial to our stockholders. Furthermore, this concentrated control will limit the practical effect of your
influence over our business and affairs, through any stockholder vote or otherwise. Any of these effects could depress the price
of our common stock.
18
OUR ARTICLES OF INCORPORATION GRANTS
OUR BOARD THE POWER TO ISSUE ADDITIONAL SHARES OF COMMON AND PREFERRED SHARES AND TO DESIGNATE OTHER CLASSES OF PREFERRED SHARES,
ALL WITHOUT STOCKHOLDER APPROVAL.
Our authorized capital consists of 260,000,000
shares of capital stock of which 10,000,000 shares are authorized as preferred stock. Our Board, without any action by our stockholders,
may designate and issue shares of preferred stock in such series as it deems appropriate and establish the rights, preferences
and privileges of such shares, including dividends, liquidation and voting rights, provided it is consistent with Delaware law.
The rights of holders of our preferred
stock that may be issued could be superior to the rights of holders of our shares of common stock. The designation and issuance
of shares of capital stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock.
Furthermore, any issuances of additional stock (common or preferred) will dilute the percentage of ownership interest of then-current
holders of our capital stock and may dilute our book value per share.
ITEM 1B. UNRESOLVED
STAFF COMMENTS.
Not applicable
ITEM 2. PROPERTIES.
We
maintain our current principal office at 215 Depot Court SE #215, Leesburg, VA 20175. Our telephone number at this office is (703)
436-2161. The Company leases approximately 350 square feet on a month-to-month basis in a multi-tenant facility that provides conference
room space, 24/7 co-working space, and other services on an as-needed basis in Leesburg, VA. The facility lease can be terminated
upon 30 days written notice by the Company.
ITEM 3. LEGAL
PROCEEDINGS.
We are not currently involved in any litigation
that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit,
or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge
of the executive officers of our Company or our subsidiaries, threatened against or affecting our Company, our common stock, our
subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse
decision could have a material adverse effect.
ITEM 4. MINE
SAFETY DISCLOSURES.
Not applicable.
19
PART II
ITEM 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is qualified for quotation
on the OTC Markets-OTCQB under the symbol “QUBT” and has been quoted on the OTCQB since August 2019.
Authorized Capital
The Company is authorized by its Certificate
of Incorporation to issue an aggregate of 250,000,000 shares of common stock, $0.0001 par value per share (the “Common Stock”),
and 10,000,000 shares of blank check preferred. As of March 17, 2021, 28,667,925 shares of Common Stock were issued and outstanding
and no shares of preferred stock were outstanding.
Holders of Common Equity
As of March 17, 2021, there were approximately
561 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number
of beneficial holders of our shares is substantially larger than the number of stockholders of record.
Dividend Information
We have not paid any cash dividends to
our holders of common stock. The declaration of any future cash dividends is at the discretion of our board of directors and depends
upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent
conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings,
if any, in our business operations.
Unregistered Sales of Equity Securities
and Use of Proceeds
During the year ended December 31, 2020,
we have issued securities that were not registered under the Securities Act, all of which were previously disclosed in a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K.
ITEM 6. SELECTED
FINANCIAL DATA.
We are not required to provide the information
required by this item because we are a smaller reporting company.
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, 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.
20
Results of
Operations
Twelve Months Ended December
31, 2020 vs. December 31, 2019
Revenues
(In thousands) Amount Mix Amount Mix Change
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.
21
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