ITEM
1. BUSINESS.
History
Quantum
Computing Inc.’s (“QCI” or the “Company”) predecessor 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 IBGH.
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 IBGH. The default judgment provided that IBGH 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 IBGH 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.
On
January 22, 2018, while IBGH was in receivership, IBGH (acting through the court-appointed receiver in her capacity as acting CEO and
sole Director of the Company) sold the 100,000,000 treasury shares (which became 500,000 shares of the Company common stock following
a reverse stock split) (the “IBGH Shares”) of its common stock to Convergent Risk Group (“CRG”, or “Convergent
Risk”), an entity owned and operated by Convergent Risk’s Chief Executive Officer, Robert Liscouski, for $155,000. This sale
gave CRG voting control of IBGH. 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, IBGH 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, IBGH 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 quantum availability has begun and
that conservatively 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
within 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 solve optimization problems of this type.
The
Company
Quantum
Computing Inc. is a full-stack quantum solutions company. Our mission is to be the democratizing force that brings quantum solutions
to business, academia, government, and ultimately individual users. Our solutions enable subject matter experts (SMEs) and end users
to get answers to critical business problems today, using the computing solutions that best deliver those results.
Since
our formation in 2018, the Company has focused on providing software tools and applications for several commercially available quantum
computers and we remain committed to that goal. However, following the June 2022 merger with QPhoton, Inc. (“QPhoton”) and
its associated intellectual property and engineering team, the Company is now able to provide full-stack quantum information services.
The
core of our quantum information services today is our Entropy Quantum Computing (EQC) technology. We have built room-temperature, photonic
quantum information processing systems underpinned by a series of patented and patent pending technologies. We believe this will enable
us to develop and produce multiple generations of quantum information processors with increasing computational power, capacity, and speed,
as well as the eventual hardware miniaturization. Such systems are expected to deliver compelling performance advantages over classical
computational machines and will eventually be able to solve complex problems more effectively and efficiently in terms of scalability,
power consumption, and cost compared with current high-performance computing technology. Our technology, supported by professional services
through our “Quantum Solutions” offering, helps our clients benefit from the technology today.
In
addition, our leading-edge photonic technology and engineering teams will enable QCI to continue to enhance quantum LIDAR and sensing
systems, imaging systems, quantum-secured network solutions, and photonic quantum chips. Several of these important technologies are
already in early stages of commercialization.
Our
short-term core business model is based on generating revenue from selling access to our advanced quantum data processing systems via
the cloud, with the long-term model focused on selling desktop or rack-sized quantum devices and systems to commercial and individual
users. We currently offer access to our quantum computing machines via our own in-house cloud service and plan to eventually offer access
through other commercial service providers.
In
the near term, we plan to generate revenue from our “Quantum Solutions” team, collaborating directly with customers to take
them from problem formulation to solution. This end-to-end support empowers a spectrum of clientele, from users with little to no experience
in quantum processing to advanced users capable of independent problem formulation and execution through the service.
The
Company already produces its own lithium niobate nanophotonic circuits and has plans to scale production to meet projected demand. The
Company has announced plans to construct and operate a new state-of-the-art quantum nanophotonics technology manufacturing and research
center, which we believe could be the world’s first dedicated quantum-photonic chip manufacturer. The plan for the facility is
to produce a range of lithium niobate nanophotonic circuits for internal use in our own product lines and for general sale in the market.
This initiative is expected to benefit from the US CHIPS and Science Act of 2022 (the "CHIPS Act"), which allocates
$52 billion for the revitalization and onshoring of semiconductor manufacturing in the U.S. The CHIPS Act funding includes $39 billion
in manufacturing incentives and $13 billion to support new research and development.
QCI
is focused on providing integrated quantum information gathering, transmission, and processing solutions, including both the user interface
software and the quantum hardware. With our proprietary full-stack technologies that are designed using our solution-oriented system
architectures, we believe we will have a competitive advantage in the market. With an integrated engineering team working across multiple
quantum technology domains, we believe we are uniquely positioned to leverage our expertise in software, hardware, and nanophotonic circuits
to develop quantum services and products, from quantum chip design and manufacturing through cloud delivery and eventually sales of hardware
systems. We believe this full-stack development approach offers both the fastest and lowest risk path to building commercially valuable
quantum machines.
Our
Strategy
QCI’s
strategy has evolved to become a full stack quantum solutions company, with products and services available in the market today. When
QCI was formed several years ago, quantum computing was a fundamentally new paradigm compared with conventional computing, requiring
a new and highly technical set of skills to create the hardware and software to drive quantum results. The pool of people with those
skills is limited and in high demand. In addition, the predominant quantum computer programming approach, using one or more software
development toolkits (“SDK’s”) to create a quantum computing program was and continues to be today, slow and costly,
and therefore poorly suited for non-quantum experts attempting to solve real world problems. Moreover, many types of quantum computing
hardware require delicate and expensive cryogenic isolation systems just to maintain stability, which makes it difficult for users to
interact with quantum computing systems. While quantum computing is generally still used mainly at universities and laboratories for
research and science experiments, a larger user community is emerging, demanding greater capabilities from quantum systems, leading to
frustration and comparisons to the similar market characteristics faced by artificial intelligence in its early days – high expectations
but low performance results.
QCI’s
merger with QPhoton, combined with QCI’s significant IP work that culminated in the development of the Company’s Qatalyst
software, enables the Company to offer room temperature quantum computation systems through cloud services today, as well as affordable,
turn-key products in the future. This combination of quantum hardware and software will address the steep learning curve and highly particular
skillsets generally associated with quantum information processing, which have historically represented significant barriers to adoption
for companies and government entities looking to leverage novel quantum computing capabilities to solve problems.
Market
Opportunity
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, according to We’re not prepared for the end of Moore’s Law, MIT Technology Review, February 2020;
https:// www.technologyreview.com/2020/02/24/905789/ (Information contained on, or that can be accessed through, this website is not
incorporated by reference in this Annual Report, and you should not consider information on this website to be part of this Annual Report).
Despite this progress in transistors and computing power, many of the world’s most important computational problems are still considered
impractical to solve with classical computers of today and the foreseeable future.
With
this in mind, quantum computing represents a potential alternative approach to the hard limits now being approached by conventional computers
that utilize silicon-based processors. This is because quantum computers apply the properties of quantum physics to operate in a fundamentally
different way. Classical computer chips use binary bits (ones and zeros) to represent information. Quantum computers utilize qubits,
which leverage some of the properties of quantum physics to potentially process computations that would otherwise be intractably difficult
using classical computers.
Research
suggests that quantum computers may be ideally suited to run optimization algorithms, where further advancements in approaches and quantum
computing hardware could result in computational benefit over currently used conventional systems. See Quantum Computing for Finance:
Overview and Prospects, https://www.sciencedirect.com/science/article/pii/S2405428318300571 (Information contained on, or that can
be accessed through, this website is not incorporated by reference in this Annual Report, and you should not consider information on
this website to be part of this Annual Report). The ability to solve challenging computational 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 rapid growth in size and complexity in recent years.
Products
and Products in Development
Qatalyst
QCI’s
evolution into full-stack quantum computing company was enabled by the prior creation of its Qatalyst software. The Qatalyst development
platform is QCI’s answer to the broader industry’s current approach to quantum software development, which relies on highly
trained scientists working with SDK’s at the circuit level, which is analogous to programming in assembly language. Unlike SDK’s,
which require deep level quantum expertise to create quantum workflows, Qatalyst is not a tool kit, but a complete platform. Qatalyst
enables developers to create and execute quantum-ready applications on conventional computers, while also being ready to run on multiple
quantum computers. Qatalyst performs the complex problem transformations necessary to be executed on a variety of quantum processor platforms
today. Users can call upon the same Qatalyst APIs (Application Programming Interfaces) on conventional computers to achieve optimization
performance advantages using our cloud-based solution. Qatalyst dramatically reduces the required time, and the associated costs, for
obtaining results from both conventional and quantum computers. It accelerates performance and results on classic and quantum computers,
with no additional quantum programming or quantum computing expertise required. 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. Building a quantum program with an SDK is time consuming and the resulting
program must be updated constantly as QPUs evolve and change, resulting in significant development costs. Qatalyst automatically optimizes
the same problem submitted by a subject matter expert (“SME”) for multiple quantum and classical processors. With Qatalyst,
users only have to learn to use six API calls, which can be learned in a day by most programmers. Instead of spending months or years
developing new applications and workflows requiring complex and extremely low-level coding with SDKs, 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 Qatalyst 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
is integrated with the Amazon Web Services (AWS) cloud-based Braket service (“AWS Braket”), which offers access to multiple
Quantum Processing Units (“QPUs”) including Rigetti, Oxford Quantum Circuits and IonQ, QuEra, and Xanadu. Through AWS Braket
Qatalyst supports QPUs from Rigetti, Oxford Quantum Circuits and IonQ. Qatalyst also integrates with our own Dirac-1 (EQC-1) and Dirac-2
(EQC-2) systems. By using Qatalyst, users 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.
In addition, Qatalyst contains QCI’s proprietary optimization
problem solvers and QGraph and QAmplify tools. Qatalyst supports a variety of input formats for optimization problems to be solved on
quantum computers including objective-and-constraints, Hamiltonian, and Quadratic Unconstrained Binary Optimization (QUBO) formats.
QGraph is a powerful transformation engine that enables SMEs to submit and analyze graph models as part of their complex optimizations.
QGraph accepts familiar graph models and functions including Community Detection and Partitioning. QAmplify is a patented software technology
that can expand the processing power of a quantum computer, primarily by spreading the problem over multiple small computers. QAmplify
is designed to work on gate model quantum computers as well as quantum annealers.
Entropy
Quantum Computer
The
core of QCI’s hardware offering is the Entropy Quantum Computer (EQC). The EQC leverages the principle of open quantum systems.
The EQC differs substantially from today’s Noisy Intermediate Scale Quantum (NISQ) computers offered by most of our competitors.
Quantum systems are naturally “open”, meaning, they inevitably interact with their surrounding environment. However, as a
result of these interactions, the wavefunctions describing those systems collapse, at which point the quantum information is lost and
the NISQ system “decoheres” which causes significant processing challenges for NISQ architectures.
The
EQC works by coupling photonic states to their surrounding environment (the Entropy), including quantum fluctuations of the electromagnetic
vacuum. This approach runs completely counter to those being developed with other atom / ion-based NISQ systems.
The
quantum vacuum fluctuations are ubiquitous and can be used to capture every possible outcome in a very large system with many configurations,
simultaneously, making the approach ideal for fast and accurate computations in optimization problems.
Today’s
NISQ computers are designed to produce closed quantum systems in pristine quantum states that are isolated from the environment, but
there is a significant engineering cost to protect quantum information from the environment to eliminate noise. This is why NISQ quantum
computers usually require cryogenic cooling, pure vacuum, vibration isolation and electromagnetic shielding. Those requirements introduce
high cost, complex maintenance, and ongoing stability issues.
Our
EQC machines are not subject to those environmental isolation requirements and can function effectively in normal device settings (desktop
or rack sizes, room temperature, battery-powered, turn-key, etc.). In addition to the Company’s announcement of Dirac 1, our first
commercially-available EQC, QCI plans to release a series of additional EQC products starting in 2023. This family of products will include
next generations of EQC that further expand the scale and capabilities of the EQC to broader, larger, and more complex optimization problems.
Developing this family of products will involve improving the size and capacity of the EQC machines by continuing to innovate in the
number, quality and operational fidelity of the qubits. This will include developing technology that operates using quantum digits (“qudits”)
instead of quantum bits (“qubits”). A qudit-based computer may prove better at tackling complex problems than qubit-based
computers, and may allow more computational power with fewer components.
EQC
Subscription Service
The
combination of the Entropy Quantum Computer and Qatalyst has enabled QCI to launch its cloud-based quantum computing solutions on a subscription
basis. Subscriptions are offered on an annual, quarterly, and proof of concept (short term) basis with discounts provided for multiyear
commitments. Subscription prices are based on the expected usage from each customer. A dedicated system subscription (currently
offered as the “Dirac Dedicated Subscription”), is also available that provides unlimited usage within the SLA
included in our agreement. QCI anticipates that our subscription service will be competitive with the quantum computing subscription
services offered by our competitors, such as IBM, IonQ and Quantinuum. However, we believe our subscription service will offer significant
computational advantage that will differentiate it from our competitors.
The
Dirac Dedicated Subscription will provide a customer with exclusive use of a Dirac EQC system from our datacenter without ever having
to wait for other users to complete their work nor having to worry about the time it will take to solve their problem. QCI is also offering
potential clients the opportunity to run problems on our EQC on an hourly-rate basis to demonstrate our computational value prior to
entering into a longer subscription. Our Dirac Introductory Rate, which can be used for proof of concept evaluation, is an example of
when this rate may apply.
Some
companies utilize a per transaction-based model. Quantum computers typically use “shots” (a shot is a single processing submission
or ‘run’) to measure usage on their machines and per shot models typically cost a small fraction of a cent for each shot.
Most quantum problems require hundreds of thousands of shots. While the cost per shot is very low, the cost to solve a problem can quickly
rise to hundreds or thousands of dollars. AWS is one of the larger “per shot” providers utilizing their AWS Braket
services for companies including IonQ, Rigetti, Oxford Quantum Circuits, and QuEra.
Usage
of the Dirac EQC is done using a problem solution model, which is different from most other quantum computers. Rather than measure the
number of shots made by our system; we solve the problem by finding the lowest ground state energy and measure the completion of the
solution in the number of seconds or minutes it takes to complete solving the problem. While subscription sales will be the primary strategy
moving forward – we have not ruled out providing a per usage based model by partnering with ‘per shot” providers such
as AWS Braket and Strangeworks.
Initially
the EQC subscription services are hosted at the Company’s data center in Hoboken, New Jersey. As usage grows, we may utilize other
data centers including Amazon Web Services (AWS) for datacenter services. Many large computing and datacenter companies like, Google
and Microsoft also sell access to third party Quantum Computers over their networks on a commission basis. While we are focused on selling
subscriptions on Dirac in our own datacenter, there may be a time where we also provide subscriptions through Google, Microsoft, and
Amazon through their Marketplaces.
In
addition to shared subscription services and dedicated subscription services, we intend in the future to provide to customers an on-premise
implementation of the Dirac EQC as customer demand grows and our service organization matures. There are multiple markets which will
require this type of delivery including the United States Government, United States Military and European Financial Organizations,
where European laws require customer data to be always be in the control of the financial institutions. There are only a few on
premise implementations of quantum computers today and they require commitments of tens of millions of dollars. While pricing has
not been determined for the Dirac on-premise implementation, we expect it will be very competitive with the few on-premise quantum implementations
available today from other firms.
As
a full stack quantum solutions provider, while selling subscriptions in some manner to Dirac EQCs will be the cornerstone of our
business model, providing professional services or quantum solutions support will likely be needed in many cases, especially
in the beginning of a customers’ quantum journey. We partner today with large management consulting companies as a way to scale
our business and we expect that consulting partners will continue to grow in numbers and as a percentage of our customers.
In addition, we plan to always provide a Quantum Solutions offering for customers that prefer to work directly with a full
stack provider and customers who are using cutting edge technologies that may not have become supported yet by our consulting
partners.
As
we evolve the LiDAR and sensing systems, imaging systems, and quantum-secured networking technologies into products, the models described
above will be evaluated to select the best pricing and routes to market for each new product. Some will likely use the existing direct
sale model that we are using for Dirac, some may use an OEM model for inclusion in other companies’ products, and others may
be sold through 1 or 2 tier distribution. Each product will be evaluated for the best route to market to maximize the shareholder
value based upon their individual product attributes.
Quantum
Photonic Applications
The
merger with QPhoton has broadened the Company’s technology portfolio and enables us to develop a group of closely related products
to EQC, based on our common core photonic technology. Products in development include:
Quantum
Optical Chips
Optical
chips will ultimately provide the greatest scalability and performance advantages for quantum information processing, sensing and imaging.
The Company is actively working on the specification and design for a dedicated quantum optical chip fabrication facility to develop
and produce Lithium Niobate optical chips (“Quantum Chips”) for quantum information processing and other single photon detection
and sensing applications. The Company believes there is an opportunity to benefit from the recently authorized CHIPS Act and will take
steps to establish a U.S.-based chip facility in 2023. The Company is evaluating multiple options for a facility site, as well as potential
federal, state and regional funding incentives to help finance the project and advance quantum technology innovation. Construction of
such a fabrication facility for the Quantum Chips may take several years and there is no assurance that the Company will be able to raise
the necessary funding
Quantum
Imaging
One
of the most exciting opportunities in development involves leveraging the ability to count single photons and filter their associated
wave functions precisely to obtain optical imaging through otherwise opaque and dense materials. Quantum imaging has the potential to
be a powerful supplement to modern reconstructed computerized tomography (CT) imaging applications, where tissue damage from high energy
radiation can and needs to be avoided. Optical chips will ultimately provide the greatest scalability and performance advantages for
quantum information processing, sensing and imaging. When all of the critical optical components can be “embedded” on a fully
integrated chip, the efficiency and fidelity of the photonic quantum technologies will be fully realized. A prototype quantum imaging
system has been built and is currently undergoing testing by the Company.
Cybersecurity
– Quantum Networks and Quantum Authentication
The
Cybersecurity field has been aware for some time of the potential threats and benefits of quantum computing resulting from the expectation
that quantum computers will eventually have the capability to can “break” any of the currently utilized non-quantum-based
encryption methods. However, effective cybersecurity goes well beyond encryption for protection. Effective cybersecurity requires a holistic
approach to protecting the enterprise. The Company believes that our quantum computing capabilities may have applications in encryption.
However, initially we are applying our quantum technologies to create secure transport layers (quantum networks) and endpoints (quantum
authentication) which will contribute greatly to the cybersecurity domain, beyond encryption. QCI has several patents in the area of
quantum-based technologies for protection of data at rest and in quantum private communication. QCI plans to begin commercial development
of quantum networking products in 2023 and partnerships are actively being explored.
Quantum
Remote Sensing – QLiDAR
Our
Quantum LiDAR (“QLiDAR”) can see through dense fog and provide image fidelity at great distances and through difficult environments
such as snow, ice, and water. Once again, by leveraging the power of quantum mechanics and single photon detection, LiDAR systems can
be greatly enhanced in their ability to measure at improved resolution and distances as well as extend these photonic signals to applications
in vibrometry for material stress analysis, particle size analysis, and potential remote sensing from aircraft, drones and even satellites.
QCI’s commercial development of QLiDAR applications commenced in early 2023 and partnerships are actively being explored.
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. 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, see Grand View Research - High Performance Computing Market Size Worth
$53.6 Billion By 2027, https://www.grandviewresearch.com/press-release/global-high-performance-computing-hpc-market (Information
contained on, or that can be accessed through, this website is not incorporated by reference in this Annual Report, and you should not
consider information on this website to be part of this Annual Report). The high-performance computing market is important for many 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. Quantum computing is expected to be relevant for similar verticals and
applications. 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, according to a published
report on the enterprise quantum computing market at https://www.alliedmarketresearch.com/enterprise-quantum-computing-market (Information
contained on, or that can be accessed through, this website is not incorporated by reference in this Annual Report, and you should not
consider information on this website to be part of this Annual Report). While the current quantum computing market comprises a fraction
of the broader High-Performance computing market, it is expected that quantum computers will unlock new applications that are unlikely
to be addressable by existing High-Performance computers comprised of leveraging classical processing units.
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 quantum computing systems as well as 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 believe there is further potential upside from quantum computing
and technology more broadly opening up new markets not captured in traditional high-performance computing market size estimates.
Competition
The
quantum computing industry is highly competitive and rapidly evolving, and will likely remain so for the foreseeable future. As this
industry continues to grow and mature, we expect a continued influx of new competitors, products, hardware advances, and new concepts
to emerge that can dramatically transform the industry and our business. Due to the high price point of quantum computing hardware today,
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. 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.
According
to research conducted by The Quantum Insider (https://thequantuminsider.com/data), there are over 700 companies working in various aspects
of quantum technology, with approximately 400 of these having a pure play focus on quantum computing, according to The Landscape of
the Quantum Start-up Ecosystem, October 18, 2022, https://epjquantumtechnology.springeropen.com/articles/10.1140/epjqt/s40507-022-00146-x
(Information contained on, or that can be accessed through, this website is not incorporated by reference in this Annual Report, and
you should not consider information on this website to be part of this Annual Report). In addition, The Quantum Insider has identified
approximately 400 quantum academic groups across many universities. These entities range in size from diversified global companies with
significant research and development resources such as IBM, Google, Intel, Microsoft, Honeywell and Amazon to recent market entrants
such as D-Wave Quantum, Rigetti Computing, IonQ, PsiQuantum, Xanadu and Infleqtion (formerly ColdQuanta), as well as smaller privately
funded development stage companies whose narrower product focuses may let them be more effective in deploying resources towards a specific
industry demand. In addition, we face competition from large research organizations funded by sovereign nations such as China, Russia,
Canada, Australia, the United Kingdom, and the European Union, and we believe additional countries will invest in quantum computing in
the future. We will continue to face competition from the existing high performance computing industry using classical (non-quantum)
computers.
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.
Intellectual
Property
Our
intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research and
development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual
property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered
trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws
to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our
executive officers and directors.
Trademarks
The
Company has one registered trademark, “QPhoton,” and has applied for four additional trademarks, all of which are being used
in commerce:
Patents
The
Company has one granted United States patent.
Country |
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Serial
No. |
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Filing
Date |
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Patent
No. |
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|
Issue
Date |
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Title |
|
Status |
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Anticipated
Expiration Date |
USA |
|
17/560,816 |
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12/23/2021 |
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11,436,519 |
|
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09/06/2022 |
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Machine
Learning Mapping for Quantum Processing Units |
|
Granted |
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12/23/2041 |
Exclusive
License Agreement
QPhoton,
LLC has an exclusive license to seven patents issued to the Stevens Institute of Technology, pursuant to the license agreement by and
among the Company and The Trustees of The Stevens Institute of Technology (the “Licensor”), dated December 17, 2020. QPhoton,
LLC agreed to reimburse the Licensor for patent prosecution expenses in the amount of $125,041 and deliver to the Licensor an annual
report and quarterly report pursuant to the terms of the license agreement. As consideration for the license and other rights granted
under the license agreement, QPhoton, LLC agreed to pay the Licensor (i) $35,000 upon full execution of the license agreement, (ii) $28,000
each annual anniversary of the effective date of the license agreement, (iii) 9% of the membership units of QPhoton, LLC, and (iv) a
royalty of 3.5% of the net sales price of each license product sold or license by QPhoton, LLC and any affiliate and sublicensee. On
June 15, 2022, in anticipation of the closing of the QPhoton Merger (as defined below), the Licensor agreed to assign the license agreement
to the Company upon consummation of the QPhoton Merger.
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.
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 quantum encryption and decryption products can be marketed to U.S. government agencies but that export opportunities may
be limited. The National Security Agency (NSA) released the “Commercial National Security Algorithm Suite 2.0” (CNSA
2.0) Cybersecurity Advisory (CSA) to notify National Security Systems (NSS) owners, operators and vendors of the future quantum-resistant
(QR) algorithms requirements for NSS networks that contain or transfer classified information or are otherwise critical to military and
intelligence activities.
Incentives
In
December 2018, Congress passed, and President Trump signed, 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. In addition, 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.
The
Quantum Act also authorized the creation of five National Quantum Information Science Research Centers within the Department of Energy
and research and education centers in the National Science Foundation. The Quantum Act also anticipated the eventual creation of industry
standards for QIS development, new research grant funding and increased collaboration with the private sector, to date those standards
and industry funding opportunities have not materialized.
In
August 2022 Congress passed, and President Biden signed, the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the
“CHIPS Act”). The CHIPS Act was designed to address the global computer chip shortage and attract chip manufacturing, and
innovation to the United States. The CHIPS Act is a $280 billion spending package aimed at encouraging the growth of the US-based semiconductor
industry. To assist in securing the domestic chip supply, the CHIPS Act provides $52.7 billion for American semiconductor research, development,
manufacturing, and workforce development. The Company is pursuing programs under the CHIPS Act as a potential avenue to finance a photonic
chip manufacturing facility.
Recent
Developments
QPhoton
Merger
On
May 19, 2022, the Company, Project Alpha Merger Sub I, Inc., a Delaware corporation (“Merger Sub I”), Project Alpha Merger
Sub II, LLC, a Delaware limited liability company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”),
QPhoton, Inc., a Delaware corporation (“QPhoton”), and Yuping Huang, the principal stockholder of QPhoton (“Dr. Huang”),
entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which the Company agreed to acquire QPhoton
through a series of merger transactions (collectively with the other transactions contemplated by the Merger Agreement, the “QPhoton
Merger”).
On
June 16, 2022, the Company, the Merger Subs, QPhoton and Dr. Huang, having met or waived all conditions precedent, consummated the closing
for the QPhoton Merger pursuant to the terms of the Merger Agreement (the “Closing”). At the Closing, Merger Sub I merged
with and into QPhoton, with QPhoton surviving the merger as a wholly-owned subsidiary of the Company, immediately after which QPhoton
merged with and into Merger Sub II, with Merger Sub II surviving the merger as a wholly-owned subsidiary of the Company (subsequently
renamed QPhoton LLC). The merger consideration paid to the stockholders of QPhoton (the “Merger Consideration”) consisted
of (i) 5,802,206 shares of Common Stock, (ii) 2,377,028 shares of Series B Preferred Stock, and (iii) warrants (the “Warrants”)
to purchase up to 7,028,337 shares of Common Stock.
In
connection with the QPhoton Merger, the Company and certain securityholders of QPhoton holding more than 50% of the outstanding shares
of QPhoton common stock (the “Key QPhoton Stockholders”) entered into a Stockholders Agreement (the “Stockholders Agreement”),
pursuant to which, among other things, following the Closing, (i) Dr. Huang (or, if Dr. Huang holds less than a majority of the shares
of Common Stock issued in the QPhoton Merger, the holders of a majority of the shares of Common Stock issued in the QPhoton Merger) is
entitled to designate three directors for nomination for election to the board of directors of the Company and (ii) each stockholder
party to the Stockholders Agreement agrees to vote in favor of and consent to each such designee in connection with each vote taken or
written consent executed in connection with the election of directors to the board of directors of the Company. The Stockholders Agreement
will terminate at such time as the Key QPhoton Stockholders hold less than 18% of the shares of Common Stock held by the Key QPhoton
Stockholders as of the Closing date.
In
connection with the QPhoton Merger, the Company and the stockholders of QPhoton immediately prior to the Closing entered into a Registration
Rights and Lock-Up Agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the Company was
required to file a registration statement to register the resale of the shares of Common Stock to be issued in connection with the QPhoton
Merger (including the shares into which the Series B Preferred Stock is convertible and the Warrants are exercisable) (collectively,
the “Registrable Securities”). This Registration Statement was filed to comply with the Company’s obligations under
the Registration Rights Agreement. The stockholders party to the Registration Rights Agreement also have rights to require underwritten
shelf takedowns, subject to certain requirements and customary conditions.
The
stockholders party to the Registration Rights Agreement also agreed (i) until the six month anniversary of the Closing Date, not to transfer
the Registrable Securities held by them, and (ii) during the period between the six month anniversary of the Closing date and the first
anniversary of the Closing date, to transfer on any trading day no more than, in the aggregate, 10% of the average daily trading volume
of the Common Stock for then then-preceding five trading day period, in each case subject to certain exceptions.
On
June 14, 2022, in connection with the QPhoton Merger, the board of directors of the Company appointed Dr. Huang to serve as the Company’s
Chief Quantum Officer and as a member of the board of directors of the Company, effective as of the Closing Date. At the Closing, the
Company entered into an employment agreement (the “Huang Employment Agreement”) with Dr. Huang, whereby Dr. Huang assumed
the role of Chief Quantum Officer of the Company. The Huang Employment Agreement is for an indefinite term and may be terminated with
or without cause.
Pursuant
to the Huang Employment Agreement, Dr. Huang will receive an annual base salary of $400,000 (the “Base Salary”). Dr. Huang
shall be eligible to earn an annual cash bonus in an amount of up to thirty percent (30%) of Base Salary, subject to achieving certain
performance milestones that are to be established and approved by the board of directors of the Company. Pursuant to the Huang Employment
Agreement, Dr. Huang was granted a stock option to purchase up to 400,000 shares of the Company’s common stock (the “Huang
Stock Options”). The Huang Stock Options shall vest as follows (i) 100,000 options shall vest immediately upon grant (ii) 100,000
options shall vest on the 12-month anniversary of the date of grant (iii), 100,000 options shall vest on the 24-month anniversary of
the date of grant, and (iv) 100,000 options shall vest on the 36-month anniversary of the date of grant. Upon termination of Dr. Huang
without cause, the Company shall pay or provide to Dr. Huang severance pay equal to his then current monthly base salary for twelve (12)
months from the date of termination. As a full-time employee of the Company, Dr. Huang will be eligible to participate in all of the
Company’s benefit programs.
For
additional information related to this transaction, see the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 21, 2022 which is incorporated by reference herein.
Series
B Preferred Stock
On
June 14, 2022, in connection with the QPhoton Merger, the Company filed a Certificate of Designation (the “Certificate of Designation”)
with the Secretary of State of the State of Delaware designating 3,079,864 shares of preferred stock as the Series B Preferred Stock.
The following is a summary description of those terms and the general effect of the issuance of the shares of Series B Preferred Stock
on the Company’s other classes of securities:
Each
share of Series B Preferred Stock will initially be convertible into ten shares of Common Stock, subject to customary adjustments for
stock dividends, stock splits, reclassifications and the like. The Certificate of Designation provides that, unless and until stockholder
approval authorizing the issuance of the shares of Common Stock underlying the Series B Preferred Stock (the “Stockholder Approval”)
is obtained, no shares of Series B Preferred Stock may be converted into shares of Common Stock to the extent that such issuance, taken
together with the issuance of all other shares of Common Stock pursuant to the Merger Agreement (as defined above), would breach the
Company’s obligations under the Nasdaq listing rules.
Stockholder
Approval was obtained on September 21, 2022 and all outstanding shares of Series B Preferred Stock were automatically converted into
shares of Common Stock.
BV
Advisory Complaint
On August 15, 2022, BV Advisory Partners, LLC (the “Plaintiff”)
filed a complaint in the Court of Chancery of the State of Delaware naming the Company and certain of its directors and officers (among
others) as defendants (the “Lawsuit”). BV Advisory Partners, LLC v. Quantum Computing Inc., et al., C.A.
No. 2022-0719-VCG (Del. Ch.). The Plaintiff is seeking, among other relief, monetary damages for an alleged breach of the Note Purchase
Agreement between the Plaintiff and QPhoton, Inc., the predecessor in interest to QPhoton, LLC, a wholly-owned subsidiary of the Company,
as well as monetary damages for breach of an alleged binding letter of intent among Barksdale Global Holdings, LLC, Inference Ventures,
LLC and QPhoton, Inc. The Company believes that the Plaintiff’s claims have no merit and intends to defend itself vigorously.
Moreover, the Company believes that numerous alleged facts and characterizations set forth in the Plaintiff’s complaint are false,
misleading and intentionally designed to damage the Company’s reputation, and the Company categorically rejects those alleged facts
and characterizations. The Plaintiff’s key principal, Keith Barksdale, misrepresented his role with QPhoton, Inc. during the
early stages of the Company’s negotiations with respect to the merger with QPhoton. The Company believes that Mr. Barksdale
misrepresented his role in order to arrogate to Plaintiff and related parties an undue portion of the consideration payable to QPhoton’s
stockholders. On December 5, 2022 Plaintiff filed an amended complaint, and on December 19, 2022 the defendants filed a motion to dismiss
the amended complaint. On January 4, 2023 the Court of Chancery granted a briefing schedule order. Under the terms of the briefing schedule,
all briefs were to be filed on or before April 14, 2023. On March 24, 2023 Plaintiff filed a second amended complaint, and agreed to a
revised briefing schedule under which all briefs relating to Defendants’ motion to dismiss the second amended complaint must be
filed no later than May 12, 2023.
Unsecured
Promissory Note
On
September 23, 2022, Quantum Computing Inc. (the “Company”) entered into a note purchase agreement (the “NPA”)
with Streeterville Capital, LLC (the “Investor”), pursuant to which the Investor purchased an unsecured promissory note (the
“Note”) in the initial principal amount of $8,250,000.
The
Note bears interest at 10% per annum. The maturity date of the Note is 18 months from the date of its issuance (the “Maturity Date”).
The Note carries an original issue discount of $750,000, which is included in the principal balance of the Note. If the Company elects
to prepay the Note prior to the Maturity Date, it must pay to Investor 120% of the portion of the Outstanding Balance the Company elects
to prepay.
Beginning
on the date that is six (6) months after the issuance date of the Note, the Investor has the right to redeem up to $750,000 of the outstanding
balance of the Note per month (“Redemption Amount”) by providing written notice to the Company (“Redemption Notice”).
Upon receipt of any Redemption Notice, the Company shall pay the applicable Redemption Amount in cash to the Investor within three (3)
trading days of the Company’s receipt of such Redemption Notice. No prepayment premium shall be payable in respect of any Redemption
Amount.
Pursuant
to the terms of the NPA, the parties provided customary representations and warranties to each other. Also, until amounts due under the
Note are paid in full, the Company agreed, among other things, to: (i) timely make all filings under the Securities Exchange Act of 1934,
(ii) ensure the Common Stock continues to be listed on the Nasdaq Capital Market (“Nasdaq”) (iii) ensure trading in Company’s
Common Stock will not be suspended, halted, chilled, frozen, reach zero bid or otherwise cease trading on Company’s principal trading
market, (iv) ensure Company will not make any Restricted Issuance (as defined in the Note) without Investor’s prior written consent,
which consent may be granted or withheld in Investor’s sole and absolute discretion, (v) ensure Company shall not enter into any
agreement or otherwise agree to any covenant, condition, or obligation that locks up, restricts in any way or otherwise prohibits Company
from entering into certain additional transactions with the Investor, and (vi) with the exception for Permitted Liens (as defined in
the Note) ensure Company will not pledge or grant a security interest in any of its assets without Investor’s prior written consent,
which consent may be granted on withheld in Investor’s sole and absolute discretion.
The
Note set forth certain standard events of default (such event, an “Event of Default”) that generally, if uncured within seven
(7) trading days, may result in the discretion of the Investor in certain penalties under the terms of the Note. In this regard, upon
an Event of Default, Investor may accelerate the Note by written notice to the Company, with the outstanding balance becoming immediately
due and payable in cash at the Mandatory Default Amount (as defined in the Note). Additionally, upon written notice given by Investor
to the Company, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an
interest rate equal to the lesser of fifteen percent (15%) per annum simple interest or the maximum rate permitted under applicable law
upon an Event of Default.
Ascendiant
Capital Markets, LLC and Revere Securities, LLC served as the placement agents on the transaction and received $495,000 in the aggregate.
On
October 13, 2022, BV Advisory filed a petition for appraisal of its QPhoton shares in the Delaware Chancery Court. The parties are currently
in discovery.
Risks
We
are subject to a number of risks. You should read the “Risk Factors” section of this Annual Report beginning on page 13
for a discussion of factors to consider carefully before deciding to invest in shares of our Common Stock.
Corporate
Information
Our
executive offices are located at 215 Depot Court SE, Suite 215, Leesburg, VA 20175, and our telephone number is (703) 436-2121. Our corporate
website is www.quantumcomputinginc.com. Information appearing on our website is not part of this Annual Report.
Employees
As
of December 31, 2022 the Company had thirty-eight full time employees and six part time contract staff, thirty two of whom are focused
on product and software development, and seven Technical Advisors (two 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. The Company offers a health
and welfare benefit plan to current full time employees that provides medical, dental, vision, life and disability benefits. The Company
also offers a 401K retirement savings plan to all full-time employees. There are no unpaid liabilities under the Company’s benefit
plans, and the Company has no obligation to pay for post-retirement health and medical costs of retired employees.
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.
Risks
Related to Our Financial Condition and Status as an Early-Stage Company
We
are in our early stages and have a limited operating history, which makes it difficult to forecast our future results of operations.
Quantum
Computing was formed in 2018 and merged with QPhoton in June 2022. As a result of our limited operating history, our ability to accurately
forecast the future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and
model future growth. Our ability to generate revenues will largely be dependent on our ability to develop and produce photonic quantum
computers with increasing processing capability. Our technical roadmap may not be realized as quickly as hoped, or even at all. As a
result, our historical results should not be considered indicative of our future performance. Further, in future periods, our growth
could slow or decline for a number of reasons, including but not limited to slowing demand for our quantum solutions, increased competition,
changes to technology, inability to scale up our technology, a decrease in the growth of the market, or our failure, for any reason,
to continue to take advantage of growth opportunities. Furthermore, the accompanying consolidated financial statements have been prepared
assuming that we will continue as a going concern. We have not emerged from the development stage and may be unable to raise further
equity. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
We
have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly
changing industries. If our assumptions regarding these risks and uncertainties and our future growth are incorrect or change, or if
we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our
business could suffer. Our success as a business ultimately relies upon fundamental research and development breakthroughs in the coming
years. There is no certainty these research and development milestones will be achieved as quickly as hoped, or even at all.
We
have a history of operating losses and expect to incur significant expenses and continuing losses for the foreseeable future.
We
incurred net losses each year since 2018 and we believe that we will continue to incur operating and net losses each quarter until at
least the time we begin generating significant revenue from our quantum computers, which may never occur. Even with significant production,
our products and services may never become profitable.
We
expect the rate at which we will incur losses to be significantly higher in future periods as we continue to incur significant expenses
in connection with the design, development and manufacturing of our quantum computers; and as we expand our research and development
activities; invest in manufacturing capabilities; build up inventories of components for our quantum computers; increase our sales and
marketing activities; develop our infrastructure; and increase our general and administrative functions to support our growing operations
and our being a public company. We may find that these efforts are more expensive than we currently anticipate or that these efforts
may not result in revenues, which would further increase our losses. If we are unable to achieve and/or sustain profitability, or if
we are unable to achieve the growth that we expect from these investments, it could have a material effect on our business, financial
condition or results of operations. Our business model is unproven and may never allow us to cover our costs.
We
have a history of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve
or sustain profitability or remain a going concern.
We
are an early-stage company and we have not generated any material revenues to offset our operating expenses. If we are unable to generate
revenues in future periods, 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. Accordingly, we may not ever be able to achieve profitability. We incurred negative cash
flows from operating activities and recurring net losses in fiscal years 2022 and 2021. As of December 31, 2022, and 2021, our accumulated
deficit was $119,987,781 and $81,394,081, respectively. These factors, among others, raised substantial doubt about our ability to continue
as a going concern.
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
may not be able to scale our business quickly enough to meet customer and market demand, which could result in lower profitability or
cause us to fail to execute on our business strategies.
In
order to grow our business, we will need to continually evolve and scale our business and operations to meet customer and market demand.
However, commercial demand for quantum computing products and services may never develop. There are significant technological challenges
associated with developing, producing, marketing and selling services in the advanced technology industry, including our services, and
we may not be able to resolve all of the difficulties that may arise in a timely or cost-effective manner, or at all. We may not be able
to cost effectively manage production at a scale or quality consistent with customer demand in a timely or economical manner.
Our
ability to scale is dependent also upon components we must source from multiple countries, including China. Shortages or supply interruptions
in any of these components will adversely impact our ability to deliver revenues.
If
large-scale development of our quantum computers commences, our computers may contain defects in design and manufacture that may cause
them to not perform as expected or that may require repair and design changes. Our quantum computers are inherently complex and incorporate
technology and components that have not been used for other applications and that may contain defects and errors, particularly when first
introduced. We have a limited frame of reference from which to evaluate the long-term performance of our computers. There can be no assurance
that we will be able to detect and fix any defects in our quantum computers in a timely manner that does not disrupt our services to
our customers. If our technology fails to perform as expected, customers may seek out a competitor or turn away from quantum computing
entirely, each of which could adversely affect our sales and brand and could adversely affect our business, prospects and results of
operations. If defects in our technology lead to erroneous outputs, third parties relying on those outputs may draw from them erroneous
conclusions, creating a risk that we will be liable to those third parties.
If
we cannot evolve and scale our business and operations effectively, we may not be able to execute our business strategies in a cost-effective
manner and our business, financial condition, profitability and results of operations could be adversely affected.
Even
if the market in which we compete achieves its anticipated growth levels, our business could fail to grow at similar rates, if at all.
Our
success will depend upon our ability to expand, scale our operations, and increase our sales and support capability. Even if the market
in which we compete meets the size estimates and growth forecasted, our business could fail to grow at similar rates, if at all.
Our
growth is dependent upon our ability to successfully expand our solutions and services, retain customers, bring in new customers and
retain critical talent. Unforeseen issues associated with scaling up and constructing quantum computing technology at commercially viable
levels could negatively impact our business, financial condition and results of operations.
Our
growth is dependent upon our ability to successfully market and sell our quantum computing services and solutions. We do not have experience
with the large-scale production and sale of quantum computing technology. Our growth and long-term success will depend upon the development
of our sales and retention capabilities.
Moreover,
because of our unique technology, our customers will require particular support and service functions, some of which are not currently
available, and may never be available. If we experience delays in adding such support capacity or servicing our customers efficiently,
or experiences unforeseen issues with the reliability of our technology, we could overburden our servicing and support capabilities.
Similarly, increasing the number of our products and services would require us to rapidly increase the availability of these services.
Failure to adequately support and service our customers may inhibit our growth and ability to expand.
There
is no assurance that we will be able to ramp our business to meet our sales, manufacturing, installation, servicing and quantum computing
targets globally, that expected growth levels will prove accurate or that the pace of growth or coverage of our customer infrastructure
network will meet customer expectations. Failure to grow at rates similar to that of the quantum computing industry may adversely affect
our operating results and ability to effectively compete within the industry.
We
may not manage growth effectively.
Our
failure to manage growth effectively could harm our business, results of operations and financial condition. We anticipate that a period
of significant expansion will be required to address potential growth. This expansion will place a significant strain on our management,
operational and financial resources. Expansion will require significant cash investments and management resources and there is no guarantee
that they will generate additional sales of our products or services, or that we will be able to avoid cost overruns or be able to hire
additional personnel to support us. In addition, we will also need to ensure our compliance with regulatory requirements in various jurisdictions
applicable to the sale, installation and servicing of our products. To manage the growth of our operations and personnel, we must establish
appropriate and scalable operational and financial systems, procedures and controls and establish and maintain a qualified finance, administrative
and operations staff. We may be unable to acquire the necessary capabilities and personnel required to manage growth or to identify,
manage and exploit potential strategic relationships and market opportunities.
We
will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations and
may need additional capital sooner than planned to pursue our business objectives and respond to business opportunities, challenges or
unforeseen circumstances, and we cannot be sure that additional financing will be available. If we are unable to raise additional funding
when needed, we may be required to delay, limit or substantially reduce our development efforts.
Our
business and future plans for expansion are capital-intensive, and we will require additional capital for equipment and facilities for
hardware manufacturing and nanophotonic chip fabrication. The specific timing of cash inflows and outflows may fluctuate substantially
from period to period. We will require a significant amount of cash for expenditures as we invest in ongoing research and development
and business operations. Our operating plan may change because of factors currently unknown, and we may need to seek additional funds
sooner than planned, through public or private equity or debt financings or other sources. Such financings may result in dilution to
stockholders, issuance of securities with priority as to liquidation and dividend and other rights more favorable than common stock,
imposition of debt covenants and repayment obligations or other restrictions that may adversely affect our business. Any funds we raise
may not be sufficient to enable us to continue to implement our long-term business strategy. Further, our ability to raise additional
capital may be adversely impacted by worsening global economic conditions and the recent disruptions to and volatility in the credit
and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and military conflict with Russia
and Ukraine and the related sanctions imposed against Russia. In addition, we may seek additional capital due to favorable market conditions
or strategic considerations even if we believe that we have sufficient funds for current or future operating plans.
There
can be no assurance that financing will be available to we on favorable terms, or at all. The inability to obtain financing when needed
may make it more difficult for us to operate our business or implement our growth plans and we may be required to delay, limit or substantially
reduce our quantum computing development efforts. Our ability to raise additional capital through the sale of securities could be significantly
impacted by the resale of our securities by holders of our securities which could result in a significant decline in the trading price
of our securities and potentially hinder our ability to raise capital at terms that are acceptable to us or at all.
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.
Our
ability to use net operating loss carryforwards and other tax attributes may be limited in connection with the QPhoton Merger or other
ownership changes.
We
have incurred losses during our history, do not expect to become profitable in the near future and may never achieve profitability. To
the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until
such unused losses expire, if at all.
Under
current law, U.S. federal net operating loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried
forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020,
is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the current law.
In
addition, our net operating loss carryforwards are subject to review and possible adjustment by the IRS, and state tax authorities. Under
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), our federal net operating loss carryforwards
and other tax attributes may become subject to an annual limitation in the event of certain cumulative changes in the ownership of the
Company. An “ownership change” pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups
of stockholders who own at least 5% of a company’s stock increase their ownership by more than 50 percentage points over their
lowest ownership percentage within a rolling three-year period. Our ability to utilize our net operating loss carryforwards and other
tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes, including potential
changes in connection with the QPhoton Merger or other transactions. Similar rules may apply under state tax laws. We have not yet determined
the amount of the cumulative change in our ownership resulting from the Business Combination or other transactions, or any resulting
limitations on our ability to utilize our net operating loss carryforwards and other tax attributes.
If
we earn taxable income, such limitations could result in increased future income tax liability and our future cash flows could be adversely
affected. We have recorded a valuation allowance related to our net operating loss carryforwards and other deferred tax assets due to
the uncertainty of the ultimate realization of the future benefits of those assets.
Risks
Related to Our Business and Industry
We
have not produced quantum computers with high qubit counts at volume and we face significant barriers in our attempts to produce quantum
computers, including the need to invent and develop new technology. If we cannot successfully overcome those barriers, our business will
be negatively impacted and could fail.
Producing
quantum computers is a difficult undertaking. There are significant engineering challenges that we must overcome to build our quantum
computers. We are still in the development stage and face significant challenges in completing development of our quantum computers and
in producing quantum computers in sufficient volumes. Even if we complete development and achieve volume production of our quantum computers,
if the cost, accuracy, performance characteristics or other specifications of the quantum computer fall short of our expectations, our
business, financial condition and results of operations would be adversely affected.
The
performance capabilities of the Company’s Core Technology will depend on the development and production of “Quantum Chips”
to achieve scale, performance and cost. There is significant development and Intellectual property risk in the specification, design
and development of quantum chips and our multi-year plans could be impacted by lack of funding, competition or even unknown core technology
factors intrinsic to the work. This would limit the ability of the Company to scale its commercial growth to expected levels over the
longer term and the company could lose momentum
Our
projections are dependent on the cost per qubit decreasing over the next several years as our quantum computers advance. These cost projections
are based on economies of scale due to demand for our computer systems, technological innovation and negotiations with third-party parts
suppliers. If these cost savings do not materialize, the cost per qubit may be higher than projected, making our quantum computing solution
less competitive than those produced by our competitors, which could have a material effect on our business, financial condition or results
of operations.
If our products and services fail to deliver
customer value to a broader range of customers than classical approaches, our business, financial condition and future prospects may be
harmed.
“Quantum advantage” refers to the
moment when a quantum computer can compute faster than existing classical computers, while quantum supremacy is achieved once quantum
computers are powerful enough to complete calculations that traditional supercomputers cannot perform at all. Broad quantum advantage
is when quantum advantage is seen in many applications and developers prefer quantum computers to a traditional computer. No current quantum
computers have reached a broad quantum advantage, and they may never reach such advantage. Achieving a broad quantum advantage will be
critical to the success of any quantum computing company, including us. However, achieving quantum advantage would not necessarily lead
to commercial viability of the technology that accomplished such advantage, nor would it mean that such system could outperform classical
computers in tasks other than the one used to determine a quantum advantage. As quantum computing technology continues to mature, broad
quantum advantage, and quantum supremacy, may take decades to be realized, if ever. If we cannot develop quantum computers that have quantum
advantage, customers may not continue to purchase our products and services. If other companies’ quantum computers reach a broad
quantum advantage prior to the time we reach such capabilities, it could lead to a loss of customers. If any of these events occur, it
could have a material adverse effect on our business, financial condition or results of operations.
The quantum computing Industry is competitive
on a global scale and we may not be successful in competing in this industry or establishing and maintaining confidence in our long-term
business prospects among current and future partners and customers.
Since the merger with QPhoton, our business strategy
has broadened to include the manufacture of several lines of hardware in addition to the underlying software. As a result, the markets
in which we now operate are rapidly evolving and highly competitive. As the marketplace continues to mature and new technologies and competitors
enter, we expect competition to intensify. Our current competitors include:
| ● | large,
well-established tech companies that generally compete across our products, including IBM, Quantinuum, Google, Microsoft and Amazon. |
| ● | large
research organizations funded by sovereign nations such as China, Russia, Canada, Australia and the United Kingdom, and those in the
European Union; additional countries may decide to fund quantum computing programs in the future; |
| ● | less-established
public and private companies with competing technology, including IonQ, Rigetti Computing, PsiQuantum, Xanadu and D-Wave Quantum, and
companies located outside the United States; and |
| ● | new
or emerging entrants seeking to develop competing technologies. |
| ● | The
industry might recognize the intrinsic advantages of quantum nanophotonics in information processing applications and our competitors
could shift to a more direct competitive approach using similar technologies, even with strong IP protection. |
We compete based on various factors, including
technology, performance, multi-cloud availability, brand recognition and reputation, customer support and differentiated capabilities,
including ease of administration and use, scalability and reliability, data governance and security. Many of our competitors have substantially
greater brand recognition, customer relationships, and financial, technical and other resources, including an experienced sales force
and sophisticated supply chain management. They may be able to respond more effectively than us to new or changing opportunities, technologies,
standards, customer requirements and buying practices. In addition, many countries are focused on developing quantum computing solutions
either in the private or public sector and may subsidize quantum computers which may make it difficult for us to compete. Many of these
competitors do not face the same challenges we do in growing our business. In addition, other competitors might be able to compete with
us by bundling their other products in a way that does not allow us to offer a competitive solution.
Additionally, we must be able to achieve our objectives
in a timely manner lest quantum computing lose ground to competitors, including competing technologies. Because there are a large number
of market participants, including certain sovereign nations, focused on developing quantum computing technology, we must dedicate significant
resources to achieving any technical objectives on the timelines established by our management team. Any failure to achieve objectives
in a timely manner could adversely affect our business, operating results and financial condition.
For all of these reasons, competition may negatively
impact our ability to maintain and grow consumption of our platform or put downward pressure on our prices and gross margins, any of which
could materially harm our reputation, business, results of operations, and financial condition.
We rely on access to high performance third
party classical computing through public clouds and high performance computing centers to deliver quantum solutions to customers. We may
not be able to maintain connectivity with these resources which could make it harder for us to reach customers or deliver solutions in
a cost-effective manner.
Our quantum solutions may from time to time incorporate
high performance classical computing through public clouds to provide services to end users and our partners. These services are predominantly
on AWS at the present time.
Any material change in our contractual and other
business relationships with AWS or other cloud providers, could result in reduced use of our systems, increased expenses, including service
credit obligations, and harm our brand and reputation, any of which could have a material adverse effect on our business, financial condition
and results of operations.
Further, if our contractual and other business
relationships with our partners are terminated or suspended, either by our partner or by us, or suffer a material change to which we are
unable to adapt, such as the elimination of services or features on which we depend, we would be unable to provide our quantum computing
solutions business at the same scale and would experience significant delays and incur additional expense in transitioning customers to
a different public cloud provider.
We depend on certain suppliers to source
products. Failure to maintain our relationship with any of these suppliers, or a failure to replace any of these suppliers, could have
a material adverse effect on our business, financial position, results of operations and cash flows.
We buy our products and supplies from companies
that manufacture and source products from the United States and abroad. Our ability to develop and maintain relationships with qualified
suppliers who can satisfy our standards for quality and delivery in a timely and efficient manner is a significant challenge. Any failure
to maintain our relationship with any of our largest suppliers, or a failure to replace any such supplier that is lost, could have a material
adverse effect on our business, financial position, results of operations and cash flows.
We may be required to replace a supplier if their
products do not meet our quality or safety standards, or if the United States government imposes restrictions on trade with certain countries,
such as China. In addition, our suppliers could discontinue selling products at any time for reasons that may or may not be in our control
or the suppliers’ control, including shortages of raw materials, environmental and social supply chain issues, pandemic, labor disputes
or weather conditions. Disruptions in transportation lines or the ongoing military conflict involving Russia and Ukraine may also cause
global supply chain issues that affect us or our suppliers. We generally have multiple sources of supply, however, in some cases, materials
are provided by a single supplier. The loss of, or substantial decrease in the availability of, products from our suppliers, or the loss
of a key supplier, temporarily or permanently, could result in a material shortage of products, which could lead to price escalations
that we may be unable to offset by our prices to our customers. When supply chain issues are later resolved and prices return to normal
levels, we may be required to reduce the prices at which we sell our products to our customers in order to remain competitive. In addition,
even where these risks do not materialize, we may incur costs as we prepare contingency plans to address such risks. Our operating results
and inventory levels could suffer if we are unable to promptly replace a supplier who is unwilling or unable to satisfy our requirements
with a supplier providing similar products. In addition, our suppliers’ ability to deliver products may also be affected by raw
material and commodity cost volatility or financing constraints caused by credit market conditions, which could materially and negatively
impact our net sales and operating costs, at least until alternate sources of supply are arranged. Any delay or unavailability of key
products required for our development activities could delay or prevent us from further developing our systems and applications on our
expected timelines or at all.
Our systems depend on the use of certain
development tools, supplies, and equipment. If we are unable to procure the necessary tools, supplies and equipment to build our quantum
systems, or are unable to do so on a timely and cost-effective basis, and in sufficient quantities, we may incur significant costs or
delays which could negatively affect our operations and business.
There are limited suppliers to sources of materials
which may be necessary for the production of our technology. We are currently reliant on a single or small number of suppliers for certain
resources. While we are currently looking to engage additional suppliers, they are limited in number and there is no guarantee we will
be able to establish or maintain relationships with such additional suppliers on terms satisfactory to us. Reliance on any single supplier
increases the risks associated with being unable to obtain the necessary components because the supplier may have manufacturing constraints,
can be subject to unanticipated shutdowns and/or may be affected by natural disasters and other catastrophic events. Some of these factors
may be completely out of our and our suppliers’ control. Failure to acquire sufficient quantities of the necessary components in
a timely or cost-effective manner could materially harm our business.
In order to compete, we must attract, retain
and motivate key associates, and the failure to do so could have an adverse effect on our business, financial condition and results of
operations.
We depend on our executive officers and management
team to run our business. As we develop new business models and new ways of working, we will need to develop suitable skill sets within
our organization. In addition, our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified
and skilled employees that have highly technical set of skills to create the hardware and software that will drive quantum results. The
current market for such positions is highly competitive. Qualified individuals are in high demand and we may incur significant costs to
attract and retain them. Moreover, the loss of any of our senior management or other key employees or our inability to recruit and develop
mid-level managers could materially and adversely affect our ability to execute our business plan and we may be unable to find adequate
replacements.
Even if we are successful in developing
quantum computing systems and executing our strategy, competitors in the industry may achieve technological breakthroughs which render
our quantum computing systems obsolete or inferior to other products.
Our continued growth and success depend on our
ability to innovate and develop quantum computing technology in a timely manner and effectively market these products. Without timely
innovation and development, our quantum computing solutions could be rendered obsolete or less competitive by changing customer preferences
or because of the introduction of a competitor’s newer technologies. We believe that many competing technologies will require a
technological breakthrough in one or more problems related to science, fundamental physics or manufacturing. While it is uncertain whether
such technological breakthroughs will occur in the next several years that does not preclude the possibility that such technological breakthroughs
could eventually occur. Any technological breakthroughs which render our technology obsolete or inferior to other products, could have
a material effect on our business, financial condition or results of operations.
The quantum computing industry is in its
early stages and volatile, and if it does not develop, if it develops slower than we anticipate, if it encounters negative publicity or
if our quantum computing solution does not achieve commercial adoption, the growth of our business will be harmed.
The nascent market for quantum computers is still
rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation
and industry standards, and changing customer demands and behaviors. If demand for quantum computers in general does not develop as expected,
or develops more slowly than expected, our business, prospects, financial condition and operating results could be harmed.
In addition, our growth and future demand for
our products is highly dependent upon the adoption by developers and customers of quantum computers, as well as on our ability to demonstrate
the value of quantum computing to our customers. Delays in future generations of our quantum computers or technical failures at other
quantum computing companies could limit acceptance of our solution. Negative publicity concerning our solution or the quantum computing
industry as a whole could limit acceptance of our solution. We believe quantum computing will solve many large-scale problems. However,
such problems may never be solvable by quantum computing technology. If our customers and partners do not see the benefits of our solution,
or if our solution does not drive commercial sales, then demand for our products may not develop at all, or it may develop slower than
we expect. If any of these events occur, it could have a material adverse effect on our business, financial condition or results of operations.
We could suffer disruptions, outages, defects
and other performance and quality problems with our quantum computing systems, our production technology partners or with the public cloud,
data centers and internet infrastructure on which we rely.
Our business depends on our quantum computing
systems being available through the cloud with a high level of reliability. We have experienced, and may in the future further experience,
disruptions, outages, defects and other performance and quality problems with our systems. We have also experienced, and may in the future
further experience, disruptions, outages, defects and other performance and quality problems with the public cloud and internet infrastructure
on which our systems rely. These problems can be caused by a variety of factors, including failed introductions of new functionality,
vulnerabilities and defects in proprietary and open- source software, hardware components, human error or misconduct, capacity constraints,
design limitations or denial of service attacks or other security- related incidents. We do not have a contractual right with our public
cloud providers that compensates us for any losses due to availability interruptions in the public cloud.
Any disruptions, outages, defects and other performance
and quality problems with our quantum computing system or with the public cloud and internet infrastructure on which we rely, could result
in reduced use of our systems, increased expenses, including service credit obligations, and harm to our brand and reputation, any of
which could have a material adverse effect on our business, financial condition and results of operations.
Our future growth and success depends on
our ability to sell effectively to government entities and large enterprises.
Our potential customers are likely to include
government agencies and large commercial enterprises. Therefore, our future success will depend on our ability to effectively sell our
products to such customers. Sales to these end-customers involve risks that may not be present (or that are present to a lesser extent)
with sales to non-governmental agencies or smaller customers. These risks include, but are not limited to, (i) increased purchasing power
and leverage held by such customers in negotiating contractual arrangements with us and (ii) longer sales cycles and the associated risk
that substantial time and resources may be spent on a potential end-customer that elects not to purchase our solutions. Sales to government
agencies may be limited to specific contract vehicles, which we do not currently have. In addition, government contracts generally include
the ability of government agencies to terminate early which, if exercised, would result in a lower contract value and lower than anticipated
revenues.
Our quantum computing systems may not be
compatible with some or all industry-standard software and hardware in the future, which could harm our business.
Since the merger with QPhoton, we will be focusing
more of our efforts on creating quantum computing hardware, in addition to refining the software development platform to access our hardware,
and application programing interfaces (“APIs”) to access our systems. The industry is rapidly evolving, and customers have
many choices for programming languages, some of which may not be compatible with our own APIs. Our quantum computing solutions development
platform is designed today to be compatible with most major software languages. If a proprietary (not open source) software toolset became
the standard for quantum application development in the future by a competitor, usage of our hardware might be limited as a result which
would have a negative impact on the Company. Similarly, if a piece of hardware became a necessary component for quantum computing (for
instance, quantum networking) and we cannot integrate with, the result might have a negative impact on the Company.
Acquisitions, divestitures, strategic investments
and strategic partnerships could disrupt our business and harm our financial condition and operating results.
We may pursue growth opportunities by acquiring
complementary businesses, solutions or technologies through strategic transactions, investments or partnerships. The identification of
suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our management
team from our current operations. If such strategic transactions require us to seek additional debt or equity financing, we may not be
able to obtain such financing on terms favorable to us or at all, and such transactions may adversely affect our liquidity and capital
structure. Any strategic transaction might not strengthen our competitive position, may increase some of our risks, and may be viewed
negatively by our customers, partners or investors. Even if we successfully complete a strategic transaction, we may not be able to effectively
integrate the acquired business, technology, systems, control environment, solutions, personnel or operations into our business. We may
experience unexpected changes in how we are required to account for strategic transactions pursuant to U.S. GAAP and may not achieve the
anticipated benefits of any strategic transaction. We may incur unexpected costs, claims or liabilities that we incur during the strategic
transaction or that we assume from the acquired company, or we may discover adverse conditions post acquisition for which we have limited
or no recourse.
Unfavorable conditions in our industry or
the global economy, could limit our ability to grow our business and negatively affect our results of operations.
Our results of operations may vary based on the
impact of changes in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general
economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial
and credit market fluctuations, international trade relations, pandemics (such as the COVID-19 pandemic), political turmoil, natural catastrophes,
warfare, and terrorist attacks on the United States or elsewhere, could cause a decrease in business investments, including the progress
on development of quantum technologies, and negatively affect the growth of our business. In addition, in challenging economic times,
our current or potential future customers may experience cash flow problems and as a result may modify, delay or cancel plans to purchase
our products and services. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure
financing, they may not be able to pay, or may delay payment of, accounts receivable due to it. Moreover, our key suppliers may reduce
their output or become insolvent, thereby adversely impacting our ability to manufacture our products.
Furthermore, uncertain economic conditions may
make it more difficult for us to raise funds through borrowings or private or public sales of debt or equity securities. We cannot predict
the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.
Government actions and regulations, such as tariffs
and trade protection measures, may limit our ability to obtain products from our suppliers or sell our products and services to customers.
Political challenges between the United States and countries in which our suppliers are located, and changes to trade policies, including
tariff rates and customs duties, trade relations between the United States and those countries and other macroeconomic issues could adversely
impact our business. The United States administration has announced tariffs on certain products imported into the United States, and some
countries have imposed tariffs in response to the actions of the United States. There is also a possibility of future tariffs, trade protection
measures or other restrictions imposed on our products or on our customers by the United States or other countries that could have a material
adverse effect on our business. Our technology may be deemed a matter of national security and as such our customer base may be tightly
restricted. We may accept government grants that place restrictions on the business’ ability to operate.
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.
|
● |
Certification, licensing or regulatory requirements with regard to the technology we expect to develop relating to financial and cybersecurity applications; |
|
● |
Unexpected changes in regulatory requirements such as the National Quantum Initiative Act or other federal or state laws that may require us to take certain actions; and |
|
● |
Changes to or reduced protection of intellectual property rights in some countries which may affect or ability to protect and maintain intellectual property rights relating to our applications. |
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 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.
Unstable market and economic conditions
may have serious adverse consequences on our business, financial condition and share price.
The global economy, including credit and financial
markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines
in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates, higher interest rates
and uncertainty about economic stability. For example, the COVID-19 pandemic resulted in widespread unemployment, economic slowdown and
extreme volatility in the capital markets. Similarly, the ongoing military conflict between Russia and Ukraine has created extreme volatility
in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply
chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely.
If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity
financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates have
and are expected to adversely affect us by increasing our costs, including labor and employee benefit costs, and costs for equipment and
system components associated with system development. In addition, higher inflation could also increase our customers’ operating
costs, which could result in reduced budgets for our customers and potentially less demand for our systems. Any significant increases
in inflation and related increase in interest rates could have a material adverse effect on our business, results of operations and financial
condition.
We are subject to governmental export and
import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability
if we are not in compliance with applicable laws.
Our products and technologies are subject to U.S.
export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various
economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. U.S.
export control and economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products, technologies,
and services to U.S. Government embargoed or sanctioned countries, governments, persons and entities. In addition, certain products and
technology may be subject to export licensing or approval requirements. Exports of our products and technology must be made in compliance
with export control and sanctions laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees
could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which
may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers.
In addition, changes in our products or technologies
or changes in applicable export or import laws and regulations may create delays in the introduction and sale of our products and technologies
in international markets or, in some cases, prevent the export or import of our products and technologies to certain countries, governments
or persons altogether. Any change in export or import laws and regulations, shift in the enforcement or scope of existing laws and regulations,
or change in the countries, governments, persons or technologies targeted by such laws and regulations, could also result in decreased
use of our products and technologies, or in our decreased ability to export or sell our products and technologies to existing or potential
customers. Any decreased use of our products and technologies or limitation on our ability to export or sell our products and technologies
would likely adversely affect our business, financial condition and results of operations.
We expect to incur significant costs in complying
with these regulations. Regulations related to quantum computing are currently evolving and we face risks associated with changes to these
regulations.
We may become subject to product liability
claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may become subject to product liability claims,
even those without merit, which could harm our business prospects, operating results, and financial condition. We may face inherent risk
of exposure to claims in the event our quantum computers do not perform as expected or malfunction. A successful product liability claim
against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative
publicity about our quantum computers and business and inhibit or prevent commercialization of other future quantum computers, which would
have material adverse effects on our brand, business, prospects and operating results. Any insurance coverage might not be sufficient
to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or
outside of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to
secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly
if we do face liability for our products and are forced to make a claim under our policy.
Risks Related to Intellectual Property
Our failure to obtain, maintain and protect
our intellectual property rights could impair our ability to protect and commercialize our proprietary products and technology and cause
us to lose our competitive advantage.
Our success depends, in significant part, on our
ability to obtain, maintain, enforce and defend our intellectual property rights, including patents and trade secrets. We rely upon a
combination of the intellectual property protections afforded by patent, copyright, trademark and trade secret laws in the United States
and other jurisdictions, as well as license agreements and other contractual protections, to establish, maintain and enforce rights in
our proprietary technologies. In addition, we seek to protect our intellectual property rights through nondisclosure and invention assignment
agreements with our employees and consultants, and through non-disclosure agreements with business partners and other third parties.
However, we may not be able to prevent unauthorized
use of our intellectual property. Our trade secrets may also be compromised, which could cause us to lose our competitive advantage. Third
parties may attempt to copy or otherwise obtain, use or infringe our intellectual property.
Monitoring and detecting unauthorized use of our
intellectual property is difficult and costly, and the steps we have taken or will take to prevent infringement or misappropriation may
not be sufficient. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert
management’s attention, which could harm Our business, results of operations, and financial condition. In addition, existing intellectual
property laws and contractual remedies may afford less protection than needed to safeguard our intellectual property portfolio, and third
parties may develop competitive offerings in a manner that leaves us with limited means to enforce our intellectual property rights against
them.
Patent, copyright, trademark and trade secret
laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property rights to the same extent
as do the laws of the United States. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of
the United States and efforts to protect against the unauthorized use of our intellectual property rights, technology and other proprietary
rights may be more expensive and difficult outside of the United States.
Failure to adequately protect our intellectual
property rights could result in our competitors using our intellectual property to offer products, potentially resulting in the loss of
some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, financial condition and operating
results.
Our inability to secure patent protection
or enforce our patent rights could have a material adverse effect on our ability to prevent others from commercializing similar products
or technology.
The application and registration of patents involves
complex legal and factual questions. As a result, we cannot be certain that the patent applications that we files will result in patents
being issued, or that our patents and any future patents that do issue will afford protection against competitors with similar technology.
Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our
technology, and this may make it difficult for us to obtain certain patent coverage on our own. Any of our existing or pending patents
may also be challenged by others on the basis that they are otherwise invalid or unenforceable. Furthermore, patent applications filed
in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain
that foreign patent applications related to issued U.S. patents will be issued.
Even if our patent applications succeed, it is
still uncertain whether these patents will be contested, circumvented, invalidated or limited in scope in the future. The rights granted
under any issued patents may not provide us with meaningful protection or competitive advantages. The intellectual property rights of
others could bar us from licensing and exploiting any patents that issue from our pending applications, and the claims under any patents
that issue from our patent applications may not be broad enough to prevent others from developing technologies that are similar or that
achieve results similar to ours. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain
patents that it needs to license or design around, either of which would increase costs and may adversely affect our business, prospects,
financial condition and operating results.
We may face patent infringement and other
intellectual property claims that could be costly to defend, result in injunctions and significant damage awards, or limit our ability
to use certain key technologies in the future, all of which could harm our business.
Our success depends, in part, on our ability to
develop and commercialize our products, services and technologies without infringing, misappropriating or otherwise violating the intellectual
property rights of third parties. However, we may not be aware that our products, services or technologies are infringing, misappropriating
or otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation
or violation.
For example, there may be issued patents of which
we are unaware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringed by our current or future
products, services or technologies. Also, because patent applications can take years to issue and are often afforded confidentiality for
some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover
our current or future products, services or technologies. The strength of our defenses will depend on the rights asserted, the interpretation
of these rights, and our ability to invalidate the asserted rights. However, we could be unsuccessful in advancing non-infringement and/or
invalidity arguments in our defense.
Although we carry general liability insurance,
our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.
We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our
business, financial condition or results of operations. Even if the claims do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating
results. Further, there could be public announcements of the intellectual property litigation, and if securities analysts, investors or
others perceive the potential impact to be negative or risks to be substantial, it could have an adverse effect on the price of our common
stock. The occurrence of infringement claims may grow as the market for our products, services and technologies grows. Accordingly, our
exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.
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 software 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 quantum processing
units. Additionally, in order to deliver high quality products, it is important that our products work well with a range of quantum computers,
conventional computers, systems, networks and standards that we do not control. We may not be successful in developing relationships with
key participants in the quantum computing industry or in developing products that operate effectively with these technologies, systems,
networks or standards.
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, could have a material adverse effect on our business, financial condition and financial results.
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:
| ● | actual
or anticipated growth rates relative to our competitors; |
| ● | the
public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; |
| ● | economic,
legal and regulatory factors unrelated to our performance; |
| ● | any
future guidance we may provide to the public, any changes in such guidance or any difference between our guidance and actual results; |
| ● | changes
in financial estimates or recommendations by any securities analysts who follow our common stock; |
| ● | speculation
by the press or investment community regarding our business; |
| ● | changes
in key personnel; and |
| ● | future
sales of our common stock by our officers, directors and significant shareholders. |
In addition, the stock markets, including the
NASDAQ 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.
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 minority 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. 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.
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 indefinitely. As a result, we will very likely 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 28, 2023, our directors and executive officers collectively
beneficially own approximately 49% of the shares of our common stock including the beneficial ownership of Mr. Liscouski of 4% of the
shares of our common stock, Mr. Velge of 4% of the shares of our common stock and Dr. Yuping Huang of 40% 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.
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.
As of March 28, 2023, the Board has authorized two classes of preferred
stock. The Board has authorized 1,550,000 shares of preferred stock as the Series A Convertible Preferred stock, par value $0.0001 per
share, of which 1,490,004 shares are issued and outstanding. The Board has also authorized 3,079,864 shares of preferred stock as the
Series B Preferred Stock, par value $0.0001 per share, of which 0 shares are issued and outstanding.