History
Quantum Computing Inc. (“QCI”
or the “Company”), was incorporated in the State of Nevada on July 25, 2001 as Ticketcart, Inc. Ticketcart’s
original business plan involved in the sale of ink-jet cartridges online. Ticketcart offered remanufactured and compatible cartridges
for Hewlett-Packard, Epson, Lexmark, and Canon inkjet printers. On July 25, 2007, Ticketcart, Inc. acquired Innovative Beverage
Group, Inc. and changed its name to Innovative Beverage Group Holdings, Inc. (“IBGH”) to better reflect its business
operations at the time which was beverage distribution and product development. In 2013, IBGH ceased operations. On May 22, 2017,
one of IBGH’s. shareholders, William Alessi (the “Plaintiff”), filed suit against the Company alleging “(1)
fraud; and (2) breach of fiduciary duties of care, loyalty and good faith to the Corporation’s shareholders.”
Mr. Alessi’s complaint alleged that the officers and directors of IBGH had abandoned it and allowed the Company’s
assets to be wasted, causing injury to the Company and its shareholders. Mr. Alessi sought damages of $30,000 for
each claim, plus reimbursement of filing costs of $1,000, and the appointment of a Receiver for the Company.
On August 28, 2017, the North Carolina
Court, Superior Court Division (the “North Carolina Court”), entered a default judgment for Plaintiff and appointed
an exclusive Receiver (the “Receiver”) over the Company. The default judgment provided that Innovative Beverage Group
Holdings, Inc. was (i) to issue to the Plaintiff 18,500,000 shares of free-trading stock without registration under Section 3(a)(1)
of the Securities Act of 1933, as amended, (ii) issue 100,000,000 shares of stock to Innovative Beverage Group Holdings, Inc.’s
treasury, and (iii) that the receivership be terminated upon any change of control, and that any and all claims against Innovative
Beverage Group Holdings, Inc. that were not submitted to the Receiver as of September 16, 2017, were disallowed. On October 4,
2017 the Receiver filed Articles of Incorporation in North Carolina for Innovative Beverage Group Holdings, Inc., a wholly-owned
subsidiary of the Company, (“IBGH North Carolina”). On October 26, 2017, Innovative Beverage Group, Inc. redomiciled
to North Carolina.
On
January 22, 2018, while the Company was in receivership, the Company sold 500,000 shares (the “CRG Shares”) of its
common stock to Convergent Risk Group (“CRG”), an entity owned and operated by the Company’s Chief Executive
Officer, Robert Liscouski, for $155,000. On February 21, 2018, by written consent of the majority shareholder (Convergent Risk),
Mr. Robert Liscouski (the Chief Executive Officer of Convergent Risk) and Mr. Christopher Roberts were elected as members of the
Company’s Board of Directors. Mr. Liscouski was simultaneously elected as Chairman of the Board. The majority shareholder
also directed the Company to take the necessary action to change its domicile from North Carolina to Delaware and change its name
to Quantum Computing Inc. On February 21, 2018 the Company filed Articles of Conversion in North Carolina to convert the Company
to a Delaware corporation with the name changed to Quantum Computing Inc. On February 22, 2018 the Company filed a Certificate
of Conversion in Delaware to convert to a Delaware corporation with the name changed to Quantum Computing Inc. and re-domiciled
to the state of Delaware on February 23, 2018.
Our
Company
QCI
focuses on quantum computing and artificial intelligence software development. We believe the quantum computer might be one of
the most significant technological achievements in history, and may have the capacity to disrupt global industries. QCI intends
to develop heterogeneous software that can run on the platforms that are under development by the quantum computer hardware industry.
We intend to leverage our collective expertise in finance, computing, mathematics and physics to develop a suite of quantum software
applications, and possibly hardware that may enable global industries to utilize quantum computers and simulators to improve their
processes, profitability, and security. Our initial focus will be on the financial services sector. Other potential markets for
quantum computing include artificial intelligence (“AI”), machine learning, encryption and security, genetics and
pharmaceuticals. QCI intends to be a leading provider of software that can run on multiple quantum platforms.
Initially, the Company is focused on
two main development efforts. Our first market focus is the development of quantitative financial related products such as financial
portfolio optimization. The financial services industry has used quantitative financial software applications for several decades
with some success. However, those existing products are limited in their performance due to the lack of computing power to solve
these classes of optimization problems. We are developing software to address two sets of financial problems in the short term.
The first is Asset Allocation. Our target clients are the Asset Allocation departments of large fund managers, who would use the
system to optimally allocate investable cash into the different asset classes that they manage. The calculation is based on the
returns and covariances (risk) of the various classes, along with any constraints that are specified. The second development effort
involves yield curve trades including steepeners and flatteners. On a regular basis Fund Managers have to solve a problem of choosing
one, two or any combination of several Treasury, Corporate or Municipal bonds with different weights, positive (long) or negative
(short) which requires choosing a static or a dynamic portfolio of stocks, bonds, commodities, currencies or any other assets
which has high probability of being profitable in the future. To bring our first financial software product to market will require
completion of what we believe will entail three steps – finalizing the programming and testing of the underlying asset allocation
algorithms and calculations (estimated at $200,000), final design, programming and testing of the Graphic User Interface or GUI
(estimated at $150,000), and a sales and marketing campaign, including publicity and hiring sales staff (estimated at $150,000).
A longer range software development
plan involves the optimization problems known as “NP Complete Problems” are a class of mathematical problems that
can be solved in polynomial increments of time using a non-deterministic method. These NP Complete Problems require complex calculations,
which cannot currently be performed in reasonable amounts of time using conventional, binary computer systems, with the exception
of simple cases. These problems are intractable because of the inability of bit-based systems to handle complex non-deterministic
problems. The recent developments in quantum annealing and other quantum hardware suggests that these problems will soon be solvable
using these new technologies. The Company’s goal is to develop and implement quantum related algorithms to provide solutions
to these NP Complete Problems in the area of financial optimization. Optimization algorithms are ideally suited to run on a class
of quantum computers, known as “annealers,” that are currently becoming made available in the market by various manufacturers.
Our secondary market focus is on big
data and Artificial Intelligence. Our team is developing and is partnering with Artificial Intelligence and Big Data firms to
develop algorithms to identify behavioral trends and characteristics of people based on commercially available signals and geo-location
data. Our focus on AI and Big Data have positioned the company to pursue contract opportunities in the US Government and commercial
sector based on our organic experience and expertise in specific areas of terrorism and human behavior analysis. AI and Big Data
are adjacent markets to quantum computing, and will soon require the ability to apply quantum computing capabilities as data sets
exponentially grow in size and complexity.
Another market focus will be the field
of cybersecurity, specifically encryption and decryption algorithms. Current encryption algorithms, such as DES (widely used in
banking transactions), use codes based on the product of two very large prime numbers. To decrypt the message requires finding
the factors of a very large number, which can be done with current computers, but takes unacceptably long amounts of time. The
factorization process can be performed much more rapidly using algorithms running on a quantum computer. The other aspect of cybersecurity
that we will work on is development of encryption algorithms that are either “quantum resistant”, i.e. difficult for
quantum computer to crack, or “quantum based”, i.e., that use principals of quantum physics to create a quantum based
code that is difficult for both conventional and quantum computers to break. Information security has a number of components,
of which encryption is an important tool. Encryption is vital to e-commerce, banking, cellular communication, and protecting email,
websites and online identities because unprotected data can be stolen and misused. The cyber security market, is expected to reach
$170 billion by 2020 according to Forbes. The Research and Markets report “Global Quantum Cryptography Market Report 2017”
dated March 21, 2018, estimates that the global quantum sector of the cryptography market will grow from $285.7 Million in 2017
to $943.7 Million by 2022. This report states that growing adoption of cloud computing and next generation wireless networks is
driving the interest in quantum encryption solutions to data security concerns.
To achieve these goals, we have assembled
a team with a combined over 100 years of experience in the financial services, quantitative and applied mathematics, quantum physics,
AI and machine learning fields. We plan to file patents for new technology we may develop over the coming months based on our
current progress, but we cannot guarantee this timeline or that we will be awarded any such patents. While true general-purpose
quantum computing is still several years from being practical, special purpose quantum computers, known as annealers, are becoming
available, as are some quantum simulators.
Our Strategy
QCI plans to enter the market for high
performance computers and software applications, specifically focusing on what are known as “quantum computers”. The
Company has assembled a team of experienced engineers in super computing technology and quantum mathematics, which will focus
on both design and development of several quantum software applications that target solutions to problems including non-deterministic
polynomial applications.
The Company has hired physicists, applied
mathematicians (algorithm developers) and software developers to support the technical team in developing and designing quantum
software applications. Applied mathematicians develop the algorithms and algorithm/software developers design software solutions
utilizing the algorithms provided to them by mathematicians. Software engineers test the algorithm code to ensure reliable and
accurate performance of the software product.
In addition, the Company has retained
outside leading industry experts from well-known institutions from the financial services industry and leading financial institutions
and expects to retain additional advisors from cybersecurity firms and government agencies to serve as technical advisors to the
Company. We have formed an advisory board of additional subject matter experts, which is expected to assist us to shape our business
strategy and direction as well as work with us to establish our market approach. QCI is also pursuing U.S. Government initiatives
in quantum computing and AI, including grants and funding, that are fostering U.S. innovation in those domains.
QCI does not currently intend to be
a hardware manufacturer. However, due to the cutting-edge nature of quantum computing and the high cost and limited availability
of quantum computers, as well as limitations on the capabilities of existing quantum simulators, we may find it necessary over
the next two years to develop our own quantum simulators upon which we can develop and test our quantum software products. If
such development becomes necessary, our simulators are expected to emulate the characteristics and capabilities of a quantum computer
such as superposition and quantum entanglement. Our plan is to license our software as a cloud based service, but we are not ruling
out selling turn-key hardware systems that would incorporate and support our own quantum inspired computing solutions.
QCI’s technical leadership intends
to leverage industry expertise and innovative methods to develop quantum computer application solutions capable of solving increasingly
complex problems in a more rapid and thorough manner. The Company will initially focus on addressing computational problems
in the financial services, and cybersecurity quantum-secure encryption markets, followed later by addressing problems in the AI
and genetics marketplaces.
Initial Products in Development
Financial Applications
QCI’s initial product currently
in design is a financial Portfolio Optimizer. This software will evaluate the potential return, risks, market volatility and transaction
costs of different portfolios to help financial advisors and investment managers decide on the optimal investment approach. The
planned functionality of this product will include real-time optimized portfolio construction and rebalancing, scenario analysis
and stress testing, and “efficient frontier” derivation (calculation of the theoretically optimal balance within a
portfolio of the maximum possible return at a given level of risk). Other features such as real-time market and credit risk exposure
calculation and machine learning can be added later in a modular fashion. This product is intended to assist asset managers and
investment firms balance portfolios, assess the risks of different strategies and plan trades. One of the most significant developments
in financial markets in the past several decades has been the introduction of computerized trading based on highly sophisticated
algorithms that monitor streams of financial data (primarily the trading prices, ranges and volumes of different stocks, options,
bonds and derivatives, and even some commodities, in multiple markets around the world), compute the optimal time and price at
which to make a purchase or sale, and instructs the trading desk to execute the trade. Computerized trading is fast, highly accurate,
unburdened by human emotion or delays, and nearly instantaneous. Computerized securities trading, known as “algorithmic
trading” or “high frequency trading” now comprises the majority of security trades on most exchanges according
to CNBC, and the latest financial algorithms enable computers to make decisions and implement trades in microseconds, faster than
a person is capable of achieving. A well designed financial algorithm and trading system can provide investors, whether private
or institutional, with a competitive advantage enabling them to earn sizable profits. Development of these algorithms has been
on-going for the past two quarters and the expectation is that we will have two beta customers for our two financial algorithms
in Q3 of 2019. Once client beta testing has been completed we will hire dedicated sales staff to expand into the financial sector
in 2020.
We believe that implementation of machine
learning and AI into financial algorithms, aided by quantum computing, could drive improvements in algorithmic trading, making
it less susceptible to herd behavior and dramatic fluctuations in market prices. In addition, quantum computing may be able to
solve some of the complex problems of multi-security portfolio optimization and trade optimization that so far have eluded algorithms
on conventional computers. We will begin a pilot test of this approach in the Q3/Q4 timeframe based on securing a final agreement
with our AI partner.
Quantum Computing Inc. has established
partnerships with a big data aggregator and Artificial Intelligence Software Development firm to develop an AI analysis prototype.
Our AI and Big Data development project has been proposed to the US Government (though there is no guarantee that the government
will award us a contract) and to commercial sector clients.
Cybersecurity Applications
The security or privacy of data on
a computer is typically protected by passwords or encryption (codes) or multi-factor authentication or biometrics, or a combination
of several of these techniques. Encryption is the process of converting readable data by means of a mathematical formula into
a jumble of letters and numbers that can only be converted back to readable data by means of a related mathematical formula or
key.
The Company intends to develop a proprietary
approach to use early analysis of quantum key distribution and quantum encryption to discover advantageous security measures for
our products. We intend to research the potential for the development of “data specific” quantum security packages.
The goal of this product will be to offer data security solutions optimized for specific data formats and transactions.
Industry
Overview
Conventional
computers, whether they are in laptops, smartphones or large computer networks, all process “bits” of information
coded as 1’s and 0’s in sequence, controlled by software. To increase the performance of a conventional computer,
computer system designers have largely followed one of two paths, (i) increasing the size, speed and working memory of the central
processor (the Cray supercomputer is an example of this approach) or (ii) linking large numbers of servers together through a
high-speed, low-latency network and using special software to break the problem into large number of parts, each of which can
be assigned to one of the servers for calculation, and then the software combines all the individual server outputs (this architecture
is common in large “server farms”). Both architectures enable conventional high performance computers to perform billions
of calculations per second. Super computers are used in a wide range of applications, including weather forecasting, pharmaceutical
design, financial analysis and encryption/decryption.
The
difference between a conventional super computer and a quantum computer is that a quantum computer uses quantum bits or “QBITS”,
which are not limited in the way that conventional computer circuits are. A QBIT can be in any of three states, 1, 0 or a “superposition
state” a quantum physics phenomenon in which the QBIT exists in multiple states simultaneously. Another quantum physics
phenomenon, known as “entanglement” links the data in multiple QBITS. The superposition property of QBITS enables
a quantum computer to process large amounts of data in a “parallel” fashion because the quantum QBITS are inherently
able to exist in multiple states simultaneously, and are therefore able to evaluate multiple outcomes at the same time, instead
of one at a time the way a conventional computer would. QBIT structure and quantum superposition allow for parallel processing,
however this parallel processing is not what would be replicated by running several bit based computers in parallel. Instead,
superposition allows us to assume a piece of data is in both the on and off state simultaneously. Therefore, for each QBIT in
superposition in a quantum calculation, the complexity of the problems the calculation can solve increases exponentially by a
power of two instead of having a linear progression. The combination of the entanglement and superposition properties theoretically
enables a quantum computer to process massive numbers of calculations in parallel and thereby solve problems that are not solvable
by conventional high performance computers in any realistic period of time.
Building
a true quantum computer is not yet feasible with today’s technology because the most advanced QBITS are able to maintain
a quantum state only for short periods of time, on the order of milliseconds, before outside interference from thermal vibration
or electromagnetic fields causes them to “decohere” and lose the information they are processing. This decoherence
process can be controlled in part by keeping the QBITS immersed in liquid helium at close to absolute zero temperature, and enclosing
the entire computer in an electromagnetic shield or Faraday Cage, but these dramatically increase the cost of a quantum computer.
Thus, improvements are needed in the QBITS themselves before quantum computing can become a reality.
Venture
investors have placed $241 million into startups developing hardware or software worldwide per CB Insights as reported by WIRED
Magazine in August of 2018. In the same article, reporting on the status of quantum development, it was also reported $1.3 billion
in proposed new funding for quantum research was introduced to Congress in 2018. QCI is working with advisors to review the quantum
research program and determine where the Company can bid on government quantum research and development procurements.
Competition
There
are over 130 companies and research universities who are known to be engaged in research and development relating to quantum computing.
In the area of quantum computer hardware systems, competitors include privately funded startups such as D-Wave, ATOS, and Rigetti
Computing, as well as large IT firms such as Microsoft, IBM, and Google who have all announced laboratory projects focusing on
developing quantum computers. Since 2013 Google has been working with NASA and the Universities Space Research Association to
establish the Quantum Artificial Intelligence Laboratory, using quantum computers built by D-Wave. In March 2017 IBM announced
a 17 QBIT prototype commercial processor and made accessible (via the IBM cloud) a 16 QBIT quantum computer for use by developers,
programmers and researchers. In 2018 Intel announced a superconducting quantum test chip with 49 QBITS. In March 2018, Google
announced it had a new quantum processor, codenamed “Bristlecone”. Microsoft has been active in quantum research since
2005 when the company established a research lab to study topological quantum computing. In December 2017 Microsoft released a
preview version of its Quantum Development Kit. The National Security Agency has funded some research into quantum computing and
encryption algorithms, but much of this work is classified so the nature of the work and the companies performing it are not known.
D-Wave has been developing quantum computers since 2004 and has several computer products on the market.
Competition
in quantum software applications is likely to come from established IT firms such as Microsoft and Google, but there are also
several private companies such as 1Qbit, a startup venture focused on developing quantum computing applications for the finance
industry. Rigetti Computing, a US based quantum computing startup, announced in late 2017 that it was working on a hybrid quantum
algorithm, one that would use conventional computers to handle much of the computation, and hand off parts of the computation
to specialized quantum hardware when that additional power was needed.
Competition
in quantum encryption is expected from ID Quantique (Switzerland), MagiQ Technologies (US), Nucrypt (US), Infineon Technologies
(Germany), Qutools (Germany), Quintessence Labos (Australia), Crypta Labs (UK), PQ Solutions (U), and Qubitekk (US). These companies
currently offer quantum cryptography solutions to commercial clients around the world.
Companies
such as Bra-ket Science (Austin, TX) and BraneCell (Cambridge, MA) are focusing on developing quantum hardware that will allow
quantum hardware to operate at room temperature, thus dramatically reducing costs to build and operate quantum computers. However,
those technologies are not yet commercially available. To date, the only commercially available quantum computers on the market
are those manufactured by D-Wave. However, the D-Wave computer, which is a quantum annealer not a general-purpose quantum computer,
is currently only capable of solving one specific class of optimization problems. According to CNBC, D-Wave has sold quantum computers
to customers including Temporal Defense Systems, Lockheed Martin, Google and NASA. Temporal Defense was the first customer for
D-Wave’s latest model the D-Wave 2000Q, a $15 million quantum annealer capable of computations utilizing 2,048 QBITS.
For
those wishing to develop and test quantum algorithms, companies such as D-Wave, Google, Microsoft, IBM, Rigetti, Fujitsu (Japan)
and Alibaba (China) offer developers access to their quantum hardware via cloud based development platforms. While the computers
at all of the aforementioned firms are relatively limited in their capability due to their low number of operational QBITS, developers
can not only test quantum algorithms, but can determine the scope of the speed increase that the quantum systems offer over conventional
computers.
According
to BCC Research, as of October 1, 2017, 63% percent of all quantum computing-related patents filed were hardware related. Software
and applications account for nearly 20 percent of the quantum computing related patents. Also according to BCC Research, 599 patents
relating to quantum computing have been issued between 2008 and 2017. The top three holders for patents are, in descending order,
D-Wave, IBM, and Microsoft. D-Wave has been issued 159 US patents and has filed for an additional 79. IBM holds 83 patents and
has filed for an additional 42. Microsoft holds 41 and has filed for 43 more.
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. The logic behind the export restrictions
is that the ability to secure information has great value to the military and intelligence agencies, and the US Government does
not want those technologies sold or distributed to foreign adversaries. These regulations were relaxed in 1996 by executive order,
but restrictions are still in place under the Export Administration Act that limit the export of some advanced encryption methods
and technologies. Export of commercial encryption products to certain designated countries and terrorist groups is restricted,
as are exports of military quality encryption technologies. Restrictions on encryption technology are in place in many other countries
but the extent of regulation varies widely from country to country. Domestically, encryption technology is largely unregulated
but law enforcement, intelligence and investigative agencies work closely with encryption technology developers to enable the
US government to access encrypted data under certain conditions. We believe that the quantum encryption and decryption products
that QCI plans to develop can be marketed to government agencies seeking to unlock encrypted data or to encrypt and protect sensitive
government data from unauthorized exposure.
Financial
Algorithms
US
firms and FINRA members that use financial algorithms to conduct high frequency trading are subject to SEC and FINRA regulations
that govern their trading activities under long standing rules governing supervision and control practices to reduce the likelihood
of market disruptions and ensure effective communication between the firm’s compliance staff and its trading strategy personnel.
Additional regulation on financial algorithms has been proposed by the Commodity Futures Trading Commission (“CFTC”)
aimed at limiting the potential for financial algorithms and high frequency trading to disrupt markets. The proposed regulations
would require firms using such algorithms to implement pre-trade risk controls, limit self-trading and make the source code of
the software programs available to the government upon request. To the Company’s knowledge, these regulations, especially
the mandatory source code disclosure provisions, have been vigorously opposed by the industry and have not yet been implemented.
The
government agencies charged with regulating financial markets in the US and around the world have so far not closely regulated
financial algorithms or algorithmic trading, but that could change in response to future market events. The benefit of algorithmic
trading is that it can bring greater liquidity, transparency and accountability to markets, and also reduces price variations
between global markets. Financial markets in many developing countries have benefited from implementation of algorithmic trading.
There are, of course, limitations to what financial algorithms can accomplish today with conventional super computers, and when
multiple algorithms trade in lockstep a single price fluctuation can trigger a cascade of downward trades that can crash a market
very quickly, before human intervention can stop the downward spiral. This phenomenon is known as a “Flash Crash”
and regulators have imposed some regulations to slow down or suspend trading when a market drops more than a fixed percentage
in a short period of time.
Incentives
In
2018, Congress authorized $1.3 billion to fund quantum related research projects. This funding is being administered by the U.S.
Department of Defense which will solicit proposals for research. The Company intends to submit proposals for funding, but there
can be no guarantee the Company will be chosen or that the Company will receive any government funding. In addition, in 2018 President
Trump announced the formation of a National Quantum Initiative consisting of key technology companies working in the field of
quantum computing. The Company has applied to become a member of that Initiative.
In
December 2018 Congress passed the National Quantum Initiative Act (the “Quantum Act”), the purpose of which is to
develop a unified national strategy for researching quantum information science. The Quantum Act proposes to establish a National
Quantum Coordination Office inside the White House’s Office of Science and Technology Policy to help coordinate research
between agencies, serve as the federal point of contact and promote private commercialization of federal research breakthroughs
over the next decade.
The Quantum Act would also create:
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A National Quantum Information
Science Research Centers within the Department of Energy.
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Research and
education centers in the National Science Foundation.
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A “workshop
of stakeholders” administered by the National Institute of Standards and Technology “to discuss the future measurement,
standards, cybersecurity, and other appropriate needs for supporting the development of a robust quantum information science
and technology industry in the United States.”
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A Subcommittee
on Quantum Information Science (“QIS”) under the National Science and Technology Council.
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A National Quantum
Initiative Advisory Committee to advise the President.
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The overall goals of the Quantum Act
include the eventual creation of industry standards for QIS development, new research grant funding and increased collaboration
with the private sector. Quantum technology, including quantum computing, has drawn significant attention from Congress
and the White House in 2018 for its theoretical potential to increase computing power and disrupt encryption standards.
Rival countries like China and Russia are pushing hard to improve their own QIS capabilities. President Trump is expected
to sign the bill into law. We do not know at this time when the Quantum Act will begin soliciting industry proposals and awarding
contracts.
Employees
QCI currently has four employees and
six contract staff, seven of whom are focused on product and software development, and five Technical Advisors (one from the National
Security Domain, one from the Quantum/AI Domain, and three from the Financial Services Domain). We also have two third party partners
providing software development and big data analysis services. The employees are not part of a collective bargaining agreement
and labor relationships are good.
Other
Corporate Information
General
information
Our
business address is 215 Depot Court SE, Suite 215, Leesburg, VA 20175. Our phone number is (703) 436-2161. The information contained
in, or that can be accessed through, our website is not part of this registration statement.
Reports
to Security Holders.
The
Company will file reports with the SEC. The Company will be a reporting company and will comply with the requirements of the Exchange
Act.
The
public may read and copy any materials the Company files with the SEC in the SEC’s Public Reference Section, Room 1580,
100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section
by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.
Item
1A. Risk Factors.
You
should carefully consider the risks described below together with all of the other information included in this Annual Report
on Form 10-K before making an investment decision with regard to our securities. The statements contained in or incorporated herein
that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually
occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of
your investment. In addition to other information in this registration statement and in other filings we make with the Securities
and Exchange Commission, the following risk factors should be carefully considered in evaluating our business as they may have
a significant impact on our business, operating results and financial condition. If any of the following risks actually occurs,
our business, financial condition, results of operations and future prospects could be materially and adversely affected. Because
of the following factors, as well as other variables affecting our operating results, past financial performance should not be
considered as a reliable indicator of future performance and investors should not use historical trends to anticipate results
or trends in future periods.
Risks
Related to Our Business
We
have a limited operating history.
The
Company was incorporated under the laws of the State of Delaware on February 22, 2018 and has engaged in limited operations to
date. Accordingly, the Company has only a limited operating history with which you can evaluate its business and prospects. An
investor in the Company must consider its business and prospects in light of the risks, uncertainties and difficulties frequently
encountered by early-stage companies, including limited capital, delays in product development, possible marketing and sales obstacles
and delays, inability to gain customer and merchant acceptance or inability to achieve significant distribution of our products
and services to customers. The Company cannot be certain that it will successfully address these risks. Its failure to address
any of these risks could have a material adverse effect on its business.
We
are not profitable and may never be profitable.
Since
inception through the present, we have been dependent on raising capital to support our working capital needs. During this same
period, we have recorded net accumulated losses and are yet to achieve profitability. Our ability to achieve profitability depends
upon many factors, including its ability to develop and commercialize our websites. There can be no assurance that we will ever
achieve any significant revenues or profitable operations.
Our
operating expenses exceed our revenues and will likely continue to do so for the foreseeable future.
We
are in an early stage of our development and we have not generated any revenues to offset our operating expenses. Our operating
expenses will likely continue to exceed our operating income for the foreseeable future, until such time as we are able to monetize
our brands and generate substantial revenues, particularly as we undertake payment of the increased costs of operating as a public
company.
We
will need additional capital, which may be difficult to raise as a result of our limited operating history or any number of other
reasons.
We
expect that we will have adequate financing for the next 8-10 months. However, in the event that we exceed our expected growth,
we would need to raise additional capital. There is no assurance that additional equity or debt financing will be available to
us when needed, on acceptable terms or even at all. Our limited operating history makes investor evaluation and an estimation
of our future performance substantially more difficult. As a result, investors may be unwilling to invest in us or such investment
may be on terms or conditions which are not acceptable. In the event that we are not able to secure financing, we may have to
scale back our growth plans or cease operations.
We
have not adopted various corporate governance measures, and as a result stockholders may have limited protections against interested
director transactions, conflicts of interest and similar matters.
Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures
designed to promote the integrity of corporate management and the securities markets. Because our securities are not yet listed
on a national securities exchange, we are not required to adopt these corporate governance measures and have not done so voluntarily
in order to avoid incurring the additional costs associated with such measures. Among these measures is the establishment of independent
committees of the Board of Directors. However, to the extent a public market develops for our securities, such legislation will
require us to make changes to our current corporate governance practices. Those changes may be costly and time-consuming. Furthermore,
the absence of the governance measures referred to above with respect to our Company may leave our shareholders with more limited
protection in connection with interested director transactions, conflicts of interest and similar matters.
FAILURE
TO IDENTIFY ERRORS IN THE QUANTITATIVE MODELS WE UTILIZE TO MANAGE ITS BUSINESS COULD ADVERSELY IMPACT PRODUCT PERFORMANCE AND
CLIENT RELATIONSHIPS.
We
employ various quantitative models. Any errors in the underlying models or model assumptions could have unanticipated and adverse
consequences on our business and reputation.
WE
MAY BE UNABLE TO DEVELOP NEW PRODUCTS AND SERVICES AND THE DEVELOPMENT OF NEW PRODUCTS AND SERVICES MAY EXPOSE US TO ADDITIONAL
COSTS OR OPERATIONAL RISK.
Our
financial performance depends, in part, on its ability to develop, market and manage new products and services. The development
and introduction of new products and services require continued innovative efforts and may require significant time and resources
as well as ongoing support and investment. Substantial risk and uncertainties are associated with the introduction of new products
and services, including the implementation of new and appropriate operational controls and procedures, shifting client and market
preferences, the introduction of competing products or services and compliance with regulatory requirements.
Our
proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others,
or may be infringed or misappropriated by others.
We
rely, and may rely in the future, upon a combination of license agreements, confidentiality policies and procedures, confidentiality
provisions in employment agreements, confidentiality agreements with third parties and technical security measures to maintain
the confidentiality, exclusivity and trade secrecy of our proprietary information. We also rely, and most likely will rely in
the future, on trademark and copyright laws to protect our intellectual property rights in the United States and abroad. Despite
our protective measures and intellectual property rights, we may not be able to adequately protect against theft, copying, reverse
engineering, misappropriation, infringement or unauthorized use or disclosure of our intellectual property, which could have an
adverse effect on our competitive position.
We
may become subject to legal proceedings that could have a material adverse impact on our financial position and results of operations.
From
time to time and in the ordinary course of our business, we and certain of our subsidiaries may become involved in various legal
proceedings. All such legal proceedings are inherently unpredictable and, regardless of the merits of the claims, litigation may
be expensive, time-consuming and disruptive to our operations and distracting to management. If resolved against us, such legal
proceedings could result in excessive verdicts, injunctive relief or other equitable relief that may affect how we operate our
business. Similarly, if we settle such legal proceedings, it may affect how we operate our business. Future court decisions, alternative
dispute resolution awards, business expansion or legislative activity may increase our exposure to litigation and regulatory investigations.
In some cases, substantial noneconomic remedies or punitive damages may be sought. Although we maintain liability insurance coverage,
there can be no assurance that such coverage will cover any particular verdict, judgment or settlement that may be entered against
us, that such coverage will prove to be adequate or that such coverage will continue to remain available on acceptable terms,
if at all. If we incur liability that exceeds our insurance coverage or that is not within the scope of the coverage in legal
proceedings brought against us, it could have an adverse effect on our business, financial condition and results of operations.
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Certification,
licensing or regulatory requirements with regard to the technology we expect to develop relating to financial and cybersecurity
applications;
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Unexpected
changes in regulatory requirements such as the Quantum Act or other federal or state laws that may require us to take certain
actions; and
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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.
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We
intend to continue strategic business acquisitions and other combinations, which are subject to inherent risks.
In
order to expand our solutions, services, and grow our market and client base, we may continue to seek and complete strategic business
acquisitions and other combinations that we believe are complementary to our business. Acquisitions have inherent risks which
may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited
to: 1) failure to successfully integrate the business and financial operations, services, intellectual property, solutions or
personnel of an acquired business and to maintain uniform standard controls, policies and procedures; 2) diversion of management’s
attention from other business concerns; 3) entry into markets in which we have little or no direct prior experience; 4) failure
to achieve projected synergies and performance targets; 5) loss of clients or key personnel; 6) incurrence of debt or assumption
of known and unknown liabilities; 7) write-off of software development costs, goodwill, client lists and amortization of expenses
related to intangible assets; 8) dilutive issuances of equity securities; and, 9) accounting deficiencies that could arise in
connection with, or as a result of, the acquisition of an acquired company, including issues related to internal control over
financial reporting and the time and cost associated with remedying such deficiencies. If we fail to successfully integrate acquired
businesses or fail to implement our business strategies with respect to these acquisitions, we may not be able to achieve projected
results or support the amount of consideration paid for such acquired businesses.
If
we are unable to manage our growth in the new markets in which we offer solutions or services, our business and financial results
could suffer.
Our
future financial results will depend in part on our ability to profitably manage our business in the new markets that we enter.
Difficulties in managing future growth in new markets could have a significant negative impact on our business, financial condition
and results of operations.
We
rely heavily on our management, and the loss of their services could adversely affect our business.
Our
success is highly dependent upon the continued services of our management including our Chief Executive Officer, Robert Liscouski,
and our Chief Financial Officer, Mr. Christopher Roberts. The loss of Mr. Liscouski’s and/or Mr. Roberts’ services
would have a material adverse effect on the Company and its business operations.
OUR
CHIEF FINANCIAL OFFICER IS NOT A FULL-TIME EMPLOYEE.
Our
Chief Financial Officer, Mr. Christopher Roberts, is an independent contractor and shares time with other clients. The inability
to retain a full-time Chief Financial Officer, Principal Financial Officer or governor of the financial responsibilities of the
Company may impair our ability to meet our reporting obligations and implement financial controls to protect the Company.
WE
MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH AND MARKETING STRATEGY SUCCESSFULLY OR ON A TIMELY BASIS OR AT ALL.
Our
future success depends, in large part, on our ability to implement our growth strategy of expanding distribution and sales of
our product portfolio, attracting new consumers and introducing new product lines and product extensions.
Our
sales and operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in
a growth strategy that ultimately proves unsuccessful.
CYBER
SECURITY RISKS AND THE FAILURE TO MAINTAIN THE INTEGRITY OF DATA BELONGING TO OUR COMPANY COULD EXPOSE US TO DATA LOSS, LITIGATION
AND LIABILITY, AND OUR REPUTATION COULD BE SIGNIFICANTLY HARMED.
We
may from time to time collect and retain large volumes of data relating to our business and from our customers for business purposes,
including for transactional and promotional purposes, and our various information technology systems enter, process, summarize
and report such data. The integrity and protection of this data is critical to our business. Maintaining compliance with the evolving
regulations and requirements applicable to data security and information privacy protection could be difficult and may increase
our expenses. In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure
of data could result in theft, loss or fraudulent or unlawful use of data relating to our company or our employees, independent
distributors or preferred customers, which could harm our reputation, disrupt our operations, or result in remedial and other
costs, fines or lawsuits.
COMPUTER
MALWARE, VIRUSES, HACKING, PHISHING ATTACKS AND SPAMMING COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
Computer
malware, viruses, physical or electronic break-ins and similar disruptions could lead to interruption and delays in our services
and operations and loss, misuse or theft of data. Computer malware, viruses, computer hacking and phishing attacks against online
networking platforms have become more prevalent and may occur on our systems in the future.
Any
attempts by hackers to disrupt our internal systems, if successful, could harm our business, be expensive to remedy and damage
our reputation or brand. Our network security business disruption insurance may not be sufficient to cover significant expenses
and losses related to direct attacks on our website or internal systems. Efforts to prevent hackers from entering our computer
systems are expensive to implement and may limit the functionality of our services. Though it is difficult to determine what,
if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security
and availability of our products and services and technical infrastructure may harm our reputation, brand and our ability to attract
customers. Any significant disruption to our website or internal computer systems could result in a loss of customers and could
adversely affect our business and results of operations.
We
have previously experienced, and may in the future experience, service disruptions, outages and other performance problems due
to a variety of factors, including infrastructure changes, third-party service providers, human or software errors and capacity
constraints. If our mobile application is unavailable when customers attempt to access it or it does not load as quickly as they
expect, customers may seek other services.
Our
platform functions on software that is highly technical and complex and may now or in the future contain undetected errors, bugs,
or vulnerabilities. Some errors in our software code may only be discovered after the code has been deployed. Any errors, bugs,
or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems
within an acceptable period of time or difficultly maintaining and improving the performance of our platform, particularly during
peak usage times, could result in damage to our reputation or brand, loss of revenues, or liability for damages, any of which
could adversely affect our business and financial results.
We
expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid
releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems
as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology,
our business and operating results may be harmed.
GROWING
OUR CUSTOMER BASE DEPENDS UPON THE EFFECTIVE OPERATION OF OUR APPLICATIONS WITH OPERATING SYSTEMS, NETWORKS AND STANDARDS THAT
WE DO NOT CONTROL.
We
will be dependent on the interoperability of our applications with operating systems that we do not control, and any changes in
such systems that degrade our potential products’ functionality or give preferential treatment to competitive products could
adversely affect the usage of our applications on mobile devices. Additionally, in order to deliver high quality products, it
is important that our products work well with a range of mobile technologies, systems, networks and standards that we do not control.
We may not be successful in developing relationships with key participants in the mobile industry or in developing products that
operate effectively with these technologies, systems, networks or standards.
WE
MAY NEVER DEVELOP ANY PRODUCTS TO COMMERCIALIZE.
We
have invested a substantial amount of our time and resources in developing various new products and computing technologies. Commercialization
of these products will require additional development, clinical evaluation, significant marketing efforts and substantial additional
investment before they can provide us with any revenue. Despite our efforts, these products may not become commercially successful
products for a number of reasons, including but not limited to:
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our
products or technologies may not prove to be effective in trials;
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we
may experience delays in our development program;
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any
products or technologies that are approved may not be accepted in the marketplace;
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we
may not have adequate financial or other resources to complete the development or to commence the commercialization of our
products or will not have adequate financial or other resources to achieve significant commercialization of our products;
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we
may not be able to manufacture any of our products in commercial quantities or at an acceptable cost;
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rapid
technological change may make our products obsolete;
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we
may be unable to effectively protect our intellectual property rights or we may become subject to claims that our activities
have infringed the intellectual property rights of others; and
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we
may be unable to obtain or defend patent rights for our products or technologies.
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THE
MARKET OPPORTUNITY FOR OUR PRODUCTS AND TECHNOLOGIES MAY NOT DEVELOP IN THE WAYS THAT WE ANTICIPATE.
The
demand for our products and technologies can change quickly and in ways that we may not anticipate because the market in which
we operate is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent
new product introductions and enhancements, changes in customer requirements and a limited ability to accurately forecast future
customer orders. Our operating results may be adversely affected if the market opportunity for our products and services does
not develop in the ways that we anticipate or if other technologies or products become more accepted or standard in our industry
or disrupt our technologies and products.
WE
FACE SIGNIFICANT COMPETITION AND MANY OF OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO.
Some
of our product offerings and technologies compete and will compete with other similar products from our competitors. These competitive
products could be marketed by well-established, successful companies that possess greater financial, marketing, distributional,
personnel and other resources than we possess. In certain instances, competitors with greater financial resources also may be
able to enter a market in direct competition with us offering attractive marketing tools to encourage the sale of products that
compete with our products or present cost features that our target end users may find attractive.
OUR
INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD IMPAIR OUR COMPETITIVE ADVANTAGE, REDUCE OUR REVENUE, AND INCREASE OUR COSTS.
Our
success and ability to compete depends and will depend in part on our ability to obtain and maintain the proprietary aspects of
our technologies and products. We rely on a combination of trade secrets, patents, copyrights, trademarks, confidentiality agreements,
and other contractual provisions to protect our intellectual property, but these measures may provide only limited protection.
We may not always be able to enforce these agreements and may fail to enter into any such agreement in every instance when appropriate.
We may from time to time license from third party’s their brands or certain technology used in and for our products. These
third-party licenses are granted with restrictions; therefore, such third-party technology may not remain available to us on terms
beneficial to us. Our failure to enforce and protect our intellectual property rights or obtain from third parties the right to
use necessary technology could have a material adverse effect on our business, operating results, and financial condition. In
addition, the laws of some foreign countries do not protect proprietary rights as fully as do the laws of the United States.
Patents
may not issue from the patent applications that we have filed or may file in the future. Our issued patents may be challenged,
invalidated, or circumvented, and claims of our patents may not be of sufficient scope or strength, or issued in the proper geographic
regions, to provide meaningful protection or any commercial advantage. We have registered certain of our trademarks in the United
States and other countries. We cannot assure you that we will obtain registrations of principal or other trademarks in key markets
in the future. Failure to obtain registrations could compromise our ability to protect fully our trademarks and brands, and could
increase the risk of challenge from third parties to our use of our trademarks and brands.
WE
MAY NOT BE ABLE TO PROTECT OUR SOURCE CODE FROM COPYING IF THERE IS AN UNAUTHORIZED DISCLOSURE OF SOURCE CODE.
Source
code, the detailed program commands for our operating systems and other software programs, is critical to our business. Although
we license portions of our application and operating system source code to several licensees, we take significant measures to
protect the secrecy of large portions of our source code. If a significant portion of our source code leaks, we might lose future
trade secret protection for that source code. It may become easier for third parties to compete with our products by copying functionality,
which could adversely affect our revenue and operating margins. Unauthorized disclosure of source code also could increase the
security risks described in the next paragraph.
OUR
FAILURE TO KEEP PACE WITH RAPID TECHNOLOGY CHANGES COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION AND FINANCIAL
RESULTS.
The
markets for our products and services are characterized by rapid technological developments and frequent changes in customer requirements.
We must continually improve the performance, features and reliability of our products and services, particularly in response to
competitive offerings, to keep pace with these developments. We must ensure that our products and services address evolving operating
environments, devices, industry trends, certifications and standards. We also may need to develop products that are compatible
with new operating systems while remaining compatible with existing, popular operating systems. Our business could be harmed by
our competitors announcing or introducing new products and services that could be perceived by customers as superior to ours.
We spend considerable resources on technology research and development, but our research and development resources are more limited
than many of our competitors.
Our
failure to introduce new or enhanced products on a timely basis, to keep pace with rapid industry, technological or market changes
or to gain customer acceptance for our new and existing products and services, such as mobile device data protection, could have
a material adverse effect on our business, financial condition and financial results.
IMPROVEMENTS
TO PUBLIC KEY CRYPTOGRAPHY TECHNOLOGY COULD REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES AND COULD NEGATIVELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND FINANCIAL RESULTS.
Our
business will employ encryption technologies to encrypt and decrypt sensitive data. The security afforded by encryption depends
on the integrity of the private key, which is predicated on the assumption that it is very difficult to mathematically derive
the private key from the related public key with conventional computers. Our business plan calls for the development and marketing
of quantum based encryption and decryption technologies, which are based on different mathematical principals than public key
encryption and should be more difficult to break. Successful decryption of intercepted encrypted email, or public reports of successful
decryption, whether or not true, could reduce demand for our products and services. If new methods or technologies, make it easier
to derive the private key from the related public key, or to break quantum encryption algorithms, the security of encryption services
could be impaired and our products and services could become less marketable. That could require us to make significant changes
to our services, which could increase our costs, damage our reputation, or otherwise harm our business. Any of these events could
reduce our revenues, increase our expenses and materially adversely affect our business, financial condition and financial results.
WE
FACE STRONG COMPETITION, WHICH COULD NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FINANCIAL RESULTS.
The
markets in which we compete are characterized by rapid change and converging technologies and are very competitive. There is strong
competition for encryption products and services. Our business competes with products and services offered by companies such as
ID Quantique (Switzerland), MagiQ Technologies (US), Nucrypt (US), Infineon Technologies (Germany), Qutools (Germany), Quintessence
Labs (Australia), Crypta Labs (UK), PQ Solutions (U), and Qubitekk (US). These companies currently offer quantum cryptography
solutions to commercial clients around the world. Strong competition requires us to develop new technology solutions and service
offerings to expand the functionality and value that we offer to our customers. Our competitors may develop products and services
that are perceived by customers as equivalent to, or having advantages over, our products and services. Competitors could capture
a significant share in our markets, causing our sales and revenue to decline or grow more slowly. Barriers to entry are relatively
low, and new ventures are often formed that create products competitive with our products. Competitive pressures could lead to
price discounting or to increases in expenses such as advertising and marketing costs. Increased competition could also decrease
demand for our products and services. Competition could reduce our revenues and net income and materially adversely affect our
business, financial condition and financial results.
GOVERNMENTAL
RESTRICTIONS ON THE SALE OF OUR PRODUCTS AND SERVICES IN NON-U.S. MARKETS COULD NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL CONDITION
AND FINANCIAL RESULTS.
Exports
of software solutions and services using advanced encryption technology such as ours are generally restricted by the U.S. government.
Although we are confident that we can obtain U.S. government approval to export our solutions to almost all countries, the list
of countries to which we (and our distributors) cannot export our products and services could be expanded in the future. In addition,
some countries impose restrictions on the importation and use of encryption solutions and services such as ours. The cost of compliance
with U.S. and other export laws, or our failure to obtain governmental approvals to offer our products and services in non-U.S.
markets, could affect our ability to sell our products and services and could impair our international expansion. We face a variety
of other legal and compliance risks. If we or our distributors fail to comply with applicable law and regulations, we may become
subject to penalties, fines or restrictions that could materially adversely affect our business, financial condition and financial
results.
WE
MAY FAIL TO RECRUIT AND RETAIN KEY PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO MEET KEY OBJECTIVES.
Our
success depends on our ability to attract and retain highly-skilled technical, managerial, sales, and marketing personnel. Changes
in key personnel may be disruptive to our business. It could be difficult, time consuming and expensive to replace key personnel.
Integrating new key personnel may be difficult and costly. Volatility, lack of positive performance in our stock price or changes
to our overall compensation program including our stock incentive program may adversely affect our ability to retain key employees,
many of whom are compensated, in part, based on the performance of our stock price. The loss of services of any of our key personnel,
the inability to retain and attract qualified personnel in the future or delays in hiring required personnel could make it difficult
to meet key objectives. Any of these impairments related to our key personnel could negatively affect our business, financial
condition and financial results.
To
remain competitive in our industries, we must attract, motivate and retain highly skilled managerial, sales, marketing, consulting
and technical personnel, including executives, consultants, programmers and systems architects skilled in quantum computing, computing,
and the technical environments in which our solutions, devices and services are needed. Competition for such personnel in our
industries is intense in both the United States and abroad. Our failure to attract additional qualified personnel to meet our
needs could have a material adverse effect on our prospects for long-term growth. In addition, we invest significant time and
expense in training our associates, which increases their value to clients and competitors who may seek to recruit them and increases
the cost of replacing them. Our success is dependent to a significant degree on the continued contributions of key management,
sales, marketing, consulting and technical personnel. The unexpected loss of key personnel could have a material adverse impact
on our business and results of operations, and could potentially inhibit development and delivery of our solutions, devices and
services and market share advances.
VARIOUS
REGULATIONS BY THE SEC, CFTC AND OTHER REGULATORY AGENCIES MAY ADOPT REGULATIONS RELATING TO HIGH FREQUENCY TRADING.
Congress,
regulators and some media have been increasingly scrutinizing electronic trading, the structure of equity markets and high frequency
trading in recent years. The SEC continues to consider various potential market structure changes, which could result in reduced
trading volumes, or which could negatively affect our business. To the extent the SEC adopts regulatory changes, our business,
financial condition and operating results could be negatively impacted. In addition, the continued growth of high frequency trading
has been the subject of private litigation and regulatory enforcement actions alleging that high frequency trading firms have
received unfair advantages at the expense of other traders. High frequency trading accounts for a meaningful percentage of the
daily volume in the U.S. and European equity markets, and these actions and other efforts to slow trading could lead to a reduction
in trading volumes, negatively impacting all trading markets, including our business.
IF
WE FAIL TO ESTABLISH AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS
ACCURATELY OR PREVENT FRAUD. ANY INABILITY TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION
AND ADVERSELY IMPACT THE TRADING PRICE OF OUR COMMON STOCK.
Effective
internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment
existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control
deficiencies may adversely affect our financial condition, results of operations and access to capital.
Risks
Related to Our Common Stock
OUR
STOCK PRICE MAY BE VOLATILE OR MAY DECLINE REGARDLESS OF OUR OPERATING PERFORMANCE, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
The
market price of our common stock may fluctuate widely in response to various factors, some of which are beyond our control, including:
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by competitors;
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actual
or anticipated growth rates relative to our competitors;
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the
public’s response to press releases or other public announcements by us or third parties, including our filings with
the SEC;
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economic,
legal and regulatory factors unrelated to our performance;
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any
future guidance we may provide to the public, any changes in such guidance or any difference between our guidance and actual
results;
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changes
in financial estimates or recommendations by any securities analysts who follow our common stock;
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speculation
by the press or investment community regarding our business;
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changes
in key personnel; and
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future
sales of our common stock by our officers, directors and significant shareholders.
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In
addition, the stock markets, including the over-the-counter markets where we are quoted, have experienced extreme price and volume
fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These broad market
fluctuations may materially affect our stock price, regardless of our operating results. Furthermore, the market for our common
stock historically has been limited and we cannot assure you that a larger market will ever be developed or maintained. The price
at which investors purchase shares of our common stock may not be indicative of the price that will prevail in the trading market.
Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price.
As a result, these factors may make it more difficult or impossible for you to sell our common stock for a positive return on
your investment. In the past, shareholders have instituted securities class action litigation following periods of market volatility.
If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management
could be diverted from our business.
FUTURE
SALES OF SHARES OF OUR COMMON STOCK, OR THE PERCEPTION IN THE PUBLIC MARKETS THAT THESE SALES MAY OCCUR, MAY DEPRESS OUR STOCK
PRICE.
The
market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock.
In addition, if our significant shareholders sell a large number of shares, or if we issue a large number of shares, the market
price of our stock could decline. Any issuance of additional common stock by us in the future, or warrants or options to purchase
our common stock, if exercised, would result in dilution to our existing shareholders. Such issuances could be made at a price
that reflects a discount or a premium to the then-current trading price of our common stock. Moreover, the perception in the public
market that shareholders might sell shares of our stock or that we could make a significant issuance of additional common stock
in the future could depress the market for our shares. These sales, or the perception that these sales might occur, could depress
the market price of our common stock or make it more difficult for us to sell equity securities in the future at a time and at
a price that we deem appropriate.
We
have issued shares of common stock, options and convertible notes which are convertible into shares of our common stock in connection
with our private placements and certain employment, director and consultant agreements. In addition, we issued shares of our common
stock, options and convertible notes which are convertible into shares of our common stock, in financing transactions and pursuant
to employment agreements that are deemed to be “restricted securities,” as that term is defined in Rule 144 promulgated
under the Securities Act. From time to time, certain of our shareholders may be eligible to sell all or some of their restricted
shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, subject to certain
limitations. The resale pursuant to Rule 144 of shares acquired from us in private transactions could cause our stock price to
decline significantly.
“PENNY
STOCK” RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT.
If
the market price for our common stock is below $5.00 per share, trading in our common stock may be subject to the “penny
stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. These rules would require that any broker-dealer that would
recommend our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special
written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction.
Unless an exception is available, the regulations would require the delivery, prior to any transaction involving a penny stock,
of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In
addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current
quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our
common stock.
SALES
OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR
SHARES AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK.
A
substantial majority of our outstanding shares of common stock are “restricted securities” within the meaning of Rule
144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement
or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable
state securities laws. Rule 144 provides in essence that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer
who has held restricted securities for a period of at least six months (one year after filing Form 10 information with the SEC
for shell companies and former shell companies) may, under certain conditions, sell every three months, in brokerage transactions,
a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies
quoted on the OTC Bulletin Board). Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation,
by a person who is not an Affiliate of the Company and who has satisfied a one-year holding period. A sale under Rule 144 or under
any other exemption from the Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have
a depressive effect upon the price of our shares of common stock in any active market that may develop.
POTENTIAL
FUTURE FINANCINGS MAY DILUTE THE HOLDINGS OF OUR CURRENT SHAREHOLDERS.
In
order to provide capital for the operation of our business, in the future we may enter into financing arrangements. These arrangements
may involve the issuance of new shares of common stock, preferred stock that is convertible into common stock, debt securities
that are convertible into common stock or warrants for the purchase of common stock. Any of these items could result in a material
increase in the number of shares of common stock outstanding, which would in turn result in a dilution of the ownership interests
of existing common shareholders. In addition, these new securities could contain provisions, such as priorities on distributions
and voting rights, which could affect the value of our existing common stock.
WE
CURRENTLY DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. AS A RESULT, YOUR ONLY OPPORTUNITY TO ACHIEVE A RETURN ON YOUR INVESTMENT
IS IF THE PRICE OF OUR COMMON STOCK APPRECIATES
.
We
currently do not expect to declare or pay dividends on our common stock. In addition, in the future we may enter into agreements
that prohibit or restrict our ability to declare or pay dividends on our common stock. As a result, your only opportunity to achieve
a return on your investment will be if the market price of our common stock appreciates and you sell your shares at a profit.
YOU
MAY EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST DUE TO THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK.
We
are in a capital intensive business and we do not have sufficient funds to finance the growth of our business or the costs of
our development projects or to support our projected capital expenditures. As a result, we will require additional funds from
future equity or debt financings, including tax equity financing transactions or sales of preferred shares or convertible debt,
to complete the development of new projects and pay the general and administrative costs of our business. We may in the future
issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our
common stock. We are currently authorized to issue 250,000,000 shares of common stock. The potential issuance of such additional
shares of common stock or preferred stock or convertible debt may create downward pressure on the trading price of our common
stock. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common
stock in future public offerings or private placements for capital raising purposes or for other business purposes. The future
issuance of a substantial number of common shares into the public market, or the perception that such issuance could occur, could
adversely affect the prevailing market price of our common shares. A decline in the price of our common shares could make it more
difficult to raise funds through future offerings of our common shares or securities convertible into common shares.
OUR
SHARES OF COMMON STOCK ARE VERY THINLY TRADED, AND THE PRICE MAY NOT REFLECT OUR VALUE AND THERE CAN BE NO ASSURANCE THAT THERE
WILL BE AN ACTIVE MARKET FOR OUR SHARES OF COMMON STOCK EITHER NOW OR IN THE FUTURE.
Our
shares of common stock are very thinly traded, and the price, if traded, may not reflect our value. There can be no assurance
that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent
on the perception of our operating business and any steps that our management might take to increase awareness of our Company
with investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be
able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market
should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage
firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction
in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling
costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock
as collateral for loans.
WE
HAVE A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK ISSUABLE UPON CONVERSION OF CERTAIN OUTSTANDING OPTIONS, AND CONVERTIBLE
NOTES, AND THE ISSUANCE OF SUCH SHARES UPON EXERCISE OR CONVERSION WILL HAVE A SIGNIFICANT DILUTIVE IMPACT ON OUR STOCKHOLDERS.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK FOLLOWING THE EXPIRATION OF LOCK-UPS MAY ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK AND THE ISSUANCE OF ADDITIONAL SHARES WILL DILUTE ALL OTHER STOCKHOLDERS.
As of May 9, 2019, there are 6,770,500
shares of Common Stock issuable upon conversion of our convertible notes.
In
addition, our articles of incorporation, as amended, permits the issuance of up to 250 million shares of Common Stock. Thus, we
have the ability to issue substantial amounts of Common Stock in the future, which would dilute the percentage ownership held
by stockholders.
FUTURE
ISSUANCE OF OUR COMMON STOCK, PREFERRED STOCK, OPTIONS AND WARRANTS COULD DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS.
We
may issue additional shares of our common stock, preferred stock, options and warrants in the future. The issuance of a substantial
amount of common stock, options and warrants could have the effect of substantially diluting the interests of our current stockholders.
In addition, the sale of a substantial amount of common stock or preferred stock in the public market, or the exercise of a substantial
number of warrants and options either in the initial issuance or in a subsequent resale by the target company in an acquisition
which received such common stock as consideration or by investors who acquired such common stock in a private placement could
have an adverse effect on the market price of our common stock.
WE
DO NOT INTEND TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE, AND YOU MUST RELY ON INCREASES IN THE MARKET PRICES OF OUR COMMON STOCK
FOR RETURNS ON YOUR INVESTMENT.
For
the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not
anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common
stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not
purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our Board and will
depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and
other factors the Board deems relevant.
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 May 9, 2019, our directors and
executive officers collectively beneficially own approximately 55.31% of the shares of our common stock including the beneficial
ownership of Mr. Liscouski and his affiliates of 12.44% of the shares of our common stock.
As
a result, our insiders have the ability to significantly influence our management and affairs through the election and removal
of our Board and all other matters requiring stockholder approval, including any future merger, consolidation or sale of all or
substantially all of our assets. This concentrated voting power could discourage others from initiating any potential merger,
takeover or other change-of-control transaction that may otherwise be beneficial to our stockholders. Furthermore, this concentrated
control will limit the practical effect of your influence over our business and affairs, through any stockholder vote or otherwise.
Any of these effects could depress the price of our common stock.
OUR
ARTICLES OF INCORPORATION GRANTS OUR BOARD THE POWER TO ISSUE ADDITIONAL SHARES OF COMMON AND PREFERRED SHARES AND TO DESIGNATE
OTHER CLASSES OF PREFERRED SHARES, ALL WITHOUT STOCKHOLDER APPROVAL.
Our
authorized capital consists of 260,000,000 shares of capital stock of which 10,000,000 shares are authorized as preferred stock.
Our Board, without any action by our stockholders, may designate and issue shares of preferred stock in such series as it deems
appropriate and establish the rights, preferences and privileges of such shares, including dividends, liquidation and voting rights,
provided it is consistent with Delaware law.
The
rights of holders of our preferred stock that may be issued could be superior to the rights of holders of our shares of common
stock. The designation and issuance of shares of capital stock having preferential rights could adversely affect other rights
appurtenant to shares of our common stock. Furthermore, any issuances of additional stock (common or preferred) will dilute the
percentage of ownership interest of then-current holders of our capital stock and may dilute our book value per share.