Arqit Quantum (ARQQ) Risk Analysis

Arqit is an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for shareholders to effect service of process within the United States upon the directors or executive officers of Arqit, or enforce judgments obtained in the United States courts against the directors or officers of Arqit. The corporate affairs of Arqit are governed by Arqit's amended and restated memorandum and articles of association, the Cayman Companies Act and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of the directors of Arqit under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of Arqit shareholders and the fiduciary responsibilities of Arqit directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less prescriptive body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholders' derivative action in a federal court of the United States. Shareholders of Cayman Islands exempted companies like Arqit have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of the register of members of these companies. Arqit directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. The courts of the Cayman Islands are unlikely (i) to recognize or enforce against Arqit judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state, and (ii) in original actions brought in the Cayman Islands, to impose liabilities against Arqit predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. As a result of all of the above, shareholders of Arqit may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board or our controlling shareholders than they would as public shareholders of a United States company.

Pursuant to the Registration Rights Agreement described elsewhere in this Annual Report, certain shareholders can each demand that Arqit register their registrable securities under certain circumstances and will each have piggyback registration rights for these securities in connection with certain registrations of securities that Arqit undertakes. Arqit will bear the cost of registering these securities. On October 12, 2021, Arqit's registration statement on Form F-1, which has since been post-effectively amended on Form F-3 (File No. 333-259982 the "Resale Registration Statement") registering the resale by shareholders of 4,717,000 ordinary shares, 6,266,667 Business Combination Warrants and 595,667 shares issuable upon exercise of Business Combination Warrants, became effective. The shareholders who registered shares and warrants for resale under the Resale Registration Statement have registration rights under the Registration Rights Agreement. The registration of these securities permits the public sale of such securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of Arqit ordinary shares. In addition, in registered direct offerings in February 2023 and September 2023, Arqit issued the February 2023 Investor Warrants that are exercisable for 300,000 ordinary shares, the February 2023 Placement Agent Warrants that are exercisable for 22,000 ordinary shares, the September 2023 Investor Warrants that are exercisable for 830,230 ordinary shares and the September 2023 Placement Agent Warrants that are exercisable for 28,207 ordinary shares, all of which are currently exercisable and the shares issuable upon exercise of these warrants have been registered under registration statements. In a registered direct offering in September 2023, Arqit issued a total of 5,440,000 September 2024 Investor Warrants, which are not exercisable until the later of (i) one year from the issuance date, (ii) the date of the approval by the Company's shareholders of an increase in authorized capital sufficient to permit the issuance of the shares issuable upon exercise of the September 2024 Investor Warrants and (iii) the date that the closing trading price of the Ordinary Shares on the Nasdaq Capital Market has exceeded $5.00 for 60 consecutive trading days. Arqit is obligated to register the shares issuable upon exercise of the September 2024 Investor Warrants under a registration statement. The exercise of a significant number of warrants may have an adverse effect on the market price of Arqit's ordinary shares.

Two shareholders of Arqit beneficially own approximately 50.2% of the outstanding Arqit ordinary shares and currently exercisable warrants. See "Beneficial Ownership of Securities." For so long as these shareholders continue to own a significant percentage of Arqit ordinary shares and warrants, they will be able to significantly influence or effectively control the composition of the Arqit board of directors and the approval of actions requiring shareholder approval through their voting power. Accordingly, for such period of time, these shareholders will have significant influence with respect to Arqit's management, business plans and policies, including the appointment and removal of Arqit's officers. In particular, for so long as these shareholders continue to own a significant percentage of the outstanding Arqit ordinary shares, they will be able to cause or prevent a change of control of Arqit or a change in the composition of Arqit's board of directors and could preclude any unsolicited acquisition of Arqit. The concentration of ownership could deprive you of an opportunity to receive a premium for your Arqit ordinary shares as part of a sale of Arqit and ultimately might affect the market price of the Arqit ordinary shares.

The price of Arqit's ordinary shares may fluctuate due to a variety of factors, including: - actual or anticipated fluctuations in its interim and annual results and those of other public companies in industry; mergers and strategic alliances in the industry in which it operates;- market prices and conditions in the industry in which it operates;- changes in government regulation;- potential or actual military conflicts or acts of terrorism;- the failure of securities analysts to publish research about us, or shortfalls in its operating results compared to levels forecast by securities analysts;- announcements or negative publicity concerning Arqit, its competitors or companies that have completed business combinations with special purpose acquisition companies; and - the general state of the securities markets. These market and industry factors may materially reduce the market price of Arqit's ordinary shares, regardless of its operating performance.

Nasdaq requires Arqit to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of its ordinary shares. On October 19, 2023, Arqit received a notification from Nasdaq notifying the Company that it no longer satisfied Nasdaq Listing Rule 5550(a)(2) because for the 30 consecutive business days preceding the date of the notification, the bid price per share of Arqit's ordinary shares had closed below the $1.00 per share minimum bid price required for continued listing on Nasdaq (the "Minimum Bid Price Requirement"). On September 25, 2024, Arqit consolidated its ordinary shares and preference shares by way of the Reverse Share Split whereby every twenty-five shares were consolidated into one share, which had the effect of increasing the bid price per share of Arqit's ordinary shares.  On October 10, 2024, the Company received notification from Nasdaq that the Company had regained compliance with Listing Rule 5550(a)(2). However, in the future if Arqit does not maintain compliance with the Minimum Bid Price Requirement and other Nasdaq continued listing requirements, its ordinary shares may be subject to delisting.  If Arqit's ordinary shares were to be delisted and it would not be able to list its ordinary shares on another national securities exchange, Arqit's shareholders could face significant material adverse consequences, including limited availability of market quotations for Arqit's ordinary shares and reduced liquidity for the trading of its securities. In addition, Arqit could experience a decreased ability to issue additional securities and obtain additional capital in the future.