SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
☒
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the fiscal year ended December 31, 2021
or
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from __________________ to __________________
Commission
File Number: 000-56015
QUANTUM
COMPUTING INC.
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
215
Depot Court SE, Suite 215
Leesburg,
VA20175
(Address
of principal executive offices)
(703)436-2121
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $.0001 QUBT The Nasdaq Capital Market
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No
☒
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit and post such
files. Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.
The
aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2021 was $117,443,633
based on the closing price of $5.20 per share of Quantum Computing, Inc. common stock as quoted on the OTC Marketplace on that date.
As of March 11, 2022,
there were 29,156,815 shares of the registrant’s common stock issued and outstanding.
Documents
Incorporated by Reference
N/A
TABLE
OF CONTENTS
PART I 1
ITEM 1. BUSINESS. 1
ITEM 1A. RISK FACTORS. 12
ITEM 1B. UNRESOLVED STAFF COMMENTS. 26
ITEM 2. PROPERTIES. 27
ITEM 3. LEGAL PROCEEDINGS. 27
ITEM 4. MINE SAFETY DISCLOSURES 27
ITEM 6. RESERVED 28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 33
ITEM 9A. CONTROLS AND PROCEDURES. 34
ITEM 9B. OTHER INFORMATION. 36
ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. 36
PART III 37
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 37
ITEM 11. EXECUTIVE COMPENSATION. 45
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 52
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 53
Introductory
Comments
Throughout
this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the Company,” “our
Company,” “QCI” and “QUBT,” refer to Quantum Computing, Inc., a Delaware corporation, and unless the context
indicates otherwise, also includes our wholly-owned subsidiary.
i
PART
I
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In some cases, forward-looking statements are identified by terms such as “may,” “will,” “should,”
“could,” “would,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “projects,” “predicts,” “potential” and similar expressions intended to
identify forward-looking statements.
These
forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements, expressed or implied, by such forward-looking statements. Also, these forward-looking statements represent
our estimates and assumptions only as of the date of this Annual Report on Form 10-K. Except as otherwise required by law, we expressly
disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this
Annual Report on Form 10-K to reflect any change in our expectations or any change in events, conditions or circumstances on which any
of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial and other
results include those discussed in the risk factors set forth in Part I, Item 1A of this Annual Report on Form 10-K as well as those
discussed elsewhere in this Annual Report on Form 10-K. We qualify all of our forward-looking statements by these cautionary statements.
ITEM
1. BUSINESS.
History
Quantum
Computing Inc. (“QCI” or the “Company”) was incorporated in the State of Nevada on July 25, 2001, as Ticketcart,
Inc. Ticketcart’s original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and
compatible cartridges for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative
Beverage Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business
operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017, one
of IBGH’s shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1) fraud;
and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.” Mr. Alessi’s
complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s assets to be wasted, causing
injury to the Company and its shareholders. Mr. Alessi sought damages of $30,000 for each claim, plus reimbursement of filing costs of
$1,000, and the appointment of a Receiver for the Company.
On
August 28, 2017, the North Carolina Court, Superior Court Division (the “North Carolina Court”), entered a default judgment
for Plaintiff and appointed an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative
Beverage Group Holdings, Inc. was (i) to issue to the Plaintiff 18,500,000 shares of free-trading stock without registration under Section
3(a)(10) of the Securities Act of 1933, as amended, (ii) issue 100,000,000 shares of stock to Innovative Beverage Group Holdings, Inc.’s
treasury, and (iii) that the receivership be terminated upon any change of control, and that any and all claims against Innovative Beverage
Group Holdings, Inc. that were not submitted to the Receiver as of September 16, 2017, were disallowed. On October 4, 2017 the Receiver
filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned subsidiary of the Company,
(“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, Inc. redomiciled to North Carolina.
1
On
January 22, 2018, while the Company was in receivership, the Company (acting through the court-appointed receiver in her capacity as
CEO and sole Director of the Company) sold 500,000 shares (the “CRG Shares”) of its common stock to Convergent Risk Group
(“CRG”, or “Convergent Risk”), an entity owned and operated by the Company’s Chief Executive Officer, Robert
Liscouski, for $155,000. On February 21, 2018, by written consent of the majority shareholder (Convergent Risk), Mr. Robert Liscouski
(the Chief Executive Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the Company’s Board of
Directors. Mr. Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder also directed the Company to take
the necessary action to change its domicile from North Carolina to Delaware and change its name to Quantum Computing Inc. On February
21, 2018, the Company filed Articles of Conversion in North Carolina to convert the Company to a Delaware corporation with the name changed
to Quantum Computing Inc. On February 22, 2018, the Company filed a Certificate of Conversion in Delaware to convert to a Delaware corporation
with the name changed to Quantum Computing Inc. and re-domiciled to the state of Delaware on February 23, 2018.
The
Computing Landscape and The End of Moore’s Law
For
the past 45 years or so, silicon-based processor manufacturers have been able to double their processing power every 18 to 24 months,
a phenomenon known in the computer industry as “Moore’s Law.” Recently, the computer processor industry has found it
increasingly difficult to offer faster, more powerful processors due to fundamental physical effects limiting further size reduction
of transistors.
Quantum
computing is believed to be a potential solution to the hard limits now being approached by conventional computers that utilize silicon-based
processors. The date of practical relevance of quantum computers is hard to determine. We believe it could be as soon as 2021, but a
more conservative estimate is that quantum computers with gradually increasing performance will be introduced by multiple vendors over
the course of the next decade.
Additionally,
conventional computers are known to struggle with optimization problems known as NP-complete problems, which are a class
of mathematical problems that can, in principle, be solved by conventional computers, with that caveat that the time to solution will
grow exponentially with the size of the problem. These NP-complete problems require complex calculations, which cannot currently be performed
in any reasonable amount of time using conventional computer systems for problem sizes relevant to many industrial and government applications.
Research
suggests that quantum computers may be ideally suited to run optimization algorithms, where further advancements in quantum annealing
and other quantum computing hardware could result in computational benefit over currently used conventional systems. The ability to solve
NP-complete problems in a reasonable period of time is of particular interest in compute-heavy fields that include, but are not limited
to: big data, artificial intelligence, healthcare, and cybersecurity. We believe these are natural markets for quantum computing, due
to the immense compute power required to process large data sets, which have experienced exponential growth in size and complexity in
recent years.
2
Our
Company
The
Company is focused on providing software tools and applications for quantum computers. We believe there is significant business opportunity
in the quantum computing industry, and that the quantum computer has the potential to disrupt several global industries. Independent
of when quantum computing delivers compelling performance advantage over conventional computing, the software tools and applications
necessary for accelerating real-world problems must be developed to deliver on quantum computing’s full promise.
Quantum
computing is a fundamentally new paradigm compared with conventional silicon-based computing, requiring a new and highly technical set
of skills to create the software that will drive quantum results. Organizations seeking to gain advantage from the promise of quantum
technology must acquire and develop skills in quantum mechanics, mathematics and physics, and a deep knowledge of the ever-changing quantum
hardware. The pool of people with those skills today is limited and in high demand.
In
order to address the steep learning curve and highly particular skillset associated with quantum computing, the Company is developing
“quantum ready” software applications and solutions for commercial and government entities looking to leverage the expected
future performance of quantum computing. We are focused on being an enabler – creating software that provide the advantages of
advanced computing hardware for forward thinking clients.
By
reducing the barriers to adoption for commercial and government entities in using quantum computing technologies to solve their most
complex problems, we believe our products will accelerate quantum technology adoption similar to the adoption curve that has been witnessed
with artificial intelligence. To this end, we are leveraging our collective expertise in finance, computing, mathematics and physics
to develop a suite of applications that may enable global industries to utilize quantum computers, quantum annealers and digital simulators
to improve their processes, profitability, and security.
Our
Strategy
While
the majority of the quantum computing market is focused on Quantum Computing hardware, we realized the traditional software development
toolkit (“SDK”) approach to creating quantum computing software is poorly suited for non-quantum experts, given the completely
new programming paradigm.
3
This
represents a significant barrier to entry for companies looking to leverage novel quantum computing capabilities for their business needs.
Utilizing quantum computers for real-world problems requires an abstract blend of a wide range of computing and non-computing expertise,
including but not limited to:
Given
the dramatic differences in quantum computer hardware architectures currently under development, quantum software requires a dramatic
shift from classic software, and requires creating every single circuit, gate, algorithm, action and process in software. Moreover, the
collective requirements imposed upon companies looking to utilize quantum computers can require a training period of a year or longer,
even for a highly qualified subject matter expert. Consequently, the time, difficult and expense of hiring such a diverse and deeply
knowledgeable team to create quantum applications and workflows limits any organization’s ability to move forward quickly with
the power of quantum computing.
4
Such
difficulties have created a significant barrier to entry in quantum computing have informed the Company’s opportunities and goals,
which are to:
Products
and Products in Development
Qatalyst
Qatalyst
(formerly Mukai) is our answer to the current state of the quantum computing industry. As the industry’s first publicly available
Quantum Application Accelerator, Qatalyst enables developers to create and execute quantum-ready applications on conventional computers,
while being ready to run on quantum computers where those systems achieve performance advantage. Qatalyst performs the complex problem
transformations necessary to be executed on a variety of quantum platforms today, and users can call upon the same Qatalyst APIs (Application
Programming Interfaces) to achieve optimization performance advantages on conventional computers using our cloud-based solution.
Qatalyst
dramatically reduces the time-to-quality results and the associated costs for both conventional and quantum computers. Unlike more common
toolsets that require deep level quantum expertise to build new quantum problems and workflows, Qatalyst is not a tool kit, but a complete
platform. It accelerates performance and results on classic and quantum computers, with no additional quantum programming or quantum
computing expertise required. This is why it is unique in its approach to the quantum computing industry. Instead of invoking a team
of quantum specialists to transform an optimization problem, an SME or programmer submits their current problem via a software API to
the Qatalyst cloud-based platform. Qatalyst manages the workflow, optimizations, and results, without any further intervention by the
user. Qatalyst provides a unique advantage to reduce applications development risks and costs by eliminating the need for scarce high-end
quantum programmers.
Qatalyst
is integrated with the Amazon Cloud BRAKET API, offering access to multiple Quantum Processing Units (“QPUs”) including DWave,
Rigetti, and IonQ. Qatalyst also integrates directly with IBM’s QPUs.
5
By
using Qatalyst, application developers can run their applications on any or all of the available QPUs by merely selecting which QPU they
prefer to run on based on the desired performance results of the application. We believe this provides a substantial advantage over any
other toolkit or platform in the market today. These advantages are significant not just for application developers but for any company
that is considering using or exploring quantum computing technology for business applications.
Qatalyst
also eliminates the need for the low-level hardware programming expertise required by toolkits. This programming is time consuming and
must be updated constantly as QPUs evolve and change, resulting in significant development costs. Qatalyst automatically optimizes the
same problem submitted by a SME for multiple Quantum and Conventional Processors. The SME or programmer selects one, or many, processing
resources and the problem will be submitted by Qatalyst. This is an enormous advantage over any tool set in the market today. These advantages
are significant not just for application developers but for any company that is considering using or exploring quantum computing technology
for business applications.
The
Company’s innovative Qatalyst software masks the complexity of quantum programming via the Q API, a powerful six call API that
users can learn in a day. Instead of spending months or years developing new applications and workflows requiring complex and extremely
low-level coding, users, workflows or applications can immediately submit a problem to Qatalyst within a day, using the same familiar
constructs they use right now, via the Q API. Users have utilized Qatalyst’s simple API and familiar constructs to solve their
first complex problem within a week, as compared to the 6-12 months associated with quantum software toolkits.
Qatalyst
Features
Today,
SMEs can leverage the power of Qatalyst to solve high-value discrete optimization problems present in finance, bio/pharma, and cybersecurity.
Currently, Qatalyst offers the following features:
6
Market
Opportunity
It
is important to note that our product utilizes a software technique known as a “Solver” (qci-Qbsolv), which is a set of instructions
whose function is to calculate the minimum values of a large optimization problem, which is presented in the form of a quadratic unconstrained
binary optimization or “QUBO”. The Company’s Solvers deliver the the aforementioned performance advantages while running
on today’s conventional computers and will be able to deliver significantly improved performance as better QPU technology becomes
available. To that end, the Company is beginning to seek marketing and distribution partnerships where our current solver technologies
can be deployed to enable industry-specific application performance.
The
Company is also working on software products to address community detection to aid researchers in discovering correlations that may not
have been imagined. We believe that community detection holds significant promise in pharmaceutical applications such as evaluating client
trial outcomes, and in epidemiology to enable detection of common factors among a population.
In
addition to commercial markets, the Company is pursuing a number of US government funded opportunities.
The
US Government, through the National Quantum Initiative Act of 2018 (“NQIA”), which was signed into law on December 21, 2018,
established the goal to ensure the continued leadership of the United States in quantum information
science and its technology applications. The NQIA provides for a coordinated Federal program to accelerate quantum research and development
for the economic and national security of the United States. The NQIA authorizes the National
Institute of Standards and Technology (NIST), the National Science Foundation (NSF), and the Department of Energy (DOE), to strengthen
QIS Programs, Centers, and Consortia. The NQIA also calls for a coordinated approach to QIS Research and Development (R&D) efforts
across the United States Government, including the civilian, defense, and intelligence sectors. Significant government funding
has been allocated for research initiatives including a fiscal year 2020 Department of Energy initiative of $625 million over the next
five years to establish two to five multidisciplinary Quantum Information Science (QIS) Research Centers in support of the National Quantum
Initiative. The Quantum Economic Development Consortium (QED-C), a consortium of stakeholders that aims to enable and grow the U.S. quantum
industry. QED-C was established with support from the National Institute of Standards and Technology (NIST) as part of the Federal strategy
for advancing quantum information science. The Company is one of the founding members of the QED-C.
7
Technology
Provider Partnerships
The
Company is pursuing a number of commercial partnerships and research areas funded by the government that directly relate to its capabilities.
To strengthen its technology base, the Company has entered into teaming agreements with companies to partner on joint pursuit of those
opportunities or to offer services available through those partners.
Splunk
Technology Alliance Partnership Agreement
The
Company is pursuing a number of research areas funded by the government that directly relate to its capabilities. To strengthen its technology
base, the Company has entered into a Technology Alliance Partnership agreement with Splunk, Inc. (NASDAQ: SPLK). The Company is partnering
with Splunk to pursue government funded efforts to do both fundamental and applied research and develop analytics that exploit conventional
large-data cybersecurity stores and data-analytics workflows, combined with quantum-ready graph and constrained-optimization algorithms.
These algorithms will initially be developed using the Company’s Qatalyst software platform, which enables quantum-ready algorithms
to execute on conventional hardware and also to run without modification on QC hardware when ready. Once proofs of concept are completed,
the Company and Splunk will develop new analytics with these algorithms in the Splunk data-analytics platform, to evaluate quantum analytics
readiness on real-world data. The Splunk platform/toolkits help customers address challenging analytical problems via neural nets or
custom algorithms, extensible to Deep Learning frameworks through an open source approach that incorporates existing and custom libraries.
The initial efforts of our partnership with Splunk will focus on three key challenges; network security, dynamic logistics and scheduling.
Amazon
Web Services – BRAKET
Quantum
Computing is the first company with a quantum software development and execution platform to provide the widest selection of QCs via
the cloud, including those offered by IonQ, D-Wave, Rigetti, and others via Amazon Braket. Amazon Braket is a fully managed quantum computing
service that helps researchers and developers get started with the technology to accelerate research and discovery. Amazon Braket provides
a development environment for users to explore and build quantum algorithms, test them on quantum circuit simulators, and run them on
different quantum hardware technologies. Quantum Computing provides access to subject matter experts and applications developers to quantum
computers available on Amazon Braket via its Qatalyst software. The Company intends to expand the capabilities available through the
Amazon Braket service going forward, and also plans to provide access to additional quantum computers through Qatalyst over the next
several months.
QikStart
Management
believes that the development of real-world use cases, not just science projects, is critical to the forward momentum of quantum computing
as a practical tool. To that end, the Company has created an internally funded program called QikStart which provides access to Qatalyst
and cloud-based resources, experts, and funding to explore and push the boundaries of quantum computing for delivering practical business
results, today.
8
Industry
Overview
We operate in the large and global high-performance computing industry,
which is comprised of hardware, software, and services for compute intensive applications. The rapid adoption of technologies such as
artificial intelligence, 3D imaging, and the Internet of Things (IoT), have served to exponentially increase the generation of data, driving
up the demand for high-performance computing. Computationally intensive applications are ubiquitous across various industries, including,
but not limited to: IT, aerospace, healthcare, automotive, and e-commerce. Examples of compute intensive applications include optimization,
data management, analytics, and complex modeling. Estimates of the size of this industry vary, but according to Grand View Research, the
High-Performance computing market was valued at $39.1 billion in 2019 and is expected to reach a value of $53.6 billion by 2027. According
to a report from Allied Market Research, the global enterprise quantum computing market size was valued at $1.3 billion in 2020, and is
projected to reach $18.3 billion by 2030, growing at a CAGR of 29.7% from 2021 to 2030.
Quantum
Computing is a nascent and rapidly developing technology ecosystem that has shown promise in delivering potentially disruptive computing
capabilities. We believe Quantum Computing’s immense compute capabilities qualify it as a subset of High-Performance Computing.
As quantum computing hardware continues to advance, we expect a corresponding growth in demand for software capable of leveraging the
compute capabilities of Quantum Computing hardware. We are developing hardware agnostic software capable of delivering high-performance
computing capabilities to various industries while mitigating dependency risks that may emerge from a dominant quantum computing hardware
vendor. As an early participant in this rapidly growing ecosystem, we believe we are well-positioned to capture and drive a meaningful
amount of this category growth. We also believe there is a significant international market opportunity for our future products.
We
expect continued growth in the research and developing of the quantum computing industry, driven by interest from both the private and
public sectors. According to a report published by the Quantum Daily, “The Quantum Annual 2021” (https://thequantuminsider.com/reports)
a total of $3.2 billion was invested in quantum technology companies in 2021. In addition, the US Government has committed $1.3 billion
to funding quantum information science programs under the National Quantum Initiative enacted in 2018.
The
Company is a member of the Quantum Economic Development Consortium (QED-C). The QED-C, whose members include companies such as Google
and Microsoft, has been tasked with developing the U.S. Quantum Computing Industry.
Competition
The
Quantum Computing Industry is new and rapidly developing, and as such, is and will remain dynamic and extremely competitive for the foreseeable
future. As this industry continues to grow and mature, we expect a steady influx of new products, hardware advances, and new concepts
to emerge that can dramatically transform the industry and our business. One such example would be a practical application of “quantum
supremacy”, which we expect to radically accelerate the interest and entry in the quantum computing industry. We perform a broad
range of research and development efforts to identify and position for the changing demands of future customers and users, industry trends,
and competitive forces.
9
Based
on our internal research and knowledge, there are over 130 companies and research universities who are known to be engaged in research
and development relating to quantum computing. These entities range in size from diversified global companies with significant research
and development resources such as Google, Honeywell and IBM to smaller privately funded startups whose narrower product focuses may let
them be more effective in deploying resources towards a specific industry demand. Our business objectives and near term strategy put
us in direct competition with existing software vendors for high performance computing, who may not be operating in the quantum computing
ecosystem.
We
believe competition in this market segment will intensify. Many of our competitors may have longer operating histories, significantly
greater financial, technical, product development and marketing resources, and greater name recognition. Our competitors could use
these resources to market or develop products or services that are more effective or less costly than any or all of our products or services.
The
software segment of the quantum computing ecosystem is still in its infancy, and to our knowledge a market-dominant entity has not yet
been established. Due to the high price point of quantum computing hardware, novel business models may emerge to adapt to consumer preferences
in the high-performance computing industry. Our ability to evolve and adapt rapidly over an extended period of time will be critical
in remaining competitive.
Government
Regulation and Incentives
Financial
Algorithms
US
firms and FINRA members that use financial algorithms to conduct high frequency trading are subject to SEC and FINRA regulations that
govern their trading activities under long standing rules governing supervision and control practices to reduce the likelihood of market
disruptions and ensure effective communication between the firm’s compliance staff and its trading strategy personnel. Additional
regulation on financial algorithms has been proposed by the Commodity Futures Trading Commission (“CFTC”) aimed at limiting
the potential for financial algorithms and high frequency trading to disrupt markets. The proposed regulations would require firms using
such algorithms to implement pre-trade risk controls, limit self-trading and make the source code of the software programs available
to the government upon request. To the Company’s knowledge, these regulations, especially the mandatory source code disclosure
provisions, have been vigorously opposed by the industry and have not yet been implemented.
The
government agencies charged with regulating financial markets in the US and around the world have so far not closely regulated financial
algorithms or algorithmic trading, but that could change in response to future market events. The benefit of algorithmic trading is that
it can bring greater liquidity, transparency and accountability to markets, and also reduces price variations between global markets.
Financial markets in many developing countries have benefited from implementation of algorithmic trading. There are, of course, limitations
to what financial algorithms can accomplish today with conventional super computers, and when multiple algorithms trade in lockstep a
single price fluctuation can trigger a cascade of downward trades that can crash a market very quickly, before human intervention can
stop the downward spiral. This phenomenon is known as a “Flash Crash” and regulators have imposed some regulations to slow
down or suspend trading when a market drops more than a fixed percentage in a short period of time.
10
Encryption
The
U.S. government has historically tightly regulated the export of cryptographic technologies under the Arms Export Control Act and the
associated International Traffic in Arms regulations (ITAR) as a form of munition. The logic behind the export restrictions is that the
ability to secure information has great value to the military and intelligence agencies, and the US Government does not want those technologies
sold or distributed to foreign adversaries. These regulations were relaxed in 1996 by executive order, but restrictions are still in
place under the Export Administration Act that limit the export of some advanced encryption methods and technologies. Export of commercial
encryption products to certain designated countries and terrorist groups is restricted, as are exports of military quality encryption
technologies. Restrictions on encryption technology are in place in many other countries but the extent of regulation varies widely from
country to country. Domestically, encryption technology is largely unregulated but law enforcement, intelligence and investigative agencies
work closely with encryption technology developers to enable the US government to access encrypted data under certain conditions. We
believe that the quantum encryption and decryption products that QCI plans to develop can be marketed to government agencies seeking
to unlock encrypted data or to encrypt and protect sensitive government data from unauthorized exposure.
Incentives
In
2018, Congress authorized $1.3 billion over five years to fund quantum related research projects. This funding is being administered
by the U.S. Department of Defense which will solicit proposals for research. The Company intends to submit proposals for funding, but
there can be no guarantee the Company will be chosen or that the Company will receive any government funding. In addition, in 2018, President
Trump announced the formation of a National Quantum Initiative consisting of key technology companies working in the field of quantum
computing. The Company is a member of that Initiative and is also a member of the Quantum Economic Development Council.
In
December 2018, Congress passed the National Quantum Initiative Act (the “Quantum Act”), which was signed into law on December
21, 2018. The purpose of the Quantum Act is to “ensure the continued leadership of the United States in quantum information science”
and to develop a unified national strategy for researching quantum information science. The Quantum Act authorizes a National Quantum
Coordination Office inside the White House’s Office of Science and Technology Policy to help coordinate research between agencies,
serve as the federal point of contact and promote private commercialization of federal research breakthroughs over the next decade.
11
The Quantum Act also authorized:
● Research and education centers in the National Science Foundation.
● A National Quantum Initiative Advisory Committee to advise the President.
The overall goals of the Quantum Act include
the eventual creation of industry standards for QIS development, new research grant funding and increased collaboration with the private
sector. Quantum technology, including quantum computing, has drawn significant attention from Congress and the White House for its theoretical
potential to increase computing power and disrupt encryption standards. Rival countries like China and Russia are pushing hard to
improve their own QIS capabilities. In 2020, the White House Office of Science and Technology Policy, the National Science Foundation
and the Department of Energy announced a fund of $1 billion to establish twelve artificial intelligence and quantum information science
research centers nationwide
Employees
We currently have twenty-five full time employees
and seven part time contract staff, twenty of whom are focused on product and software development, and six Technical Advisors (one from
the National Security Domain, four from the Quantum/AI Domain, and two from the Financial Services Domain). We also have two third party
partners providing software development and big data analysis services. The employees are not part of a collective bargaining agreement
and labor relationships are good.
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 2021 and 2020. As of December 31, 2021 and 2020, our accumulated deficit was $81,394,081 and
$53,495,235, 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.
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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 20-24 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.
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.
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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.
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.
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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, our Chief Operating Officer, Mr. William McGann,
and our Chief Financial Officer, Mr. Christopher Roberts. The loss of Mr. Liscouski’s, Mr. McGann’s or Mr. Roberts’
services would have a material adverse effect on the Company and its business operations.
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 and service 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.
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.
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COMPUTER MALWARE, VIRUSES, HACKING, PHISHING
ATTACKS AND SPAMMING COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.