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What changed in Quantum Computing Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Quantum Computing Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+343 added−432 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-30)

Top changes in Quantum Computing Inc.'s 2023 10-K

343 paragraphs added · 432 removed · 226 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThis 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.
Biggest changeThe Company has plans to support this initiative by applying for funding for distinct uses under both the Title 17 Clean Energy Financing Program managed by the US Department of Energy’s Loan Programs Office and also the Creating Helpful Incentives to Produce Semiconductors Act of 2022 (the “CHIPS Act”), which allocates $52 billion for the revitalization and onshoring of semiconductor manufacturing in the U.S.
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.
As consideration for the license and other rights granted under the license agreement, QPhoton 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.
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 believe that 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.
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.
QPhoton 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.
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).
According to research conducted by The Quantum Insider (https://thequantuminsider.com/data), there are over 700 companies and approximately 400 university academic groups 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, 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.
In addition, we face competition from large research organizations funded by sovereign nations such as China, Russia, Canada, Australia, and the United Kingdom, as well as the European Union, and we believe that 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.
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.
As this industry continues to grow and mature, we expect a continued influx of new competitors, products, hardware advances, and 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 customer preferences in the high-performance computing industry.
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.
These entities range in size from diversified global companies with significant research and development resources such as IBM, Google, Intel, Microsoft, Quantinuum (formerly 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 allow them to be more effective in deploying resources towards a specific industry demand.
Issue Date Title Status Anticipated Expiration Date USA 17/560,816 12/23/2021 11,436,519 09/06/2022 Machine Learning Mapping for Quantum Processing Units Granted 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.
Issue Date Title Status Anticipated Expiration Date USA 17/560,816 12/23/2021 11,436,519 09/06/2022 Machine Learning Mapping for Quantum Processing Units Granted 12/23/2041 Exclusive License Agreement QCi has an exclusive license to seven patents issued to the Stevens Institute of Technology, pursuant to the license agreement dated December 17, 2020 by and among QPhoton and The Trustees of The Stevens Institute of Technology (the “Licensor”).
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).
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 compound annual growth rate 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).
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.
The rapid adoption of technologies such as artificial intelligence, 3D imaging, artificial intelligence/large language models, and the Internet of Things (IoT), have served to exponentially increase the generation of data, driving up the demand for high-performance computing.
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.
We believe that there is further potential upside from quantum computing and technology more broadly opening new markets not included in traditional high-performance computing market size estimates. 6 Competition The quantum computing industry is highly competitive and rapidly evolving and will likely remain so for the foreseeable future.
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. 7 Quantum computing is a nascent and rapidly developing technology ecosystem that has shown promise in delivering potentially disruptive computing capabilities.
While the current quantum computing market comprises a fraction of the broader high-performance computing market, we anticipate 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 that has shown promise in delivering potentially disruptive computing capabilities.
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.
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, encryption, natural language processing and complex modeling. Quantum computing is expected to be useful for similar applications.
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.
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.
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.
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.
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 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. TFLN Optical Chips We believe that TFLN optical integrated circuits (“TFLN Optical Chips”) will ultimately provide the greatest scalability and performance advantages for quantum information processing, sensing and imaging.
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.
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. 8 Incentives In December 2018, the National Quantum Initiative Act (the “Quantum Act”) was signed into law.
To further protect our intellectual property, we enter into confidentiality agreements with our executive officers and directors. 8 Trademarks The Company has one registered trademark, “QPhoton,” and has applied for four additional trademarks, all of which are being used in commerce: ● QAmplify ● QGraph ● Qatalyst ● Dirac Patents The Company has one granted United States patent.
To further protect our intellectual property, we enter into confidentiality agreements with our executive officers, employees, consultants and directors. 7 Trademarks The Company has one registered trademark, “QPhoton,” and has applied for two additional trademarks, both of which are being used in commerce: ● QGraph ● Qatalyst Patents The Company has one granted United States patent. Country Serial No.
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.
These NP-complete problems require complex calculations that cannot currently be performed within any reasonable amount of time using conventional computer systems for problem sizes relevant to many industrial and government applications. Published academic research indicates that quantum computers may be ideally suited to solve optimization problems of this type.
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. 1 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.
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.
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.
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. 9
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.
The Qatalyst development platform was QCi’s answer to the broader industry’s current approach to quantum software development, which relies on highly trained scientists working with software development kits (“SDKs”) at the circuit level, instead of a high-level language, which requires deep level quantum expertise to create quantum workflows. Qatalyst is not a tool kit, rather, a complete platform.
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 computing represents a potential alternative approach to solving those problems because quantum computers apply the properties of quantum physics to operate in a fundamentally different way. Conventional computer chips use binary bits (ones and zeros) to represent information.
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.
We believe that 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 than we do.
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.
While the date of practical relevance of quantum computers is hard to determine, we believe that quantum availability has already begun and that quantum computers with gradually increasing performance will be introduced by multiple vendors over the course of the next decade. The Company Quantum Computing Inc.
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 is developing proprietary chip designs and is completing a dedicated chip fabrication facility to develop and produce TFLN Optical Chips for quantum information processing and other single photon detection and sensing applications.
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.
Some computer science experts believe that quantum computing will be a potential solution to the hard limits now being approached by conventional computers that utilize silicon-based processors.
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 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.
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.
We anticipate that our core technologies will enable us to develop and produce multiple generations of quantum machines with increasing computational power, capacity, and speed, as well as the eventual hardware miniaturization to produce optical integrated circuits to replace the discrete components currently used.
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.
Quantum imaging has the potential to be a powerful supplement to modern reconstructed computerized tomography (CAT Scan) imaging applications, where tissue damage from high energy radiation needs to be avoided.
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.
Qatalyst enables developers to create and execute quantum-ready applications on conventional computers as well as multiple quantum computers. Users can call upon the same Qatalyst APIs (Application Programming Interfaces) on conventional computers to achieve optimization performance advantages using our cloud-based solution.
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.
Industry Overview Quantum computing is a component of the large and global high-performance computing industry, which is comprised of hardware, software, and services for compute-intensive applications.
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.
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.
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.
This technology advancement allows QCi systems to see through dense fog and provide image fidelity at great distances with very high resolution in difficult environments such as snow, ice, and water.
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. 9 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.
On June 15, 2022, the Licensor agreed to assign the license agreement to QCi upon consummation of the QPhoton Merger. Government Regulation and Incentives 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.
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.
We originally designed Qatalyst to facilitate access to multiple quantum processing units including Rigetti, Oxford Quantum Circuits and IonQ, QuEra, and Xanadu via the Amazon Web Services (“AWS”) cloud-based Braket service.
Our corporate website is www.quantumcomputinginc.com. Information appearing on our website is not part of this Annual Report.
Corporate Information Our executive offices are located at 5 Marine View Plaza, Suite 214, Hoboken, NJ 07030, 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.
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 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 401(k) retirement savings plan and participation in the stock option plan to all full-time employees.
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. 3 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.
Quantum computers utilize qubits (quantum bits), which leverage some of the properties of quantum physics, namely superposition and entanglement, to process computations that would be intractably difficult using conventional computers.
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.
The Company’s understanding is that this could be the nation’s first dedicated optical integrated circuit manufacturing facility using TFLN wafers to achieve quantum effects. Our plan for the facility is to produce a range of custom lithium niobate chips for use in our own product lines as well as chips for sale in the commercial market.
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).
Employees As of December 31, 2023, the Company had 39 full time employees and nine part time contract staff, 34 of whom are focused on product development. The employees are not part of a collective bargaining agreement and labor relationships are good.
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.
The practical benefits on payload and signal to noise enhancement can be used to produce LiDAR systems that are greatly enhanced in their ability to measure at improved resolution and distances from aircraft, drones and even satellites. Quantum Photonic Vibrometer Launched July 2023, QCi’s Photonic Vibrometer is a proprietary, powerful instrument for remote vibration detection, sensing, and inspection.
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 6 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.
Imaging Optical Imaging By leveraging the ability to count single photons, a key to the EQC, and filter their associated wave functions precisely, we can obtain optical imaging through otherwise opaque and dense materials.
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.
We expect these systems to deliver performance advantages over classical computational machines with the long-term goal of solving complex problems more effectively and efficiently with greater scalability, lower power consumption, and lower cost.
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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.
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(“QCi” or the “Company”) is an American company utilizing non-linear quantum optics (optical devices whose output due to quantum effects is exponentially, not linearly, related to inputs) to deliver quantum products for high-performance computing applications. QCi’s products are designed to operate at room temperature and use low power.
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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.
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Our core technology enables the execution of a go-to-market strategy that emphasizes accessibility and affordability as the key selling points. QCi was founded in 2018 and our initial business was developing platform agnostic enterprise software for quantum computing systems. In June 2022, QCi acquired its wholly-owned subsidiary QPhoton, Inc.
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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.
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(subsequently renamed QPhoton, LLC) (“QPhoton”), a photonics hardware company (the “QPhoton Merger”). That merger enables QCi to now offer high-performance quantum systems integrated with the Company’s software platform, Qatalyst, that existed before the QPhoton Merger. 1 QCi’s core technology is Entropy Quantum Computing (“EQC”).
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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.
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EQC is a patent pending methodology that utilizes the environment to drive controlled energy loss in a photonic architecture. Using quantum measurements of single photons as a source of feedback, the energy loss of the system is driven to a “ground state solution” where additional computational iterations no longer change the output.
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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.
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The ground state solution is the optimized result (the answer to the problem posed). This methodology allows for very low power consumption and room temperature operation. Also, due to the nature of the measurement and feedback process, EQC drives non-linear quantum interactions for “dense, fully connected” problem solving.
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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.
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In addition to our photonic computing platform, we have leveraged QCi’s core technology to demonstrate powerful quantum sensing use cases in LIDAR (Light Detection and Ranging), reservoir computing (a form of neural network that can be used in machine learning applications) and quantum cyber authentication (a method for highly secure communication within a network).
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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.
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Several of these important technologies are already in early stages of commercialization. Our longer-term product development plan is to migrate product designs based on discrete components to a set of optical integrated circuits built on wafers using a crystalline material called lithium niobate (“Thin Film Lithium Niobate” or “TFLN”).
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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.
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The Company believes that TFLN is an excellent material for design and implementation of optical integrated circuits suitable for our quantum computing and sensing products because it is crystal based and hence can have optical waveguides directly etched into the material.
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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.
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QCi possesses strong domain experience and intellectual property in TFLN design and chip fabrication and has completed initial production of several specialty devices such as electro-optical modulators (“EOM’s”). The Company has begun buildout of a state-of-the-art TFLN chip manufacturing facility in a leased space within Arizona State University’s Research Park in Tempe, Arizona.
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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.
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The CHIPS Act funding specifically includes $39 billion in manufacturing incentives and $13 billion to support new research and development. The recent market report published by Market Research Reports: Document ID: LPI08232779; Published August 8, 2023 “ Thin Film Lithium Niobate Market Forecast 2023 – 2029 ,” indicates a significant underlying market growth for TFLN devices.
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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.
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The study covers use applications and segments that suggest the global TFLN EOM market, valued at $190.4 million in 2022, is forecast to grow an estimated $1,931.3 million by 2029 - a compound annual growth rate of 39 percent. The report further describes that the demand increase is principally driven by the material advantages that were summarized above.
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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.
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Specifically, TFLN EOM’s have the advantages of large bandwidth, low power consumption, and small size. 2 Our Strategy QCi’s strategy is to provide a range of accessible and affordable quantum machines to commercial and government markets.
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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.
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Our proprietary technology is central to our strategy because we believe that it enables us to leverage the advantages of size, weight, power and cost (over competing cryogenic products to drive market adoption and volume of sales.
Removed
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.
Added
In addition to cloud-based access to our quantum computers, we offer on premises installation of our EQC product, rack-mountable and compatible with standard server room infrastructure requiring no need for special cooling, shielding, or power considerations.
Removed
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.
Added
The Company believes the EQC’s small rack-mountable size and low-energy consumption provides a substantial competitive edge as compared to superconducting, cryogenic quantum systems offered by competitors that are also designed to solve optimization problems.
Removed
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.
Added
We believe that the practical benefits to the customer of QCi’s core offerings are: ● Powerful performance in speed and quality of solution for large complex optimization problems ● Plug and play compatibility with existing IT infrastructure ● Low power consumption – normal operation under 80 watts ● Scalability with potential for migration to nanophotonic system-on-a-chip designs Market Opportunity Despite enormous growth in the capabilities of conventional computers and silicon microprocessors, some of the world’s most important computational problems are still considered impractical to solve in a reasonable period of time.
Removed
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. 2 The Company already produces its own lithium niobate nanophotonic circuits and has plans to scale production to meet projected demand.
Added
While quantum-based computers will not replace conventional computers in most applications, they are ideally suited to run optimization algorithms, as well as to calculate certain sensing, imaging, and cybersecurity problems that are beyond the reach of general silicon-based computing today.
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf 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; 22 ● 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.
Biggest changeIf we incur liability that exceeds our insurance coverage or that is not within the scope of the coverage in legal proceedings brought against us, it could have an adverse effect on our business, financial condition and results of operations. We intend to continue exploring strategic business acquisitions and other business combinations and transactions, which are subject to inherent risks.
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.
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 and maintain appropriate and scalable operational and financial systems, procedures and controls and a qualified finance, administrative and operations staff.
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 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.
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.
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 could be deemed a matter of national security and, as such, our customer base could be tightly restricted.
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.
Our ability to utilize our federal 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.
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.
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 that which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers.
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.
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 adverse effect on our business, financial condition or results of operations. Our business model is unproven and may never allow us to cover our costs.
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.
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, location, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.
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.
If we experience delays in adding such support capacity or servicing our customers efficiently, or experience 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.
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.
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 on terms that are acceptable to us or at all.
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.
Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend and other rights more favorable than those of our common stock, imposition of debt covenants and repayment obligations or other restrictions that may adversely affect our business.
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 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 services or in our decreased ability to export or sell our products and services to existing or potential customers.
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.
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 products and services business at the same scale and would experience significant delays and incur additional expense in transitioning customers to a different public cloud provider.
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.
Unless an exception is available, the regulations 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.
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.
Our future growth and success depend 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.
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.
Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties.
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.
Any disruptions, outages, defects and other performance and quality problems with our quantum computing system or with the public cloud, internet, and other infrastructure on which they 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.
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.
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 products and services.
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.
Even if we are successful in developing our products and executing our strategy, competitors in the industry may achieve technological breakthroughs that 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.
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.
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 that render our technology obsolete or inferior to other products could have a material adverse effect on our business, financial condition or results of operations.
Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business and reputation. 16 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.
Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business and reputation. 12 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 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. 24 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.
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. 20 Risks Related to Intellectual Property Any 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.
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.
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 stockholders. 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.
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.
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 products and services, retain customers, bring in new customers and retain critical talent.
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.
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 optical chip fabrication.
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. 28 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.
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. 24 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.
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.
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, or less.
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.
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 will become subject to an annual limitation in the event of certain cumulative changes in the ownership of the Company.
If a significant portion of our source code leaks, we might lose future trade secret protection for that source code.
However, if a significant portion of our source code leaks, we might lose future trade secret protection for that source code.
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.
These rules would require that any broker-dealer that recommends 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.
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.
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 development platform is designed to be compatible with most major software languages.
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.
Any decreased use of our products and services or limitation on our ability to export or sell our products and services would likely adversely affect our business, financial condition and results of operations. We expect to incur significant costs in complying with these regulations.
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.
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 that we must source from multiple countries, including China. Shortages or supply interruptions in any of these components will adversely impact our ability to generate revenues.
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.
Without timely innovation and development, our quantum computing products and services 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.
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.
Changes in our products or technologies or changes in applicable export or import laws and regulations also 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.
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.
We rely on access to high-performance third-party classical computing through public clouds and high-performance computing centers to deliver quantum products and services 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 products and services in a cost-effective manner.
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.
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 recent COVID-19 pandemic) and other health emergencies, 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.
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.
Any material change in our contractual and other business relationships with AWS or other cloud providers could result in reduced use of our products and services, 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.
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.
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 stockholders sell a large number of shares, or if we issue a large number of shares, the market price of our stock could decline.
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.
Moreover, the perception in the public market that stockholders 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.
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.
Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Cybersecurity risks and the failure to maintain the integrity of data belonging to the Company could expose us to data loss, litigation and liability, and our reputation could be significantly harmed.
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.
If the equity and credit markets were to further deteriorate, including as a result of political unrest or war, it may make any necessary financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.
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.
As a result, our insiders have the ability to significantly influence our management and affairs through the election and removal of the members of our board of directors (the “Board”) and all other matters requiring stockholder approval, including any future merger, consolidation or sale of all or substantially all of our assets.
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. 15 We may not manage growth effectively. Our failure to manage growth effectively could harm our business, results of operations and financial condition.
Failure of QCi to grow at rates similar to that of the broader 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.
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.
If a proprietary (not open source) software toolset became the standard for quantum application development in the future by a competitor, however, usage of our hardware might be limited, which would have a negative impact on the Company.
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.
Our success will depend to a substantial extent on the willingness of our potential customers to use, and increase their utilization of, our products and services, 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.
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.
Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our products and services, and this may make it difficult for us to obtain certain patent coverage on our own.
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.
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 products and services, increased competition, changes to technology, our 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.
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.
The potential issuance of such additional shares of common stock or of preferred stock or convertible debt may create downward pressure on the market price of our common stock.
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 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 products and services, which may never occur. Even with significant production, we may never become profitable from the sale of our products and services.
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.
Our quantum computers are inherently complex and incorporate technology and components that may have not been used for computing products 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.
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.
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 that our products do not perform as expected or malfunction.
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.
If large-scale development of our quantum computers other products commences, they may contain defects in design and manufacture that may cause them to not perform as expected or that may require repair and design changes.
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.
Furthermore, the market for our common stock historically has been limited and we cannot assure you that an active trading 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.
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 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 products and services do not achieve commercial adoption, the growth of our business will be harmed.
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.
In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.
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.
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 these requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the liquidity of, and consequently adversely affect the market price for, our common stock.
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.
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 as a result. Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products.
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.
Even if we complete development and achieve volume production of our products, if the cost, accuracy, performance characteristics or other specifications fall short of our expectations, our business, financial condition and results of operations would be adversely affected.
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.
As quantum computing technology continues to mature, broad quantum advantage, and quantum supremacy, may take years or decades to be realized, if it ever is. If we cannot develop quantum computers that have quantum advantage, customers may not continue to purchase our products and services.
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.
Since the merger with QPhoton, we have been 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.
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.
As a result, we cannot be certain that the patent applications that we file will result in patents being issued or that our patents (including licensed patents) and any future patents that do issue will afford protection against competitors with similar technology.
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.
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, 2024, our directors and executive officers collectively beneficially own approximately 31.8% of the shares of our common stock including the beneficial ownership of Mr.
The market price of our common stock may fluctuate widely in response to various factors, some of which are beyond our control, including: ● actions by competitors; ● actual or anticipated growth rates relative to our competitors; ● 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; ● litigation; ● changes in key personnel; and ● future sales of our common stock by our officers, directors and significant shareholders.
The market price of our common stock has in the past and may going forward fluctuate widely in response to various factors, some of which are beyond our control, including: ● actions by competitors; ● actual or anticipated growth rates relative to our competitors; ● the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (the “SEC”); ● economic, legal and regulatory factors unrelated to our performance; ● any future guidance that 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; ● litigation; ● changes in key personnel; and ● future sales of our common stock by our officers, directors and significant stockholders.
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.
Our products and services may from time to time incorporate high-performance classical computing through public clouds to provide services to end users and our partners. These public cloud services are predominantly on AWS at the present time.
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.
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 quantum computer products rely on software that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities.
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.
There is significant development and intellectual property risk in the specification, design and development of TFLN Optical Chips and our plans could be impacted by lack of funding, competition or even unknown core technology factors intrinsic to the work.
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. 25 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.
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. 21 Even if our patent applications succeed, it is still uncertain whether these patents (or any of the issued patents exclusively licensed to us) will be contested, circumvented, invalidated, found to be unenforceable or limited in scope in the future.
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.
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. Similar rules apply under state tax laws.
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. 17 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.
If these cost savings do not materialize, the production cost may be higher than projected, making our quantum computing products and services less competitive than those offered by our competitors, which could have a material adverse effect on our business, financial condition or results of operations. 13 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.
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.
Government actions and regulations, such as tariffs and trade protection measures, may adversely impact our business, including our ability to obtain products from our suppliers 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.
Any of these effects could depress the price of our common stock. 30 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.
Any of these effects could depress the market price of our common stock. 26 Our articles of incorporation grant the Board the power to issue additional shares of common and preferred shares and to designate other classes of preferred shares, all without stockholder approval.
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.
We expect to continue to make significant investments to maintain and improve the availability of our cloud- based products and services and to enable rapid releases of new features and products.
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 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 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.
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.
The completion of such transactions also have inherent risks that may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to: (i) 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; (ii) diversion of management’s attention from other business concerns; (iii) entry into markets in which we have little or no direct prior experience; (iv)) failure to achieve projected synergies and performance targets; (v) loss of clients or key personnel; (vi) incurrence of debt or assumption of known and unknown liabilities; (vii)) write-off of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; (viii) dilutive issuances of equity securities; and (ix) accounting deficiencies that could arise in connection with, or as a result of, such transactions, including issues related to internal control over financial reporting and the time and cost associated with remedying such deficiencies.
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.
Our ability to generate revenues will largely be dependent on our ability to develop and produce a suite of products based on quantum photonic technologies, with steadily increasing capabilities. 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.
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.
Disruptions in transportation lines or the ongoing military conflict between Russia and Ukraine, the state of war between Israel and Hamas, or an invasion of Taiwan by China, 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.
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 expect to incur significantly higher losses in future periods as we continue to incur significant expenses in connection with the design, development and manufacturing of our quantum computers and other products and services, and as we expand our research and development activities, invest in manufacturing capabilities, build up inventories of components for our quantum computers and other products, increase our sales and marketing activities, develop our infrastructure, and increase our general and administrative functions to support our growing operations.
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.
The future issuance of a substantial number of shares of common stock or the sale of a substantial number of shares in the public market, or the perception that such issuances or sales could occur, could adversely affect the prevailing market price of our common stock.
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.
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, denial of service attacks or other security-related incidents, foreign objects or debris, weather, construction, supply chain events, or accidents and other force majeure.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company also leases approximately 450 square feet under an annual lease in a multi-tenant facility that provides conference room space, 24/7 co-working space, and other services on an as-needed basis in Minneapolis, MN and approximately 300 square feet under an annual lease in a multi-tenant facility that provides conference room space, 24/7 co-working space, and other services on an as-needed basis in Arlington, VA.
Biggest changeThe Company also has multiple leases or membership agreements in multi-tenant facilities that provides 24/7 furnished co-working space, conference room space, and other services on an as-needed basis, including approximately 350 square feet under a month-to-month lease in Leesburg, VA, approximately 300 square feet under a short-term agreement in Arlington, VA, and approximately 450 square feet under an annual operating lease in Minneapolis, MN.
The Company leases 7,503 square feet of office and laboratory space in a multistory, multi-tenant building in Hoboken, NJ under a five-year lease.
ITEM 2. PROPERTIES. We maintain our current principal office at 5 Marine View Plaza, Suite 214, Hoboken, NJ 07030. The Company leases 7,503 square feet of office and laboratory space in a multistory, multi-tenant building in Hoboken, NJ under a five-year lease.
Removed
ITEM 2. PROPERTIES. We maintain our current principal office at 215 Depot Court SE, Suite #215, Leesburg, VA 20175. Our telephone number at this office is (703) 436-2161.
Added
Additionally, the Company has a fully executed lease for 9,261 square feet of office, laboratory and clean room space in a multi-tenant building in Tempe, AZ for 51-months, which will commence upon substantial completion of tenant improvements.
Removed
The Company leases approximately 350 square feet of furnished office space under an annual lease in a multi-tenant facility that provides conference room space, 24/7 co-working space, and other services on an as-needed basis in Leesburg, VA. The facility lease can be terminated upon 60 days written notice by the Company.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOn December 30, 2022 the Company, QPhoton and Robert Liscouski (the “Quantum Plaintiffs”) filed suit in the Superior Court of New Jersey against Keith Barksdale, Michael Kotlarz, BV Advisory Partners, LLC (“ BV ”), Barksdale Global Holdings, LLC (“ BGH ”), Power Analytics Global Corporation (“ PAG ”), and Inference Ventures LLC (“ Inference Ventures ” and together with Barksdale, Kotlarz, BV, BGH, and PAG the “ BV Defendants ”), alleging fraud, defamation, and conspiracy to defraud, seeking monetary and injunctive relief.
Biggest changeThe Company has filed a motion to dismiss the Lawsuit, and that motion to dismiss is currently under consideration by the court. 28 On December 30, 2022 the Company, QPhoton and Robert Liscouski (the “Quantum Plaintiffs”) filed suit in the Superior Court of New Jersey (the “NJ Court”) against Keith Barksdale, Michael Kotlarz, BV Advisory, BGH, Power Analytics Global Corporation (“PAG”), and Inference Ventures (and together with Barksdale, Kotlarz, BV Advisory, BGH, and PAG the “BV Defendants”), alleging fraud, aiding and abetting fraud, defamation, and conspiracy to defraud, seeking monetary and injunctive relief.
The parties are currently in discovery and the Company does not have sufficient information to assess the potential impact of the appraisal demand at this time. In addition, on March 1, 2021, QPhoton entered into a Note Purchase Agreement with BV Advisory.
The parties are currently engaged in discovery and the Company does not have sufficient information to assess the potential impact of the appraisal demand at this time. In addition, on March 1, 2021, QPhoton entered into a Note Purchase Agreement with BV Advisory.
Except as listed below, there is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiaries, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Except as listed below, there is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or our subsidiaries, threatened against or affecting the Company, our common stock, our subsidiaries, or the Company’s or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect on the Company.
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 Company believes that BV Advisory’s claims have no merit and intends to defend itself vigorously. Moreover, the Company believes that numerous alleged facts and characterizations set forth in BV Advisory’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 Company further believes that Mr.
On October 13, 2022 BV Advisory filed a petition in Delaware Chancery Court seeking appraisal rights on the shares of Common Stock of QPhoton (which shares represented 10% of the shares of Common Stock of QPhoton outstanding immediately prior to the Company’s merger with QPhoton) pursuant to Section 262 of the General Corporation Law of the State of Delaware.
On October 13, 2022, BV Advisory filed a petition in the Court of Chancery of the State of Delaware seeking appraisal rights on the shares of common stock of QPhoton it allegedly owns (which shares represented 10% of the shares of common stock of QPhoton outstanding immediately prior to the Company’s acquisition of QPhoton) pursuant to Section 262 of the General Corporation Law of the State of Delaware.
Under the Note Purchase Agreement, on March 1, 2021, March 23, 2021 and July 9, 2021, QPhoton and BV Advisory, a related party shareholder, entered into convertible promissory notes for $200,592, $150,000, and $150,000, respectively, for a total of $500,592 (the “BV Notes”).
Under the Note Purchase Agreement, on March 1, 2021, March 23, 2021 and July 9, 2021, QPhoton and BV Advisory entered into convertible promissory notes for $200,592, $150,000, and $150,000, respectively, for a total of $500,592 (the “BV Notes”). The BV Notes all bore interest at a rate of 6% per annum and matured two years from the grant date.
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.
BV Advisory is seeking, among other relief, monetary damages for an alleged breach of the Note Purchase Agreement between BV Advisory and QPhoton, as well as monetary damages for alleged breach of an alleged binding letter of intent among Barksdale Global Holdings, LLC (“BGH”), Inference Ventures, LLC (“Inference Ventures”) and QPhoton.
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.).
On August 16, 2022, BV Advisory 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”).
The BV Notes all bore interest at a rate of 6% per annum and matured 2 years from the grant date. 31 On June 16, 2022 QPhoton tendered a cashier’s check to BV Advisory in the amount of $535,68.44, representing the full principal balance of the BV Notes and accrued interest through June 16, 2022.
On June 16, 2022, the effective date of our acquisition of QPhoton, QPhoton tendered a cashier’s check to BV Advisory in the amount of $535,684.24, representing the full principal balance of the BV Notes and accrued interest through June 16, 2022. BV subsequently filed suit against the Company disputing the calculation of the payment amount and asserting other claims.
BV Advisory Partners, LLC (“BV Advisory”) was a shareholder of QPhoton, Inc. (“QPhoton”) immediately prior to the Company’s merger with QPhoton.
BV Advisory Partners, LLC (“BV Advisory”) was purportedly a shareholder of QPhoton, the predecessor in interest to QPhoton, LLC, a wholly owned subsidiary of the Company (both referred to as “QPhoton” in this Legal Proceedings discussion).
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 undue consideration.
Barksdale misrepresented his role with QPhoton and his authority to negotiate on behalf of QPhoton in order to arrogate to BV Advisory and related parties a larger share of the QPhoton merger consideration.
Removed
On July 14, 2022 BV Advisory returned the cashier’s check and disputed the calculation of the amount paid to settle the BV Notes.
Added
BV Advisory and its affiliates claim that pursuant to the letter of intent they had the right to acquire additional shares in QPhoton by investing $2.5 million in QPhoton. BV Advisory claims QPhoton refused to allow BV Advisory to purchase the equity. However, BV Advisory never made the additional investment in QPhoton.
Removed
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 must be filed on or before April 14, 2023.
Added
The Company claims that the BV Defendants have made numerous public statements defaming the Company and its management in furtherance of a plan to manipulate the trading prices of the Company’s common stock, and that the BV Defendants misrepresented their ownership in QPhoton and conspired to acquire additional shares of QPhoton at the Company’s expense.
Removed
On March 24, 2023 the BV Defendants filed a motion to dismiss portions of the complaint. A hearing on the motion to dismiss is tentatively scheduled for May 26, 2023. The Company does not have sufficient information at this time to assess the potential financial impact of the action against the BV Defendants at this time. ITEM 4.
Added
The BV Defendants filed a motion to dismiss the complaint on March 24, 2023, and on June 5, 2023, the NJ Court largely denied the BV Defendants’ motion. On January 31, 2024, the BV Defendants filed a motion for reconsideration of their motion to dismiss.
Removed
MINE SAFETY DISCLOSURES. Not applicable. 32 PART II
Added
On March 7, 2024, the NJ Court issued an order, granting the BV Defendant’s motion dismissing the Company’s case on procedural grounds because, according to the NJ Court, the Company can assert its claims.
Added
The Company has 45 days in which to file an appeal and is evaluating whether it should file the claims in Delaware or appeal the NJ Court’s ruling. The Company does not have sufficient information at this time to assess the potential impact of the action against the BV Defendants.
Added
On July 27, 2023, BV Advisory and its managing member, Keith Barksdale, as alleged stockholders of and claimants against the Company, filed a petition in the Court of Chancery of the State of Delaware to appoint a receiver for the Company based on allegations that the Company is insolvent due to purported poor corporate governance and cash management.
Added
The petition also objects to the Company’s approach to raising capital. In a related motion, the petitioners also sought expedited treatment of the petition on July 28, 2023, alleging that they face a threat of irreparable harm. The Company strongly disagrees with the allegations in the petition and plans to vigorously defend ourselves against these claims.
Added
On August 23, 2023, the Company filed a motion to dismiss the petition and on September 13, 2023, it submitted a brief in opposition to the motion to expedite. The Company intends to vigorously defend itself against the allegations in the petition.
Added
The Company’s motion to dismiss and BV Advisory’s motion for expedited treatment were argued before the Court on October 11, 2023. The Court denied BV Advisory’s motion to expedite and took the Company’s motion to dismiss under advisement. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 29 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 28, 2023, 60,496,062 shares of Common Stock were issued and outstanding, 1,490,004 shares of Series A Convertible Preferred stock were issued and outstanding and 0 shares of Series B Preferred Stock are issued and outstanding. Holders of Common Equity As of March 28, 2023, there were approximately 239 stockholders of record.
Biggest changeAs of March 28, 2024, 91,357,640 shares of common stock were issued and outstanding, 1,407,221 shares of Series A Convertible Preferred stock were issued and outstanding and no shares of Series B Preferred Stock are issued and outstanding. Holders of Common Equity As of March 28, 2024, there were approximately 263 stockholders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is listed on the Nasdaq Capital Market under the symbol “QUBT” and commenced trading since July 15, 2021.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is listed on the Nasdaq Capital Market under the symbol “QUBT” and commenced trading on July 15, 2021.
Authorized Capital The Company is authorized by its Certificate of Incorporation to issue an aggregate of 250,000,000 shares of common stock, $0.0001 par value per share (the “Common Stock”), and 10,000,000 shares of blank check preferred, of which 1,550,000 shares are designated as Series A Convertible Preferred Stock and 3,079,864 shares are designated as Series B Preferred Stock.
Authorized Capital The Company is authorized by its Certificate of Incorporation to issue an aggregate of 250,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of blank check preferred, of which 1,550,000 shares are designated as Series A Convertible Preferred Stock and 3,079,864 shares are designated as Series B Preferred Stock.
Unregistered Sales of Equity Securities and Use of Proceeds During the year ended December 31, 2022, we have issued securities that were not registered under the Securities Act, all of which were previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. ITEM 6. [Reserved]
Unregistered Sales of Equity Securities and Use of Proceeds During the year ended December 31, 2023, we have issued securities that were not registered under the Securities Act, all of which were previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. ITEM 6. [Reserved]
The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions.
The declaration of any future cash dividends is at the discretion of the Board and depends upon our earnings, if any, our capital requirements and financial position, our general economic condition, and other pertinent conditions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDuring the twelve months ended December 31, 2022, we have funded our operations primarily through the use of cash on hand. As of March 28, 2023, we had cash on hand of approximately $7,423,898. We have approximately $104,772 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses which are due monthly.
Biggest changeWe have approximately $74,977 in monthly lease and other mandatory payments, not including payroll, employee benefits and ordinary expenses which are due monthly. On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues.
The Monte Carlo simulation model assumes changes in stock prices over time cannot be predicted from the historical trends (known as a “random walk”), which also may not hold for all periods. 37 Another area of critical accounting estimates involves determining the fair market value and useful life of the intangible assets acquired by the Company through the merger with QPhoton.
The Monte Carlo simulation model assumes changes in stock prices over time cannot be predicted from the historical trends (known as a “random walk”), which also may not hold for all periods. 34 Fair Market Value and Useful Life of Intangible Assets Another area of critical accounting estimates involves determining the fair market value and useful life of the intangible assets acquired by the Company through the merger with QPhoton.
Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2022, noting the existence of substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2023, noting the existence of substantial doubt about our ability to continue as a going concern.
The following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2022 and 2021 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report.
The following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2023 and 2022 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report.
We have developed and released multiple products and are now in the process of marketing them. We expect revenues to increase meaningfully in 2023 as we emphasize our hardware capability.
We have developed and released multiple products and are now in the process of marketing them. We expect revenues to increase meaningfully in 2024 as we continue to emphasize our hardware capability.
Much progress was made toward this overarching objective, but the generation of revenue from customers has been slow to develop, in part due to the fact that quantum computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small, exploratory contracts to better understand its applicability to their requirements.
While we have made significant progress toward this overarching objective, the generation of revenue from customers has been slow to develop, in part due to the fact that quantum computing is a cutting-edge technology for most potential customers, who are therefore proceeding cautiously with small, exploratory contracts to better understand its applicability to their requirements.
The Company uses the Black-Scholes model to calculate the fair value of stock options and derivatives. The Black-Scholes model, developed in 1973, is a differential equation which requires five input variables, the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility of the Company common stock.
The Black-Scholes model, developed in 1973, is a differential equation which requires five input variables, the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility of the Company common stock.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The assumption that the risk-free rate (the Company uses the one-year US Treasury Bill rate as a proxy for the risk-free rate) can vary over time, and if the T-Bill rate varies substantially over the life of the stock option that could affect the pricing.
Treasury Bill rate as a proxy for the risk-free rate) can vary over time, and if the T-Bill rate varies substantially over the life of the stock option that could affect the pricing.
In the absence of market pricing for the intangible assets, the Company relied on comparison with similar transactions to arrive at estimates of value as well as useful life.
In the absence of market pricing for the intangible assets, the Company relied on independent third-party appraisal experts and comparison with similar transactions to arrive at estimates of value as well as useful life.
On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature.
Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature.
The Company will perform periodic assessments of the intangible assets for impairment, but if any of the initial estimates are incorrect, that could result in a calculation of amortization expense that is too high or too low.
The Company will perform periodic assessments of the intangible assets for impairment, but if any of the initial estimates are incorrect, that could result in a calculation of amortization expense that is too high or too low. Legal and Other Contingencies The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.
In as much as a major portion of our activities will be the receipt of revenues from the sales of our products and services, our business operations may be adversely affected by our competitors and prolonged recession periods.
In as much as a major portion of our activities will be the receipt of revenues from the sales of our products and services, our business operations may be adversely affected by our competitors and prolonged recession periods. 33 Critical Accounting Estimates Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements.
Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.
In applying these policies, our management uses judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate.
To the extent that any of these assumptions is not correct, that could result in the over or under pricing of the stock options involved.
To the extent that any of these assumptions is not correct, that could result in the overpricing or underpricing of the stock options involved. The assumption that the risk-free rate (the Company uses the one-year U.S.
December 31, 2021 Revenues For the Twelve Months Ended December 31, 2022 For the Twelve Months Ended December 31, 2021 (In thousands) Amount Mix Amount Mix Change Products 0 0 % 0 0 % 0 % Services 135,648 100 % 0 0 % 100 % Total $ 135,648 100 % $ 0 100.0 % 100 % Revenues for the Twelve Months ended December 31, 2022 were $135,648 as compared with $0 for the comparable prior year period, a change of $135,648, or 100%.
December 31, 2022 Revenues For the Twelve Months Ended December 31, 2023 For the Twelve Months Ended December 31, 2022 (In thousands) Amount Mix Amount Mix Change Products 4,500 1 % 0 0 % 0 % Services 353,547 99 % 135,648 100 % % Total $ 358,047 100 % $ 135,648 100.0 % % Revenues for the year ended December 31, 2023 were $358,047 compared to $135,648 for the year ended December 31, 2022, an increase of $222,399, or 164%.
Net cash provided by financing activities for the twelve months ended December 31, 2022 was $8,354,434 compared with $8,387,879 during the twelve months ended December 31, 2021.
Net cash provided by financing activities for the year ended December 31, 2023 was $19,309,330 compared to $8,035,684 during the year ended December 31, 2022.
The decrease in working capital is primarily attributable to the use of cash to pay for operating expenses, capital investments, including the Note Purchase Agreement with QPhoton, and the costs relating to the merger with QPhoton.
The decrease in working capital is primarily attributable to the use of cash to pay for operating expenses and capital investments in property and equipment, satisfaction of accrued expense liabilities and the Streeterville Unsecured Note becoming a current portion of long-term debt payable.
The cash flow provided by financing activities during the period ended December 31, 2021 was primarily attributable to the issuance of Series A Convertible Preferred stock, the issuance of common stock for the exercise of options and the exercise of warrants. 35 Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities.
During the year ended December 31, 2022, cash provided by financing activities was primarily attributable to the funds we received from the issuance of the Streeterville Unsecured Note. The Company has funded our operations primarily through the sale of our equity (or equity linked) and debt securities. As of March 28, 2024, we had cash on hand of approximately $6,554,651.
The following table summarizes total current assets, liabilities and working capital at December 31, 2022, compared to December 31, 2021: December 31, 2022 December 31, 2021 Increase/(Decrease) Current Assets $ 5,587,647 $ 17,221,654 $ (11,634,007 ) Current Liabilities $ 6,545,320 $ 1,082,298 $ 5,436,022 Working Capital (Deficit) $ (957,673 ) $ 16,139,357 $ (17,097,030 ) At December 31, 2022, we had a working capital deficit of $957,673 as compared to working capital of $16,139,357 at December 31, 2021, a decrease of $17,097,030.
The following table summarizes total current assets, liabilities and working capital at December 31, 2023, compared to December 31, 2022: December 31, 2023 December 31, 2022 Increase/ (Decrease) Current Assets $ 3,181,748 $ 5,728,536 $ (2,546,788 ) Current Liabilities $ 4,619,637 $ 5,319,245 $ (699,608 ) Working Capital (Deficit) $ (1,437,889 ) $ 409,291 $ (1,847,180 ) 32 At December 31, 2023, we had a working capital deficit of $2,546,788 as compared to working capital of $409,29 at December 31, 2022, a decrease of $1,847,180.
Removed
See “Forward-Looking Statements.” Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying condensed financial statements and provides additional information on Quantum Computing Inc.’s (“Quantum” or the “Company’) business, current developments, financial condition, cash flows and results of operations.
Added
See “Forward-Looking Statements.” You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, When we say “we,” “us,” “our,” “Company,” or “QCi,” we mean Quantum Computing Inc.
Removed
When we say “we,” “us,” “our,” “Company,” or “Quantum,” we mean Quantum Computing Inc. Overview At the present time, we are a development stage company with limited operations. The Company plans to enter the market for high performance computers and software applications, specifically focusing on what are known as “quantum computers”.
Added
Overview QCi is a development stage company with limited operations and revenue. The Company is developing quantum machines for high-performance computing applications based on proprietary photonics technology. QCi’s products are designed to operate at room temperature and low power at an affordable cost in the areas of high-performance computing, sensing and imaging, and quantum cybersecurity.
Removed
The Company has assembled a team of experts in quantum computing software technology and quantum mathematics, which will focus on the design and development of several quantum software applications targeting solutions to non-deterministic polynomial applications.
Added
The Company has generated some revenue based on sales of products and related services to date and is expanding its sales and marketing efforts. The Company’s development team includes optical engineers, mathematicians, physicists, and software developers. 30 Results of Operations Years Ended December 31, 2023 vs.
Removed
The Company’s development team has initially focused on addressing computational problems in the financial services, supply chain and logistics management; pharmaceutical design, heavy manufacturing, and computer security (cyber) market segments. The Company’s development team includes mathematicians, physicists, and software developers. 33 Results of Operations Twelve Months Ended December 31, 2022 vs.
Added
Revenue was derived from sales of hardware products and professional services in 2023, and solely from professional services in 2022, in each case provided to multiple commercial and government customers under multi-month contracts; the year-over-year change was riven by increases in short-term contractual service revenue.
Removed
There is no revenue comparison for the prior year period because the Company had not yet sold any products or services. All revenue in the current reporting period is derived from professional services provided to multiple commercial and government customers under multi-month contracts. In 2022, QCI continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems.
Added
In 2023, QCi continued to execute its business strategy to provide quantum-ready solutions for solving real-world problems.
Removed
Cost of Revenues Cost of revenues for the twelve months ended December 31, 2022 was $60,934 as compared with $0 for the comparable prior year period, a change of $60,934, or 100%. There is no cost of revenues comparison for the prior year period because the Company had not yet sold any products or services.
Added
Cost of Revenues Cost of revenues, which consists of labor consumed to fulfill our obligations under contractual service agreements as well as the component parts of finished goods sold, was $195,640 for the year ended December 31, 2023 compared to $60,934 for the prior year, an increase of $134,706, or 221%.
Removed
Cost of revenues for the current reporting period consists primarily of salary expense. Gross Margin Gross margin for the twelve months ended December 31, 2022 was $74,714 as compared with $0 for the comparable prior year period, a change of $74,714, or 100%.
Added
Cost of revenues for each of the years ending December 31, 2023 and 2022 consists primarily of salary expense. The increase for 2023 was predominantly driven by the execution of new government service contracts. Cost of revenue for these services was contractually structured and limited to the direct salaries and actual hours worked to fulfill the work orders.
Removed
There is no gross margin comparison for the comparable prior year period because the Company had not yet sold any products or services in 2021. Operating Expenses Operating expenses for the twelve months ended December 31, 2022 were $36,654,056 as compared with $17,130,093 for the comparable prior year period, an increase of $19,523,963 or 114%.
Added
Rates for these services remained materially unchanged year over year, with contract volume being the driver of growth. Gross Margin Gross margin for the year ended December 31, 2023 was $162,407 compared to $74,714 for the prior year, an increase of $87,693, or 117%. On a percentage basis, gross margin was 45%, a decrease of 10% year-over-year.
Removed
The increase in operating expenses is due in large part to a $1,837,856 increase in salary and benefits expense due to an increase in the number and composition of staff following the QPhoton Merger, a $201,269 increase in consulting expenses, a $1,975,998 increase in research and development expenses related primarily to hiring additional technical staff following the QPhoton Merger, a $8,360,122 increase in stock-based compensation, largely related to hiring additional staff and the QPhoton Merger, and a $7,148,718 increase in other SG&A costs compared with the comparable prior year period.
Added
The change was nearly entirely the result of the shift to contractual service revenue where the cost of goods sold was defined under the terms of our general professional services obligation.
Removed
The increase in other SG&A costs was largely due to increased legal, audit and other fees associated with the QPhoton Merger. Net Loss Our net loss for the twelve months ended December 31, 2022 was $36,593,700 as compared with a net loss of $27,898,847 for the comparable prior year period, an increase of $10,694,853 or 38%.
Added
Our lack of a scaled and distributed base of revenue generation by product and sales channel can result in large swings in gross margin between reporting periods. 31 Operating Expenses Operating expenses for the year ended December 31, 2023 were $27,383,684 compared to $36,654,056 for the year ended December 31, 2022, a decrease of $9,270,372 or 25%.
Removed
The increase in net loss is primarily due to the increase in operating expenses, noted above, as well as $1,782,545 increase in interest expense related to preferred stock dividends, amortization of the Original Issue Discount for the Series A Convertible Preferred Stock, financing costs and accrued interest on term loans, offset by a $10,715,799 decrease in interest expense related to the warrant issuance that occurred in 2021.
Added
The decrease in operating expenses was almost entirely driven by a $9,038,701 decrease in stock-based compensation expenses, which was driven mainly by higher value stock option awards in 2022 compared to 2023.
Removed
In addition, there was a decrease in other income of $178,860 in the current year, primarily related to the forgiveness of the SBA PPP Loan in 2021. 34 Liquidity and Capital Resources We fund our working capital with cash from investment.
Added
Decreases of $1,399,208 in selling, general and administrative expenses, primarily as a result of $574,428 through stream-lining of marketing activities and sales roles, and $704,975 in professional services, primarily as a result of non-recurring legal expenses during 2022 related to the QPhoton Merger, also contributed to the decrease in operating expenses during 2023 compared to the prior year.
Removed
Since commencing operations as Quantum Computing in February 2018, the Company has raised $27,759,904 through private placement of equity and $12,633,000 through private placements of Convertible Promissory Notes and other debt for a total of $40,392,904 in new investment. The Company has no lines of credit, and $535,684 and $8,250,000 in short and long-term debt obligations outstanding, respectively.
Added
These decreases were partially offset by an increase in research and development spending year-over-year of $1,885,909 driven by increased salary expenses as the Company expanded its capability to deliver commercialized hardware products.
Removed
We believe that our current cash position and other available financing resources such as our ATM facility, coupled with our ongoing operating activities, will provide sufficient liquidity to fund our business needs over the next twelve months and beyond.
Added
Net Loss Our net loss for the year ended December 31, 2023 was $29,730,672 compared to a net loss of $38,593,700 for the prior year, a decrease of $8,863,029 or 23%.
Removed
To the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt, dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities.
Added
The decrease in net loss is primarily due to the decrease in operating expenses, noted above, partially offset by $513,709 net increase in financing costs driven by amortization of the $750,000 original issue discount included in the principal balance of the unsecured promissory note (the “Streeterville Unsecured Note”) that we issued to Streeterville Capital, LLC in the initial principal amount of $8,250,000 in September 2022, which bears interest at 10% per annum.
Removed
Net Cash Net cash used in operating activities for the twelve months ended December 31, 2022 and 2021 was $17,557,368 and $6,804,960, respectively. The net loss for the twelve months ended December 31, 2022 and 2021, was $38,593,700 and $27,898,847, respectively.
Added
Liquidity and Capital Resources We have incurred net losses and experienced negative cash flows from operations since inception. To date, since February 2018, the Company has raised $57,424,924 through private placements of equity and $12,633,000 through private placements of Convertible Promissory Notes and other debt for a total of $70,057,924 through December 31, 2023.
Removed
Net cash used in investing activities for the twelve months ended December 31, 2022 and 2021 were $2,227,257 and $40,584, respectively. The increase in investment in the current period is primarily due to acquisition of laboratory equipment and the merger with QPhoton.
Added
The Company has no lines of credit, and $2,496,480 in short-term debt obligations outstanding. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs.
Removed
Cash flows provided in financing activities during the twelve months ended December 31, 2022 were attributable to the amortization of the original issue discount for the Series A Convertible Preferred stock, conversion of some shares of Series A Convertible Preferred stock to common stock, the returned payoff of the BV Advisory loan, and the funds received from the Streeterville Unsecured Note.
Added
We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing. As of December 31, 2023, the Company had cash and cash equivalents of $2,059,285.
Removed
Critical Accounting Policies Basis of Presentation: Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). These accounting principles require us to make certain estimates, judgments and assumptions.
Added
Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and non-linear quantum optical chips and fund business operations.
Removed
We believe that the estimates, judgments and assumptions upon which we rely are reasonably based upon information available to us at the time that these estimates, judgments and assumptions are made.
Added
Until such time as we can generate significant revenue from sales or subscriptions of our hardware offerings, we expect to finance our cash needs through public and/or private equity and/or debt financings or other capital sources, including but not limited to U.S. government grant and loan programs.
Removed
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results.
Added
However, we may be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all.
Removed
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.
Added
In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest rates, banking collapses, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all.
Removed
We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations. Accounting Changes Except for the changes discussed below, Quantum has consistently applied the accounting policies to all periods presented in these consolidated financial statements.
Added
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
Removed
The Company has evaluated all recently implemented accounting standards and concluded that none currently apply to the Company. Use of Estimates: These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.
Added
Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Removed
Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed consolidated financial statements.
Added
If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our quantum computing development and go-to-market efforts.
Removed
Because a precise determination of assets and liabilities, and correspondingly revenues and expenses, depends on future events, the preparation of financial statements for any period necessarily involves the use of estimates and assumption an example being assumptions in valuation of stock options.
Added
Cash Flows Net cash used in operating activities for the years ended December 31, 2023 and 2022 was $19,940,521 and $17,240,117, respectively, in each case primarily as a result of our net loss in each year offset by noncash adjustments for stock-based compensation, depreciation of property, plant and equipment and amortization of intangibles.
Removed
These financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below. Cash and Cash Equivalents The Company’s policy is to present bank balances under cash and cash equivalents, which at times, may exceed federally insured limits.
Added
Net cash used in investing activities for the years ended December 31, 2023 and 2022 was $2,617,990 and $2,225,758, respectively. Cash used in investing activities during the year ended December 31, 2023 was attributable to acquisition of laboratory and production equipment for $2,117,990 and our $500,000 loan to millionways, Inc (“millionways”). in June 2023.
Removed
The Company has not experienced any losses in such accounts. 36 Revenue The Company recognizes revenue in accordance with ASC 606 – Revenue from Contracts with Customers.
Added
On June 6, 2023, the Company entered into a Note Purchase Agreement with millionways pursuant to which the Company agreed to purchase from millionways up to three unsecured promissory in an aggregate principal amount of up to $2,000,000, subject to the terms and conditions thereof.
Removed
Revenue from time and materials-based contracts is recognized as the direct hours worked during the period times the contractual hourly rate, plus direct materials and other direct costs as appropriate, plus negotiated materials handling burdens, if any. Revenue from units-based contracts is recognized as the number of units delivered or performed during the period times the contractual unit price.
Added
On June 6, 2023, the Company purchased the notes from millionways and loaned it an aggregate principal amount of $500,000. This followed the Company’s entry into a Summary of Proposed Terms with millionways on May 16, 2023, to provide bridge loans to millionways and enter into due diligence to acquire up to 100% of the AI firm.
Removed
Revenue from fixed price contracts is recognized as work is performed with estimated profits recorded on a percentage of completion basis. The Company has no cost reimbursement (“cost-plus”) type contracts at this time.
Added
Cash provided by financing activities during the year ended December 31, 2023 was attributable to $25,496,364 received from the sale of shares of our common stock through our At-The-Market (ATM) facility, managed by Ascendiant Capital Markets, LLC (net the 3% fee paid to Ascendiant Capital Markets, LLC), partially offset by repayments of $6,187,034 on the Streeterville Unsecured Note.

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Other QUBT 10-K year-over-year comparisons