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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

OR

For the fiscal year ended

September 30, 2024

OR

OR

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Commission File No. 001-40777

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Arqit Quantum Inc.

(Exact name of registrant as specified in its charter)

Not applicable

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

3 Orchard Place

London SW1H 0BF

United Kingdom

Telephone: +44 203 91 70155

(Address of principal executive office)

Andrew Leaver

3 Orchard Place

London SW1H 0BF

United Kingdom

Telephone: +44 203 91 70155

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

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Securities registered or to be registered pursuant to Section 12(b) of the Act.

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Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☑

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐

No ☑

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INDUSTRY AND MARKET DATA

In this Annual Report, we present industry data, information and statistics regarding the markets in which the Company competes as well as publicly available information, industry and general publications and research and studies conducted by third parties. This information is supplemented where necessary with the Company’s own internal estimates and information obtained from discussions with its customers, taking into account publicly available information about other industry participants and the Company’s management’s judgment where information is not publicly available.

Industry publications, research, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Annual Report. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in any forecasts or estimates.

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FREQUENTLY USED TERMS

Unless otherwise stated or unless the context otherwise requires, the terms “the Company,” “the registrant,” “our company,” “the company,” “we,” “us,” “our,” “ours,” and “Arqit” refer to Arqit Quantum Inc.

In this Annual Report, unless the context otherwise requires:

“Arqit” or “Company” means Arqit Quantum Inc., a Cayman Islands exempted limited liability company with registered number 374857 and whose registered office is at Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

“Articles” means the memorandum and articles of association of Arqit.

“British pounds sterling” or “£” means the legal currency of the United Kingdom.

“Business Combination” means the transaction completed on September 3, 2021 pursuant to the Business Combination Agreement, in connection with which Centricus Acquisition Corp. merged with and into Arqit Quantum Inc., with Arqit Quantum Inc. as the surviving entity, following which Arqit Quantum Inc. acquired all of the outstanding share capital of Arqit Limited, with Arqit Limited becoming a wholly-owned subsidiary of Arqit Quantum Inc.

“Business Combination Warrants” means Arqit’s 521,557 outstanding warrants to purchase its ordinary shares at an exercise price of $287.50 per share which became exercisable on February 8, 2022. Prior to the Reverse Share Split, Arqit had 13,038,904 outstanding warrants to purchase its ordinary shares at an exercise price of $11.50 per share.

“Cayman Companies Act” means the Companies Act (As Revised) of the Cayman Islands, as may be amended from time to time.

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

“COVID-19” means the disease known as coronavirus disease or COVID-19, the virus known as severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and any evolutions or mutations thereof.

“EAR” means the Export Administration Regulations of the U.K. Export Control Act 2002, as amended.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“February 2023 Investor Warrants” means Arqit’s 300,000 outstanding warrants to purchase its ordinary shares at an exercise price of $50.00 per share, which became exercisable on February 22, 2023. Prior to the Reverse Share Split, Arqit had 7,500,000 outstanding warrants to purchase its ordinary shares at an exercise price of $2.00 per share.

“February 2023 Placement Agent Warrants” means Arqit’s 22,000 outstanding warrants to purchase its ordinary shares at an exercise price of $62.50 per share, which became exercisable on February 22, 2023. Prior to the Reverse Share Split, Arqit had 550,000 outstanding warrants to purchase its ordinary shares at an exercise price of $2.50 per share.

“Gartner” means Gartner, Inc.

“IFRS” means International Financial Reporting Standards as adopted by the International Accounting Standards Board.

“IRS” means the U.S. Internal Revenue Service.

“ITAR” means the International Traffic in Arms Regulations of the Bureau of Industry and Security of the U.S. Department of Commerce.

“JOBS Act” means the Jumpstart Our Business Startups Act of 2012, as amended.

“Nasdaq” means the Nasdaq Capital Market.

“NATO” means the North Atlantic Treaty Organization.

“NIST” means the U.S. Department of Commerce’s National Institute of Standards and Technology.

“ordinary shares” means the ordinary shares, with $0.0025 post Reverse Share Split par value per share, of the Company.

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“PFIC” means passive foreign investment company within the meaning of Section 1297 of the Code.

“PKI” means public key infrastructure.

“QEF election” means a “qualified electing fund” election under Section 1295 of the Code.

“Registration Rights Agreement” means the Registration Rights Agreement dated September 3, 2021 among Arqit, Centricus Heritage LLC, Adam M. Aron, Nicholas Taylor, the shareholders of Arqit Limited prior to the completion of the Business Combination and Heritage Assets SCSP.

“Reverse Share Split” the consolidation of the ordinary shares and preference shares whereby every twenty five shares were consolidated into one share effective September 25, 2024.

“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.

“SEC” means the U.S. Securities Exchange Commission.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

“September 2023 Investor Warrants” means Arqit’s 830,230 outstanding warrants to purchase its ordinary shares at an exercise price of $19.50 per share, which became exercisable on September 12, 2023. Prior to the Reverse Share Split, Arqit had 20,755,677 outstanding warrants to purchase its ordinary shares at an exercise price of $0.78 per share.

“September 2023 Placement Agent Warrants” means Arqit’s 28,207 outstanding warrants to purchase its ordinary shares at an exercise price of $24.37 per share, which became exercisable on September 12, 2023. Prior to the Reverse Share Split, Arqit had 705,128 outstanding warrants to purchase its ordinary shares at an exercise price of $0.975 per share.

“September 2024 Investor Warrants” means Arqit’s 5,440,000 outstanding warrants to purchase its ordinary shares at an exercise price of $2.50 per share exercisable upon 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 shares upon the 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.

“U.S. dollar” or “$” means the legal currency of the United States.

“warrants” means the Business Combination Warrants, the February 2023 Investor Warrants, the February 2023 Placement Agent Warrants, the September 2023 Investor Warrants, the September 2023 Placement Agent Warrants and the September 2024 Investor Warrants.

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

This Annual Report contains our audited consolidated financial statements as of and for the periods ended September 30, 2024, 2023 and 2022 (our “audited consolidated financial statements”). The Company qualifies as a foreign private issuer as defined under Rule 405 under the Securities Act and prepares its financial statements denominated in U.S. dollars in accordance with International Financial Reporting Standards as adopted by the International Accounting Standards Board (“IFRS”).

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CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS AND

RISK FACTOR SUMMARY

This Annual Report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, the provisions of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are subject to risks and uncertainties and include information about possible or assumed future results of the business, financial condition, results of operations, liquidity, plans and objectives of the Company. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions. The statements regarding the following matters are forward-looking by their nature:

The preceding list is not intended to be an exhaustive list of all of forward-looking statements in this Annual Report. The forward-looking statements are based on beliefs, assumptions and expectations of the Company of future performance, taking into account the information currently available. These statements are only predictions based upon the current expectations and projections of the Company about future events.

You should not rely upon forward-looking statements as predictions of future events. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, they cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, the Company undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report, to conform these statements to actual results or to changes in expectations.

Important risks, uncertainties, assumptions, and other factors that could cause our actual results or conditions to differ materially from our forward-looking statements include, among others, the items in the following list, which also summarizes some of our most principal risks:

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Some of these factors are discussed in more detail in this Annual Report, including under “Item 3. Key Information—Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Annual Report as anticipated, believed, estimated or expected.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3. KEY INFORMATION

3.A. [Reserved]

3.B. CAPITALIZATION AND INDEBTEDNESS

Not Applicable.

3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable.

3.D. RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this Annual Report, in evaluating us and our shares. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report.

Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Arqit’s Business and Operations

Arqit is an early stage company with a history of losses and will be reliant upon a significant increase in sales and marketing activity in order to become profitable in the future.

Arqit has only just started to generate material revenues through the commercialization of its products. For the years ended September 30, 2022, 2023 and 2024, Arqit generated operating losses of $63.8 million, $54.5 million and $24.7 million respectively. Arqit intends to continue to invest and to increase investments in sales, marketing and product development, and believes that it will continue to incur operating and net losses until at least the time it is able to fully commercialize its products, but which may occur later than expected or not at all. There can be no assurance that Arqit’s products or its sales strategy will be commercially successful. Arqit’s potential profitability is dependent upon the successful development and commercial introduction and acceptance of its products, which may not occur. Because Arqit will incur the costs and expenses of commercializing its products before it receives any significant revenues with respect thereto, its losses in future periods may be significant. If Arqit is never able to achieve or sustain profitability, its results of operations could differ materially from its expectations and Arqit’s business, financial condition and results of operations could be materially adversely affected.

Arqit’s limited operating history makes it difficult to evaluate its business and future prospects and increases the risk of your investment.

Arqit began operations in 2017, has a limited operating history, and operates in the post-quantum cryptography encryption industry, which is rapidly evolving. As a result, there is limited information that investors can use in evaluating Arqit’s business, strategy, operating plan, results and prospects. Arqit intends to derive most of its revenues from the delivery of its symmetric key agreement product, Arqit SKA-PlatformTM, formerly known as QuantumCloudTM, which is a newly developed technology. It is difficult to predict future revenues and appropriately budget for expenses, and Arqit has limited insight into trends that may emerge and affect its business. If the assumptions Arqit uses to plan and operate its business are incorrect or change, its results of operations could differ materially from its expectations and Arqit’s business, financial condition and results of operations could be materially adversely affected.

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The market adoption of Arqit’s product is not fully proven, is evolving and may develop more slowly than or differently from Arqit’s expectations. Its future success depends on the growth and expansion of these markets and its ability to adapt and respond effectively to evolving markets.

The market adoption of Arqit’s product is relatively new, rapidly evolving, and not fully proven. Accordingly, it is difficult to predict customer adoption and renewals and demand for its products and services, the entry of competitive products, the success of existing competitive products, or the future growth rate, expansion, longevity, and the size of the market for its products. The expansion of and its ability to penetrate these new and evolving markets depends on a number of factors, including: the cost, performance, and perceived value associated with its products, and the extent to which its products improve security and are easy to use for its customers. If Arqit experiences security incidents or disruptions in delivery or service, the market for its products may be negatively affected. If its products do not continue to achieve market acceptance, or there is a reduction in demand caused by decreased customer acceptance, technological challenges, weakening economic conditions, privacy, data protection and data security concerns, governmental regulation, competing technologies and products, or decreases in information technology spending or otherwise, the market for its products may not continue to develop or may develop more slowly than Arqit expects, which could adversely affect its business, financial condition, and results of operations.

Arqit’s primary distribution channel is through channel partnerships, and therefore Arqit is dependent upon maintaining and increasing the number of channel partnerships, and developing annual recurring revenues through those channel partnerships,  in order to continue to develop its business.

Arqit is in the early stages of commercializing its business, and in December 2022 began transitioning its distribution model from an enterprise license model to distribution through channel partners.  There can be no certainty over the pace and scale of revenue growth generated from such relationships, which might take longer than anticipated to generate material revenues.  In addition, Arqit is dependent upon maintaining its existing, and increasing the number of, channel partnerships in order to continue to develop its business and annual recurring revenues.  If revenues from channel partner relationships fail to develop, take longer than expected to develop, or Arqit fails to maintain existing or increase the number of its channel partnerships, the impact could adversely affect its business, financial condition, and results of operations.

Arqit will require additional capital to fund its operations, and if it is unable to obtain such capital, it will be unable to successfully continue to develop its business and commercialize its products.

As of September 30, 2024, Arqit had cash and cash equivalents of approximately $18.7 million. Although Arqit believes it has sufficient funds to fund its operations for the next twelve months as of the filing of this Annual Report on Form 20-F, it will require additional capital in order to successfully continue to develop its business and commercialize its products. There is no assurance that revenues from Arqit’s commercialization of its products will be sufficient to fund its operations in the future, or that additional funds will be available through other sources when required on terms that are acceptable to Arqit, or at all.  If Arqit is not able to access the capital required to fund its operations, its business, financial condition and results of operations could be materially adversely affected.

Arqit is reliant upon the lease of data center capacity and access to fiber optic infrastructure from third parties in order to commercialize its product.

Arqit leases its data centres and obtains access to fiber optic infrastructure from third parties and will be reliant on the continued operation of these data centres and infrastructure to commercialize its product. While Arqit has electronic access to the components and infrastructure of its cloud platforms that are hosted by third parties, Arqit does not control the operation of these facilities. Consequently, Arqit may be subject to service disruptions as well as failures to provide adequate support for reasons that are outside of its direct control. The data centres or the fiber optic infrastructure Arqit uses to deliver its products may be vulnerable to damage or interruption from a variety of sources, including earthquakes, floods, fires, power loss, system failures, computer viruses, physical or electronic break-ins, human error or interference (including by disgruntled employees, former employees or contractors), and other catastrophic events. Its data centres or the fiber optic infrastructure Arqit uses may also be subject to local administrative actions, changes to legal or permitting requirements and litigation to stop, limit or delay operations. Despite precautions taken at these facilities, such as disaster recovery, business continuity arrangements, and diversity of supply in the Arqit network, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in interruptions or degradations in its services, impede its ability to scale its operations or have other adverse impacts upon its business. In addition, if Arqit does not accurately plan for its infrastructure capacity requirements and Arqit experiences significant strains on its data center capacity, Arqit may experience delays and additional expenses in arranging new data centres, and its customers could experience performance degradation or service outages that may subject it to financial liabilities, result in customer losses and materially harm its business. If Arqit is unable to efficiently and cost-effectively fix such errors at the data centres or fiber optic infrastructure or other problems that may be identified, this could damage its reputation and negatively impact its relationship with its customers.

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If Arqit is unable to successfully maintain and manage the data centres and the fiber optic infrastructure that Arqit uses, Arqit’s business, financial condition and results of operations could be materially adversely affected.

The complexity of Arqit’s products could result in unforeseen delays or expenses from undetected defects, errors or reliability issues in software, which could reduce the market adoption of its new products, damage its reputation with current or prospective customers and expose it to product liability and other claims and adversely affect its operating costs.

Arqit’s products are highly technical and complex and require high standards to implement and may experience defects, errors or reliability issues at various stages of development and commercial implementation. Arqit may be unable to timely correct problems that have arisen or correct such problems to its customers’ satisfaction. Additionally, undetected errors, defects or security vulnerabilities could result in litigation against Arqit, negative publicity and other consequences. Some errors or defects in its products may only be discovered after they have been tested, commercialized and deployed by customers. If that is the case, Arqit may incur significant additional development costs with respect to its products. These problems may also result in claims, including class actions, against Arqit by its customers or others. Its reputation or brand may be damaged as a result of these problems, customers may be reluctant to buy its products, and Arqit’s business, financial condition and results of operations could be materially adversely affected.

Arqit may not be able to adequately protect or enforce its intellectual property rights or prevent unauthorized parties from copying or reverse engineering its products or technology. Its efforts to protect and enforce its intellectual property rights and prevent third parties from violating its rights may be costly.

The success of its products and business depend in part on its ability to obtain patents and other intellectual property rights and maintain adequate legal protection for its products. As of the date of this Annual Report, Arqit had 25 granted patents and 20 pending patent in the UK. Arqit relies on a combination of patent, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect its proprietary rights, all of which provide only limited protection.

Arqit cannot assure you that any patents will be issued with respect to its currently pending patent applications or that any trademarks will be registered with respect to its currently pending applications in a manner that provides adequate defensive protection or competitive advantages, if at all, or that any patents issued to Arqit or any trademarks registered by it will not be challenged, invalidated or circumvented. Arqit may file for patents and trademarks in the U.S., U.K. and in certain international jurisdictions, but such protections may not be available in all countries in which it operates or in which Arqit seeks to enforce its intellectual property rights, or may be difficult to enforce in practice. For example, the legal environment relating to intellectual property protection in certain emerging market countries where Arqit may operate in the future is relatively weaker, often making it difficult to create and enforce such rights. Its currently- registered intellectual property and any intellectual property that may be issued or registered, as applicable, in the future with respect to pending or future applications may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. Arqit cannot be certain that the steps Arqit has taken will prevent unauthorized use of its technology or the reverse engineering of its technology. Moreover, others may independently develop technologies that are competitive to or infringe its intellectual property.

Protecting against the unauthorized use of its intellectual property, products and other proprietary rights is expensive and difficult, particularly internationally. Arqit believes that its intellectual property is foundational in the area of encryption technology and intends to enforce the intellectual property portfolio that Arqit has built. Unauthorized parties may attempt to copy or reverse engineer its technology or certain aspects of its products that it considers proprietary. Litigation may be necessary in the future to enforce or defend its intellectual property rights, to prevent unauthorized parties from copying or reverse engineering its products or technology to determine the validity and scope of the proprietary rights of others or to block the importation of infringing products into the U.S., U.K. or other jurisdictions in which Arqit seeks to protect its intellectual property rights.

Any such litigation, whether initiated by Arqit or a third party, could result in substantial costs and diversion of management resources, either of which could adversely affect its business, operating results and financial condition. Even if Arqit obtains favorable outcomes in litigation, Arqit may not be able to obtain adequate remedies, especially in the context of unauthorized parties copying or reverse engineering its products or technology.

Effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which its products are available and competitors based in other countries may sell infringing products in one or more markets. Failure to adequately protect its intellectual property rights could result in its competitors offering similar products, potentially resulting in the loss of some of its competitive advantage, and Arqit’s business, financial condition and results of operations could be materially adversely affected.

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Third-party claims that Arqit is infringing intellectual property, whether successful or not, could subject it to costly and time-consuming litigation or expensive licenses, and its business could be adversely affected.

Participants in Arqit’s industry typically protect their technology, especially embedded software, through copyrights and trade secrets in addition to patents. As a result, there is frequent litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. Arqit may in the future receive inquiries from other intellectual property holders and may become subject to claims that it infringes their intellectual property rights, particularly as Arqit expands its presence in the market, expands to new use cases and faces increasing competition. In addition, parties may claim that the names and branding of Arqit’s products infringe their trademark rights in certain countries or territories. If such a claim were to prevail, Arqit may have to change the names and branding of its products in the affected territories and could incur other costs.

Arqit may in the future need to initiate infringement claims or litigation in order to try to protect its intellectual property rights. In addition to litigation where Arqit is a plaintiff, its defense of intellectual property rights claims brought against it or its customers or suppliers, with or without merit, could be time-consuming, expensive to litigate or settle, could divert management resources and attention and could force Arqit to acquire intellectual property rights and licenses, which may involve substantial royalty or other payments and may not be available on acceptable terms or at all. Further, a party making such a claim, if successful, could secure a judgment that requires Arqit to pay substantial damages or obtain an injunction and Arqit may also lose the opportunity to license its technology to others or to collect royalty payments. An adverse determination could also invalidate or narrow Arqit’s intellectual property rights and adversely affect its ability to offer its products to its customers and may require that Arqit procure or develop substitute products that do not infringe, which could require significant effort and expense. If any of these events were to materialize, Arqit’s business, financial condition and results of operations could be materially adversely affected.

Certain of Arqit’s products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict its ability to sell its products or expose Arqit to other risks.

Arqit’s products contain software modules licensed to it by third-party authors under “open source” licenses. From time to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that open source software infringes the claimants’ IP rights. Arqit could be subject to suits by parties claiming infringement of IP rights in what Arqit believes to be licensed open source software. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as, for example, open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that Arqit makes available source code for modifications or derivative works Arqit creates based upon the type of open source software Arqit uses. If Arqit combines its proprietary software with open source software in a certain manner, Arqit could, under certain open source licenses, be required to release the source code of its proprietary software to the public. This would allow its competitors to create similar products with lower development effort and time and ultimately could result in a loss of product sales for Arqit.

Although Arqit monitors its use of open source software to avoid subjecting its products to conditions Arqit does not intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that, for example, could impose unanticipated conditions or restrictions on its ability to commercialize its products. In this event, Arqit could be required to seek licenses from third parties to continue offering its products, to make its proprietary code generally available in source code form, to re-engineer its products or to discontinue the sale of its products if re-engineering could not be accomplished on a timely basis, and Arqit’s business, financial condition and results of operations could be materially adversely affected.

Arqit’s intellectual property applications, including patent applications, may not be approved or granted or may take longer than expected to be approved, which may have a material adverse effect on its ability to prevent others from commercially exploiting products similar to its.

Arqit cannot be certain that it is the first inventor of the subject matter to which it has filed a particular patent application or if it is the first party to file such a patent application. The process of securing definitive patent protection can take five or more years. If another party has filed a patent application to the same subject matter as Arqit has, Arqit may not be entitled to some or all of the protection sought by the patent application. Arqit also cannot be certain whether the claims included in a patent application will ultimately be allowed in the applicable issued patent or the timing of any approval or grant of a patent application.

Further, the scope of protection of issued patent claims is often difficult to determine. As a result, Arqit cannot be certain that the patent applications that Arqit files will issue, or that its issued patents will afford protection against competitors with similar technology. In addition, if its competitors may design around its registered or issued intellectual property, Arqit’s business, financial condition and results of operations could be materially adversely affected.

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In addition to patented technology, Arqit relies on unpatented proprietary technology, trade secrets, designs, experiences, work flows, data, processes, software and know-how.

Arqit relies on proprietary information (such as trade secrets, designs, experiences, work flows, data, know-how and confidential information) to protect intellectual property that may not be patentable or subject to copyright, trademark, trade dress or service mark protection, or that Arqit believes is best protected by means that do not require public disclosure. Arqit generally seeks to protect this proprietary information by entering into confidentiality agreements, or consulting, services or employment agreements that contain non-disclosure and non-use provisions with its employees, consultants, customers, contractors and third parties. However, Arqit may fail to enter into the necessary agreements, and even if entered into, such agreements may be breached or may otherwise fail to prevent disclosure, third-party infringement or misappropriation of its proprietary information, may be limited as to their term and may not provide adequate remedies in the event of unauthorized disclosure or use of proprietary information. Arqit has limited control over the protection of trade secrets used by its current or future manufacturing counterparties and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, its proprietary information may otherwise become known or be independently developed by its competitors or other third parties. To the extent that Arqit’s employees, consultants, customers, contractors, advisors and other third parties use intellectual property owned by others in their work for it, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time- consuming litigation could be necessary to enforce and determine the scope of its proprietary rights, and failure to obtain or maintain protection for its proprietary information could adversely affect its competitive business position. Furthermore, laws regarding trade secret rights in certain markets where Arqit operate may afford little or no protection to its trade secrets.

Arqit also relies on physical and electronic security measures to protect its proprietary information but cannot provide assurance that these security measures will not be breached or provide adequate protection for its property. There is a risk that third parties may obtain and improperly utilize its proprietary information to its competitive disadvantage. Arqit may not be able to detect or prevent the unauthorized use of such information or take appropriate and timely steps to enforce its intellectual property rights, and Arqit’s business, financial condition and results of operations could be materially adversely affected.

The markets in which Arqit competes are characterized by rapid technological change, and competing product innovations could adversely affect market adoption of its products.

While Arqit has invested substantial resources in technological development, and believes that its product is a unique innovation, continuing technological changes in quantum technology and changes in the markets for its products could adversely affect adoption of its products, either generally or for particular applications. Arqit’s future success will depend upon its ability to develop and introduce a variety of new capabilities and innovations to its product offerings, as well as to introduce a variety of new product offerings, to address the changing needs of the markets in which Arqit offers its products. Delays in delivering new products that meet customer requirements could damage its relationships with customers and lead them to seek alternative sources of supply. Delays in introducing products and innovations, the failure to choose correctly among technical alternatives or the failure to offer innovative products or configurations at competitive prices may cause existing and potential customers to purchase its competitors’ products or turn to alternative technology.

If Arqit is unable to devote adequate resources to develop products or cannot otherwise successfully develop products or system configurations that meet customer requirements on a timely basis or that remain competitive with technological alternatives, its products could lose market share, its revenue could decline, and Arqit’s business, financial condition and results of operations could be materially adversely affected.

Arqit’s business depends substantially on the efforts of its executive officers and highly skilled personnel. Arqit needs to attract and retain a large number of skilled, specialized and dedicated employees in different jurisdictions in order to grow and manage its business, and if Arqit loses the services of existing key employees or fail to achieve its recruitment goals, its operations may be disrupted.

Competition for highly-skilled personnel is often intense and Arqit may incur significant costs to attract and retain highly-skilled personnel. Arqit may not be successful in attracting, integrating, or retaining qualified personnel to fulfill its current or future needs. As its business grows, Arqit will need to recruit a large number of skilled employees in different jurisdictions in which it operates and expects to expand into in the future. Experienced and highly skilled employees are in high demand, competition for these employees can be intense and Arqit’s ability to hire, attract and retain them depends on its ability to provide competitive compensation. Arqit will also need to expend significant time and expense to train the employees that it hires and it may struggle to retain employees, and its competitors may actively seek to hire skilled personnel away from it. If Arqit fails to attract new personnel or to retain and motivate its current personnel, its business and future growth prospects could be adversely affected.

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Failure to comply with governmental trade controls, including export and import control laws and regulations, sanctions, and related regimes could subject Arqit to liability or loss of contracting privileges, limit its ability to compete in certain markets or harm its reputation with the governments.

Arqit’s products are subject to export controls in the U.S., U.K. and other jurisdictions, and Arqit incorporates encryption technology into its product offerings. Some of the underlying technology in Arqit’s products may be exported outside of these countries only with the required export authorizations, which may require a license, a license exception, or other appropriate government authorizations, including the filing of an encryption classification request or self-classification report.

Furthermore, its activities are subject to the economic sanctions, laws and regulations of the U.S. and other jurisdictions. Such controls prohibit the shipment or transfer of certain products and services without the required export authorizations or export to countries, governments, and persons targeted by applicable sanctions. Arqit takes precautions to prevent its offerings from being exported in violation of these laws, including: (i) seeking to proactively classify its platforms and obtain authorizations for the export and/or import of its platforms where appropriate, (ii) implementing certain technical controls and screening practices to reduce the risk of violations, and (iii) requiring compliance with U.S. export control and sanctions obligations in customer and vendor contracts. However, Arqit cannot guarantee the precautions it takes will prevent violations of export control and sanctions laws.

As discussed above, if Arqit misclassifies a product or service, export or provides access to a product or service in violation of applicable restrictions, or otherwise fails to comply with export regulations, Arqit may be denied export privileges or subjected to significant per violation fines or other penalties, and its platforms may be denied entry into other countries. Any decreased use of its platforms or limitation on its ability to export or sell its platforms would likely adversely affect its business, results of operations and financial condition. Violations of sanctions or export control laws can result in fines or penalties, including both civil and criminal penalties.

Arqit also notes that if it or its business partners or counterparties, including licensors and licensees, prime contractors, subcontractors, sublicensors, vendors, customers, or contractors, fail to obtain appropriate import, export, or re-export licenses or permits, notwithstanding regulatory requirements or contractual commitments to do so, or if Arqit fails to secure such contractual commitments where necessary, Arqit may also face reputational harm as well as other negative consequences, including government investigations and penalties.

Negative consequences for violations or apparent violations of trade control requirements may include the absolute loss of the right to sell Arqit’s platforms or services to the government of the U.S., or to other public bodies, or a reduction in its ability to compete for such sales opportunities. Further, complying with export control and sanctions regulations for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.

Other countries in addition to the U.S. and U.K. also regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit Arqit’s ability to distribute its products or could limit its end-customers’ ability to implement its products in those countries. Changes in Arqit’s products or future changes in export and import regulations may create delays in the introduction of its platform in international markets, prevent its end- customers with international operations from deploying its platform globally or, in some cases, prevent the export or import of its products to certain countries, governments, or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption technology. Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of Arqit’s platform by, or in its decreased ability to export or sell its products to, existing or potential end-customers with international operations. If there is any limitation on its ability to export or sell its products, Arqit’s business, financial condition and results of operations could be materially adversely affected.

Failures, or perceived failures, to comply with privacy, data protection, and information security requirements in the jurisdictions in which Arqit operates may adversely impact its business, and such legal requirements are evolving and may require improvements in, or changes to, its policies and operations.

Arqit’s current and potential future operations and sales are subject to laws and regulations addressing privacy and the collection, use, storage, disclosure, transfer and protection of a variety of types of data. The primary data privacy laws applicable to Arqit include U.K. General Data Protection Regulation and the U.K. Data Protection Act of 2018. These regimes may, among other things, impose data security requirements, disclosure requirements, and restrictions on data collection, uses, and sharing that may impact its operations and the development of its business. Arqit’s products collect, store and process certain information and its products may evolve to collect additional information. Therefore, the full impact of these privacy regimes on its business is rapidly evolving across jurisdictions and remains uncertain at this time.

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Arqit may also be affected by cyber-attacks and other means of gaining unauthorized access to its products, systems, and data. For instance, cyber criminals or insiders may target it or third parties with which Arqit has business relationships to obtain data, or in a manner that disrupts its operations or compromises its products or the systems into which its products are integrated.

Arqit continually assesses the evolving privacy and data security regimes and implements measures that Arqit believes are appropriate in response. Since these data security regimes are evolving, uncertain and complex, especially for a global business like Arqit’s, it may need to update or enhance its compliance measures as its products, markets and customer demands further develop, and these updates or enhancements may require implementation costs. In addition, Arqit may not be able to monitor and react to all developments in a timely manner and the compliance measures that Arqit adopts may prove ineffective.

Any failure, or perceived failure, to comply with current and future regulatory or customer-driven privacy, data protection, and information security requirements, or to prevent or mitigate security breaches, cyber-attacks, or improper access to, use of, or disclosure of data, or any security issues or cyber-attacks affecting Arqit, could result in significant liability, costs (including the costs of mitigation and recovery), and a material loss of revenue resulting from the adverse impact on Arqit’s reputation and brand, loss of proprietary information and data, disruption to its business and relationships, and diminished ability to retain or attract customers and business partners. Such events may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity, and could cause customers and business partners to lose trust in Arqit, and its business, financial condition and results of operations could be materially adversely affected.

Fluctuations in currency exchange rates may adversely affect Arqit’s business and result of operations.

Arqit’s functional currency is GBP and its reporting currency is U.S. dollars. Accordingly, fluctuations in the value of GBP relative to the U.S. dollar could affect its results of operations due to translational remeasurements. As its international operations expand, an increasing portion of its revenue and operating expenses will be denominated in non-GBP currencies. Accordingly, Arqit’s revenue and operating expenses will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. If Arqit is not able to successfully hedge against the risks associated with currency fluctuations, Arqit’s business, financial condition and results of operations could be materially adversely affected.

Arqit’s Business Combination Warrants are accounted for as liabilities and the changes in value of the warrants could have a material effect on its financial results.

In accordance with IFRS 9 – Financial Instruments and IAS 32 – Financial Instruments: Presentation, Arqit has determined that its Business Combination Warrants should be measured at fair value on its statement of financial position, with any changes in fair value to be reported each period in earnings on its statement of comprehensive income. As a result of the recurring fair value measurement, Arqit’s financial statements may fluctuate on an interim basis, based on factors which are outside of its control. Due to the recurring fair value measurement, Arqit expects that it will recognize non-cash gains or losses on its Business Combination Warrants each reporting period and that the amount of such gains or losses could be material.

Interruption or failure of Arqit’s information technology and communications systems could impact its ability to effectively provide its products and services.

The availability and effectiveness of Arqit’s services depend on the continued operation of information technology and communications systems. Its systems will be vulnerable to damage or interruption from, among others, physical theft, fire, terrorist attacks, natural disasters, power loss, war, telecommunications failures, viruses, denial or degradation of service attacks, ransomware, social engineering schemes, insider theft or misuse or other attempts to harm its systems. Arqit utilizes reputable third-party service providers or vendors for all of its IT and communications systems, and these providers could also be vulnerable to harms similar to those that could damage its systems, including sabotage and intentional acts of vandalism causing potential disruptions. Some of its systems will not be fully redundant, and its disaster recovery planning cannot account for all eventualities. Any problems with its third-party cloud hosting providers could result in lengthy interruptions in its business. In addition, Arqit’s services and functionality are highly technical and complex technology which may contain errors or vulnerabilities that could result in interruptions in its business or the failure of its systems.

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If any of Arqit’s third parties’ systems, its customers’ cloud or on-premises environments, or its internal systems are breached or if unauthorized access to customer or third-party data is otherwise obtained, public perception of its business may be harmed, and Arqit may lose business and incur losses or liabilities.

Arqit’s success depends in part on its ability to provide effective data security protection in connection with its platforms and services, and Arqit relies on information technology networks and systems to securely store, transmit, index, and otherwise process electronic information. Because its platforms and services are used by its customers to encrypt large data sets that often contain proprietary, confidential, and/or sensitive information (including in some instances personal or identifying information and personal health information), its software is perceived as an attractive target for attacks by computer hackers or others seeking unauthorized access, and its software faces threats of unintended exposure, exfiltration, alteration, deletion, or loss of data. Additionally, because many of Arqit’s customers use its platforms to store, transmit, and otherwise process proprietary, confidential, or sensitive information, and complete mission critical tasks, they have a lower risk tolerance for security vulnerabilities in its platforms and services than for vulnerabilities in other, less critical, software products and services.

Arqit, and the third-party vendors upon which Arqit relies, have experienced, and may in the future experience, cybersecurity threats, including threats or attempts to disrupt its information technology infrastructure and unauthorized attempts to gain access to sensitive or confidential information. Its and its third-party vendors’ technology systems may be damaged or compromised by malicious events, such as cyberattacks (including computer viruses, malicious and destructive code, phishing attacks, and denial of service attacks), physical or electronic security breaches, natural disasters, fire, power loss, telecommunications failures, personnel misconduct, and human error. Such attacks or security breaches may be perpetrated by internal bad actors, such as employees or contractors, or by third parties (including traditional computer hackers, persons involved with organized crime, or foreign state or foreign state-supported actors).

Cybersecurity threats can employ a wide variety of methods and techniques, which may include the use of social engineering techniques, are constantly evolving, and have become increasingly complex and sophisticated; all of which increase the difficulty of detecting and successfully defending against them.

Furthermore, because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until after they are launched against a target, Arqit and its third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures. Although prior cyberattacks directed at Arqit have not had a material impact on its financial results, and Arqit is continuing to bolster its threat detection and mitigation processes and procedures, Arqit cannot guarantee that future cyberattacks, if successful, will not have a material impact on its business or financial results. While Arqit has security measures in place to protect its information and its customers’ information and to prevent data loss and other security breaches, there can be no assurance that Arqit will be able to anticipate or prevent security breaches or unauthorized access of its information technology systems or the information technology systems of the third-party vendors upon which Arqit relies. Despite its implementation of network security measures and internal information security policies, data stored on personnel computer systems is also vulnerable to similar security breaches, unauthorized tampering or human error.

Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of data, including personal data. In addition, most of Arqit’s customers contractually require Arqit to notify them of data security breaches. If an actual or perceived breach of security measures, unauthorized access to its system or the systems of the third-party vendors that Arqit rely upon, or any other cybersecurity threat occurs, Arqit may face direct or indirect liability, costs, or damages, contract termination, its reputation in the industry and with current and potential customers may be compromised, its ability to attract new customers could be negatively affected, and its business, financial condition, and results of operations could be materially and adversely affected.

Further, unauthorized access to Arqit’s or its third-party vendors’ information technology systems or data or other security breaches could result in the loss of information; significant remediation costs; litigation, disputes, regulatory action, or investigations that could result in damages, material fines, and penalties; indemnity obligations; interruptions in the operation of its business, including its ability to provide new product features, new platforms, or services to its customers; damage to its operation technology networks and information technology systems; and other liabilities. Moreover, its remediation efforts may not be successful. Any or all of these issues, or the perception that any of them have occurred, could negatively affect Arqit’s ability to attract new customers, cause existing customers to terminate or not renew their agreements, hinder Arqit’s ability to obtain and maintain required or desirable cybersecurity certifications, and result in reputational damage, any of which could materially adversely affect its results of operations, financial condition, and future prospects. There can be no assurance that any limitations of liability provisions in Arqit’s license arrangements with customers or in its agreements with vendors, partners, or others would be enforceable, applicable, or adequate or would otherwise protect it from any such liabilities or damages with respect to any particular claim.

Arqit maintains cybersecurity insurance and other types of insurance, subject to applicable deductibles and policy limits, but its insurance may not be sufficient to cover all costs associated with a potential data security incident.

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Arqit also cannot be sure that its existing general liability insurance coverage and coverage for cyber liability or errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against Arqit that exceed available insurance coverage, or the occurrence of changes in its insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could result in its business, financial condition and results of operations being materially adversely affected.

If Arqit’s network and products do not interoperate with its customers’ internal networks and infrastructure or with third-party products, websites, or services, its network may become less competitive and its results of operations may be harmed.

Arqit’s network and products must interoperate with its customers’ existing internal networks and infrastructure. These complex internal systems are developed, delivered, and maintained by the customer and a myriad of vendors and service providers. As a result, the components of its customers’ infrastructure have different specifications, rapidly evolve, utilize multiple protocol standards, include multiple versions and generations of products, and may be highly customized. Arqit must be able to interoperate and provide products to customers with highly complex and customized internal networks, which requires careful planning and execution between its customers, its customer support teams and, in some cases, its channel partners.

Further, when new or updated elements of its customers’ infrastructure or new industry standards or protocols are introduced, Arqit may have to update or enhance its network to allow it to continue to provide its products to customers.

Arqit may not deliver or maintain interoperability quickly or cost-effectively, or at all. These efforts require capital investment and engineering resources. If Arqit fails to maintain compatibility of its network and products with its customers’ internal networks and infrastructures, its customers may not be able to fully utilize its network and products, and Arqit may, among other consequences, lose or fail to increase its market share and number of customers and experience reduced demand for its products, and its business, financial condition and results of operations could be materially adversely affected.

Risks Related to Ownership of Ordinary Shares and Warrants

It may be difficult to enforce judgments obtained against Arqit or its directors and officers in U.S. courts, to effect service of process on it or its directors or officers, and to recover in civil proceedings in the U.K. or elsewhere for U.S. securities law violations.

The majority of Arqit’s directors and executive officers reside outside of the U.S., and most of its assets and most of the assets of these persons are located outside of the U.S. Therefore, a judgment obtained against Arqit, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the U.S. and may not be enforced by courts in other jurisdictions. It may also be difficult for its shareholders to effect service of process on these persons in the U.S. or to assert U.S. securities law claims in original actions instituted in the U.K. or elsewhere. U.K. courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that U.K. is not the most appropriate forum in which to bring such a claim. In addition, even if a U.K. court agrees to hear a claim, it may determine that U.K. law, instead of U.S. law, is applicable to the claim. As a result of potential difficulties associated with enforcing a judgment against Arqit, its shareholders may not be able to collect any damages awarded by either a U.S. or foreign court.

Because Arqit is incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.

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.

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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.

The grant and future exercise of registration rights and exercise of outstanding warrants may adversely affect the market price of Arqit ordinary shares.

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.

Certain shareholders that own a significant percentage of Arqit may have interests that conflict with Arqit’s or yours in the future.

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.

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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 be volatile.

The price of Arqit’s ordinary shares may fluctuate due to a variety of factors, including:

These market and industry factors may materially reduce the market price of Arqit’s ordinary shares, regardless of its operating performance.

Reports published by analysts, including projections in those reports that differ from Arqit’s actual results, could adversely affect the price and trading volume of its ordinary shares.

The trading market for the Ordinary Shares is and will be influenced by the research and reports that securities or industry analysts publish about Arqit or its business. Projections by such securities or industry analysts may vary widely and may not accurately predict the results Arqit actually achieves. Arqit’s share price may decline if its actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on Arqit downgrades its stock or publishes inaccurate or unfavorable research about its business, its share price could decline. If one or more of these analysts ceases coverage of Arqit or fails to publish reports on it regularly, its share price or trading volume could decline. While Arqit’s management expects research analyst coverage, if no analysts commence coverage of Arqit, the trading price and volume for its ordinary shares could be adversely affected.

Arqit’s ordinary shares may be involuntarily delisted from trading on Nasdaq if it fails to comply with the continued listing requirements. A delisting of Arqit’s ordinary shares could reduce the liquidity of the ordinary shares and may inhibit or preclude its ability to raise additional capital.

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).

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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.

Arqit may be a passive foreign investment company, or “PFIC,” for U.S. federal income tax purposes. Such classification for any taxable year, could result in adverse U.S. federal income tax consequences for U.S. investors.

If Arqit were a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in the section entitled “Certain Material United States Federal Income Tax Considerations”) of Arqit’s ordinary shares or warrants, the U.S. Holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. As of the date hereof, Arqit has not made a determination as to its PFIC status for its most recent taxable year or its current taxable year, and it may be possible that Arqit is a PFIC for either such years. Arqit’s possible status as a PFIC is determined on an annual basis based on the composition of its assets, income, activities and market capitalization (which, depending on Arqit’s stock price, may fluctuate significantly) in the relevant taxable year and therefore may be subject to change. Accordingly, there can be no assurance that Arqit is not a PFIC for any taxable year. If Arqit is a PFIC during such U.S. Holder’s holding period for the ordinary shares or warrants, unless the U.S. Holder makes certain elections, Arqit will continue to be treated as a PFIC with respect to such U.S. Holder, even if it ceases to be a PFIC in future taxable years. U.S. Holders are urged to consult their own tax advisors regarding the possible application of the PFIC rules to holders of Arqit securities. For a more detailed explanation of the tax consequences of PFIC classification to U.S. Holders, see “Certain Material United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules.”

Risks Related to Being a Public Company

Arqit’s management team has limited experience managing and operating a U.S. public company.

Most of the members of Arqit’s management team have limited experience managing and operating a U.S. publicly traded company, interacting with U.S. public company investors, and complying with the increasingly complex laws pertaining to U.S. public companies. Its transition to being a U.S. public company subjects Arqit to significant regulatory oversight and reporting obligations under the U.S. federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from its senior management and could divert their attention away from the day-to-day management of its business. Arqit may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of U.S. public companies. The development and implementation of the standards and controls necessary for Arqit to achieve the level of accounting standards required of a public company may require costs greater than expected. To support its operations as a U.S. public company, Arqit plans to hire additional employees, which will increase its operating costs in future periods. Should any of these factors materialize, Arqit’s business, financial condition and results of operations could be adversely affected.

If Arqit fails to maintain an effective system of disclosure controls and internal control over financial reporting, its ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a U.S. public company, Arqit is subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations of the applicable listing standards of Nasdaq subject to applicable exemptions as long as Arqit qualifies as Foreign Private Issuer and Emerging Growth Company. Arqit’s management expects that the requirements of these rules and regulations will continue to increase its legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on its personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that Arqit maintains effective disclosure controls and procedures and internal control over financial reporting. In particular, Section 404 of the Sarbanes-Oxley Act requires Arqit to perform system and process evaluation and testing of its internal control over financial reporting to allow Arqit's management to report on the effectiveness of its internal control over financial reporting and to allow Arqit’s independent registered public accounting firm to attest to the effectiveness of such control (once Arqit becomes an accelerated filer). As an emerging growth company, Arqit’s management expects to avail itself of the exemption from the requirement that its independent registered public accounting firm attest to the effectiveness of its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. See “— As an “emerging growth company,” Arqit cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make the Arqit ordinary shares less attractive to investors.” However, Arqit may no longer avail itself of this exemption when it ceases to be an emerging growth company. At such time, Arqit’s independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which its internal control over financial reporting is documented, designed or operating.

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For the fiscal year ended September 30, 2022, Arqit identified certain material weaknesses in its internal controls. While Arqit remediated these internal weaknesses during the fiscal year ended September 30, 2023, it cannot assure you that there will not be additional material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any additional or sustained failure to maintain internal control over financial reporting could severely inhibit Arqit’s ability to accurately report its financial condition or results of operations. If Arqit is unable to remediate the material weaknesses or to conclude in the future that its internal control over financial reporting is effective, it could lose investor confidence in the accuracy and completeness of its financial reports, the market price of Arqit’s shares could decline, and it could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weaknesses in its internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict Arqit’s future access to the capital markets.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on Arqit’s business, results of operations and financial condition and could cause a decline in the trading price of the Arqit ordinary shares.

As a foreign private issuer, Arqit is exempt from a number of rules under the U.S. securities laws and is permitted to file less information with the SEC than a U.S. company. This may limit the information available to holders of the Arqit ordinary shares.

Arqit is a foreign private issuer, as such term is defined in Rule 405 under the Securities Act, however, under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to Arqit on March 31, 2025.

As a foreign private issuer, Arqit is not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, Arqit is exempt from certain rules under the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act (including the requirement applicable to emerging growth companies to disclose the compensation of its Chief Executive Officer and the other two most highly compensated executive officers on an individual, rather than an aggregate, basis). In addition, Arqit’s officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of its securities. Moreover, while Arqit’s management expects to submit interim consolidated financial data to the SEC under cover of the SEC’s Form 6-K, it will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Furthermore, Arqit ordinary shares are not listed on any market in the Cayman Islands and Arqit does not currently intend to list its ordinary shares on any market in the Cayman Islands, Arqit’s home country. As a result, Arqit is not subject to the reporting and other requirements of companies listed in the Cayman Islands. Accordingly, there may be less publicly available information concerning Arqit’s business than there would be if Arqit were a public company organized in the United States.

Arqit may lose its foreign private issuer status in the future, which could result in significant additional cost and expense.

In the future, Arqit would lose its foreign private issuer status if a majority of its shareholders, directors or management are U.S. citizens or residents and it fails to meet additional requirements necessary to avoid loss of foreign private issuer status. Although Arqit’s management has elected to comply with certain U.S. regulatory provisions, its loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to Arqit under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If Arqit is not a foreign private issuer, it will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, and equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an aggregate basis. Arqit would also have to mandatorily comply with U.S. federal proxy requirements, and its officers, directors, and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. Arqit may also be required to modify certain of its policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, Arqit may lose its ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

Arqit has incurred and expects to continue to incur increased costs and obligations as a result of being a public company.

As a publicly traded company, Arqit has incurred and expects to continue to incur significant legal, accounting and other expenses that it was not required to incur in the recent past, particularly after it is no longer an “emerging growth company” as defined under the JOBS Act.

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In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations of the SEC and national securities exchanges have created uncertainty for public companies and increased the costs and the time that Arqit’s board of directors and management must devote to complying with these rules and regulations. Arqit’s management expects these rules and regulations to increase its legal and financial compliance costs and lead to a diversion of management time and attention from revenues generating activities.

Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from its focus on Arqit’s business strategy, which could prevent Arqit from improving its business, results of operations and financial condition. Arqit has made, and will continue to make, changes to its internal controls and procedures for financial reporting and accounting systems to meet its reporting obligations as a publicly traded company. However, the measures it takes may not be sufficient to satisfy Arqit’s obligations as a publicly traded company.

For as long as Arqit remains an “emerging growth company” as defined in the JOBS Act, it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” Arqit may remain an “emerging growth company” until September 2, 2026 (the fifth anniversary of the closing of the Business Combination) or until such earlier time that it has more than $1.235 billion in annual revenues, has more than $700 million in market value of Arqit’s ordinary shares held by non-affiliates, or issues more than $1.00 billion of non-convertible debt over a three-year period. Further, there is no guarantee that the exemptions available to Arqit under the JOBS Act will result in significant savings. To the extent Arqit’s management chooses not to use exemptions from various reporting requirements under the JOBS Act, Arqit will incur additional compliance costs, which may impact earnings.

As an “emerging growth company,” Arqit cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make the Arqit ordinary shares less attractive to investors.

Arqit is an “emerging growth company,” as defined in the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to obtain an assessment of the effectiveness of its internal controls over financial reporting from its independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act. Additionally, to the extent that Arqit ceases to become a foreign private issuer, emerging growth company status would allow it to include reduced disclosure obligations regarding executive compensation in its periodic reports and to be exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Arqit’s management cannot predict if investors will find its Arqit ordinary shares less attractive because it will rely on these exemptions. If some investors find Arqit’s ordinary shares less attractive as a result, there may be a less active market for the Arqit ordinary shares and its share price may be more volatile.

If Arqit does not develop and implement all required accounting practices and policies, it may be unable to provide the financial information required of a U.S. publicly traded company in a timely and reliable manner.

If Arqit fails to develop and maintain effective internal controls and procedures and disclosure procedures and controls, it may be unable to provide financial information and required SEC reports that a U.S. publicly traded company is required to provide in a timely and reliable fashion. Any such delays or deficiencies could penalize Arqit, including by limiting its ability to obtain financing, either in the public capital markets or from private sources and hurt its reputation and could thereby impede its ability to implement its growth strategy.

ITEM 4. INFORMATION ON THE COMPANY

4.A. HISTORY AND DEVELOPMENT OF THE COMPANY

The legal name of the Company is Arqit Quantum Inc. The Company is an exempted limited liability company incorporated under the laws of the Cayman Islands on April 26, 2021. The Company’s registered office is c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, Cayman Islands, KY1 1104. The address of the principal executive office of the Company is 3 Orchard Place, London, UK and the telephone number of the Company is +44 (0) 203 91 70155.

Arqit Limited was incorporated in England in 2017. In September 2021, the Company completed the Business Combination pursuant to which the Company merged with and into Centricus Acquisition Corp., with the Company surviving the merger, and the security holders of Centricus Acquisition Corp. (other than those who elected to redeem their ordinary shares) became security holders of the Company, and the Company acquired all of the issued and outstanding share capital of Arqit Limited from the shareholders of Arqit Limited in exchange for ordinary shares of the Company, such that Arqit Limited is a direct wholly owned subsidiary of the Company.

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Arqit’s ordinary shares and Business Combination Warrants trade on Nasdaq under the symbols “ARQQ” and “ARQQW”, respectively.

The Company is subject to certain of the informational filing requirements of the Exchange Act. Since the Company is a “foreign private issuer”, it is exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and the officers, directors and principal shareholders of the Company are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act with respect to their purchase and sale of equity securities. In addition, the Company is not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. public companies whose securities are registered under the Exchange Act. However, the Company is required to file with the SEC an Annual Report on Form 20-F containing financial statements audited by an independent accounting firm. The SEC also maintains a website at http://www.sec.gov that contains reports and other information that the Company files with or furnishes electronically to the SEC.

4.B. BUSINESS OVERVIEW

Overview

Arqit is a cybersecurity company that has pioneered a unique symmetric key agreement technology which makes the communications links of any networked device or data at rest secure against current and future forms of cyber-attack — even an attack from a quantum computer. Arqit delivers its symmetric key agreement technology via its Arqit SKA-PlatformTM. During 2024, Arqit re-branded its flagship product from QuantumCloud™ to SKA Platform™ to more precisely reflect its offering, which no longer contains any hardware or quantum effects.

Arqit SKA-PlatformTM is a software platform as a service that creates unbreakable software encryption keys that are low cost and easy to use within existing information technology standards with no new hardware and no major software upgrades or “rip and replace” required.

The software has potentially universal application to every edge device and cloud machine in the world. The security proofs for the design aspects of the key-establishment protocols used to enable symmetric key agreement over classical IP network infrastructures within Arqit SKA-PlatformTM were independently assured in 2022 by the University of Surrey, which is accredited as a Centre of Excellence for Cyber Security by the UK Government’s National Cyber Security Centre. Arqit believes that its symmetric key agreement platform is compliant with the NSA Commercial Solutions for Classified Symmetric Key Management Requirements Annex 1.2 which dictates how Government agencies can incorporate quantum-safe symmetric key protections into solutions which use off-the-shelf commercial products to protect classified networks.

Arqit’s technology combines world-leading innovation in two areas: the secure distribution of replicated entropy to data centres and a software agent that can be downloaded onto any device and makes the use of symmetric key encryption a scalable business model.

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Arqit began commercializing its products in the fiscal year ended September 30, 2021. Arqit sold its product to select early customers on a master distribution agreement basis, an enterprise license basis and as a platform as a service, including BT plc, AUCloud and Nine23. Arqit announced in December 2022 that it will focus on selling its products on a Platform as a Service basis, primarily through channel partners and distributors, which is expected to generate annual recurring revenue (ARR). Arqit signed its first annual recurring revenue license shortly before the end of fiscal year 2024. Arqit platform as a service will be sold as standardized products to specific target markets or a Private Instance to customers to require control of the end-to-end technology. Arqit has announced channel partnerships and distribution agreements with Sparkle, Juniper, Fortinet, AWS, Dell, Exclusive Networks, Sierra Nevada Corporation Mission Systems UK, SecureCloud+, DETASAD, Advanced International Electronic Equipment Company, Carahsoft, and SoftIron through which it will sell directly and indirectly to end customers. Arqit is currently engaged in discussions with additional customers, channel partners and distributors and, in July 2024, it announced that it has become an Independent Software Vendor collaborating with Intel.

Market Opportunity

Arqit believes that there will be significant market opportunities for its innovative products as a result of an expected transformation in the cyber encryption industry over the next decade. The need for improved encryption, resulting from weaknesses in existing encryption architectures and the future threat of quantum computers, is an increased concern. Public key infrastructure or “PKI” is currently the most widely-used encryption technology. However, PKI is becoming less secure as new technologies develop, and is not secure against quantum computers, which are expected to be of sufficient scale to break PKI within the next few years.

For example, the U.S. Department of Commerce’s National Institute of Standards and Technology (the “NIST”), which leads efforts on mitigation of the quantum threat to cyber security, published a report in April 2021, “Getting Ready for Post-Quantum Cryptography: Exploring Challenges Associated with Adopting and Using Post-Quantum Cryptographic Algorithms”, in which it expressed concern that the alternatives currently proposed for making PKI stronger do not offer a sufficiently adequate or timely solution. Regarding the near term threat of quantum computers to cyber security, the NIST noted, “all secret symmetric keys and private asymmetric keys that are now protected using current public-key algorithms, as well as the information protected under those keys, will be subject to exposure,” and that “any information still considered to be private or otherwise sensitive will be vulnerable to exposure and undetected modification.”

Therefore, consumers, businesses and governments across all geographies and industries will likely need to replace the existing cyber encryption technology used in almost all electronic interfaces in order to maintain cyber security. Symmetric encryption keys are secure against quantum computers. However, to date there has been no secure way to create and distribute symmetric keys electronically. In regards to available alternatives, the NIST stated, “There are multiple candidate classes for post-quantum cryptography. Unfortunately, each class has at least one requirement for secure implementation that makes drop-in replacement unsuitable.” Separately, in May 2022, the U.S. National Security Agency stated that symmetric encryption keys are recommend for use by federal agencies which wish to become quantum safe.

NIST’s expressed concerns are amplified by the White House National Security Memorandum 10 dated May 4, 2022. The memorandum sets a crucial deadline for government agencies – ensuring quantum-safe security for National Security Systems by the end of 2023. This mandate reflects the urgent need to safeguard classified information against the computational power of quantum computers. Memorandum 10 has made it clear that adoption of symmetric key protections for NSS is the preferred solution. Arqit’s Symmetric Key Agreement platform delivers encryption in a manner that meets the demands of US National Security Memorandum 10 and National Security Agency Commercial Solutions for Classified Symmetric Key Management Requirements Annex version 2.1.

Unlike solutions utilizing Post-Quantum Cryptographic Algorithms proposed by other parties, Arqit believes it has the only commercially available symmetric key encryption system which is the preferred cryptographic architecture of both NIST and The White House.

Arqit believes that it has developed an almost universal solution to previously identified issues with delivery of symmetric encryption keys, particularly scalability and zero-trust. Arqit’s pioneering technology provides a simple, cost-effective and secure way to create and distribute symmetric keys electronically that can be applied universally across geographies, industries and devices, making it well placed to take advantage of this significant upcoming market opportunity.

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Total Addressable Market

According to Gartner (Gartner, Inc., Forecast: Information Security and Risk Management, Worldwide, 2022 2028, 2Q24 Update, Published July 3, 2024), it is estimated that the global addressable market for information security services will be $294 billion by the end of 2028. Arqit believes that every connected service is vulnerable to current and future attacks on PKI, in particular by quantum computers in the near to mid-term. This vulnerability will affect cyber security on every connected end point, network device and cloud machine globally, and Arqit believes that its product is the only known method to create encryption keys at large scale, high efficiency and low cost though a cloud platform that is secure against quantum computer attack. As a result, Arqit has assumed that the entire information security market represents its total addressable market.

Arqit’s Technology

Encryption is the foundation of the communications technology everyone uses. However, the technology we rely on for encryption in most cases was developed over 30 years ago. There are well-known vulnerabilities in this technology today, and near term developments in quantum computing will significantly increase risks.

The origins of encryption are in symmetric encryption keys — long truly random numbers. A universal quantum computer would take on average more than the age of the universe to guess a 256 digit symmetrical key because there are no mathematics involved in creating a random number.

Therefore symmetric encryption keys are computationally secure, but to date there has been no secure way to create and distribute symmetric keys electronically at mass market scale. As a result, “public key infrastructure” or “PKI” was invented, which involves two parties sharing the performance of a calculation which is difficult to emulate in a practical time period. The internet has driven the adoption of PKI, not because it was the most secure, but because it was flexible enough to be reverse engineered into something that was already created. PKI is a flexible tool, but it is vulnerable to attack, especially given the development of the Internet of Things, cloud-based interfaces and other transformational technologies.

The problem will imminently become more profound because, unlike symmetric encryption keys, PKI will be vulnerable to quantum computer attack. Although quantum computers are currently operating at relatively modest scale, quantum computers of sufficient scale to break PKI may be available within a few years.

The universal and long-term answer to this threat is not to make the mathematics used in PKI more difficult given it is not sustainable or practical to try to defeat an infinitely capable computing machine with math. The answer lies in finding a secure way to create and distribute symmetric encryption keys, which is what Arqit has invented.

Arqit has discovered a way to create symmetric encryption keys at end points when they are needed, at scale, securely, at any kind of end point device and in groups of any size. With Arqit’s technology, symmetric encryption keys are never “delivered”, they are created at endpoints, and so their creation cannot be intercepted.

An important element in the creation of Arqit’s symmetric encryption keys is replicated entropy distributed at multiple data centres. The replicated entropy is utilized via a software agent on the end point device in the key creation process. Through its proprietary method of distribution, Arqit is able to securely deliver replicated entropy to data centres globally using a set of classical digital hardware and software elements. Distributed replicated entropy is fundamental to the creation at end points of symmetric encryption within Arqit’s Arqit SKA-PlatformTM.

Arqit delivers replicated entropy to data centres that host the Arqit SKA-PlatformTM system. End point devices that download Arqit’s software agent are able to securely authenticate into Arqit SKA-PlatformTM at different data centres which then moderate a key agreement process by sharing cryptographic information with the end points. From the combination of elements of shared secrets that can be shared by the parties, the end points are then able to create a new shared symmetric encryption key. The end point keys are zero trust, never known by a third party – including Arqit - and they are computationally secure even against a quantum attack. The created symmetric encryption keys can be used inside an AES256 algorithm which is already incorporated in all standard networking software systems, or any other symmetric algorithm, and therefore Arqit’s product is very simple to implement. The U.S. National Security Agency has declared that symmetric encryption is the most safe and easiest method to immediately become quantum safe.  

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The Arqit technology includes three areas of innovation:

SKA-PlatformTM

Arqit’s SKA-PlatformTM is a platform as a service that creates a secure global mesh between different cloud providers and on-premises data centres around the globe. SKA-PlatformTM supplies the platform that enables end points to share data securely for the creation of new keys. It also allows Arqit to provide highly secure services for customers to store, communicate and sign their data. This platform as a service architecture means that Arqit’s customers can easily integrate quantum safe cryptographic services into new or existing platforms.

Arqit can extend this secure platform to give customers access to their keys, in a quantum safe manner anywhere in the globe. The SKA-PlatformTM uses different quantum keys at every layer of infrastructure and with each piece of data. The system ensures that data centres only communicate across quantum safe channels. Within these channels, a form of technology divides data into separate pieces for storage across different data centres, and orders and records encrypted addresses at which the different pieces are stored. Transactions are signed with quantum keys and layered into this technology. Quantum keys are moved inside the SKA-PlatformTM using a novel symmetric key algorithm called “ARQ20”, which Arqit has patent pending for use exclusively within the SKA-PlatformTM. Finally, data is sent out to the secure end points inside the quantum encrypted channel achieved by the use of keys created using the DSCC process.

As a result, Arqit can store and transact data securely in the cloud and to include any form of end point device within this security boundary. There are many applications of this, and Arqit expects to be able to make fundamental contributions to innovation in many industries. For example, blockchain software can be made quantum safe by the use of Arqit’s new signing technology and digital wallets at the end point and their transactions can be secured. The connected car market cannot safely operate in the long term unless the encryption of its communications channels are secure.

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The expanded attack surface of 5G mobile networks and IoT deployments demand urgent improvement, and no data stored in and transferred from the cloud can be relied upon for the long term without quantum safe security.

The ability to create new symmetric keys at the end points as moderated by the SKA-PlatformTM is an extremely important innovation, and is a step forward for organizations who already use a legacy method of infrequently refreshing symmetric encryption keys. Many organizations in defense, financial services and critical national infrastructure have never trusted PKI and so used symmetric encryption keys by physically transporting them. However, even symmetrical encryption keys that are physically transported must be refreshed to provide secrecy. The more times a key is used, the more likely an attacker might learn about it over time, and the more opportunities there may be for it to be stolen. Therefore, the SKA-PlatformTM provides some very significant advantages to such organizations.

Competitive Strengths

Arqit’s unique cybersecurity technology provides it with a number of competitive strengths.

Symmetric keys are secure

Arqit’s platform creates symmetric encryption keys, which is a cyber-security technology that is secure against all forms of attack including by quantum computers. PKI is currently the most widely-used encryption technology, but it is failing to prevent escalating cyber-attacks like ransomware and is entirely vulnerable to attack by quantum computers, which are expected to become available within the next few years. A symmetric encryption key, once created, is computationally secure.

This means that it is regarded as impossible, even for a quantum computer, to guess a symmetric encryption key in less than millions of years. Arqit’s technology is built around this secure encryption tool.

Groundbreaking and proprietary distribution technology

The importance of Arqit’s platform lies in its ability to “distribute” symmetric keys securely at scale by creating them at end points. Although symmetric encryption keys are secure, to date there has been no secure way to create and distribute symmetric keys electronically. Arqit’s groundbreaking technology has solved these known issues. Its innovations create symmetric encryption keys at end points when they are needed, at scale, securely, at any kind of end point device and in groups of any size. With Arqit’s technology, symmetric encryption keys are never “delivered”, they are created at endpoints, and so they cannot be intercepted. This is a completely new way to create and distribute unbreakable symmetric keys that represents a groundbreaking, novel technology. The keys are created with what is known as a “zero trust model” which means that no third party computer ever has the key, or sufficient information to recreate or guess the key. The key is never transmitted in creation across any network. It is therefore not possible for any third party to know or guess the key during creation.

Simple to implement

Symmetric encryption keys are built into almost every major software system, so their use, along with a symmetric algorithm such as AES256, is very simple to deploy with no major change to existing customer infrastructure. Symmetric encryption keys impose relatively low computational burdens on end point devices, and Arqit’s lightweight agent is light enough to work on even the smallest of Internet of Things sensors.

Easily scalable

Arqit’s software, fulfilled from the cloud, automatically creates keys in infinite volumes at minimal cost, resulting in low capital expenditure once deployed. From an operating cost perspective, there is no human analysis or information processing required by Arqit’s product, so personnel costs are limited to maintaining core infrastructure, marketing and customer support. These factors make Arqit’s products easily scalable for both Arqit and its customers.

Arqit’s Products

SKA PlatformTM

Arqit’s core product is its Symmetric Key Agreement Platform (SKA PlatformTM), which is a platform as a service that, in conjunction with its software agent, creates keys in the cloud and at end points. These keys can be used variously to encrypt channels, encrypt data at rest and sign transactions.

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These products are delivered in the cloud, requiring no extra infrastructure or hardware on the part of the customer, and with the use of simple lightweight agents at end points like servers, firewalls, mobile phones, cars or Internet of Things sensors.

As a platform as a service SKA PlatformTM is broadly applicable across all geographies and sectors, delivering the same key creation functionality to all applications and use cases. This provides Arqit with the flexibility to identify and develop Software as a Service products in areas such as identity, distributed ledger and financial payments which would have sufficient benefit and differentiation from the stronger, simpler encryption that Arqit provides to potentially give it a route to leadership in certain vertical markets, rather than selling to all legacy market participants.

Service Variants

Standardized Products

Arqit is developing a set of standardized products which address specific customer use cases. By standardizing a product Arqit can quickly meet an end market need with little or no customization for individual customers to begin utilizing its technology. Currently Arqit has one standardized product that it is actively marketing - NetworkSecureTM.  NetworkSecureTM is a standardized interface for network devices, like firewalls, to agree quantum-safe symmetric keys and upgrade the security of VPN connections over Internet Security Protocol (“IPsec”) – a secure network protocol suite that authenticates and encrypts packets of data to provide secure encrypted communication between two computers over a network. Arqit has integrated NetworkSecureTM into the firewall products of Juniper and Fortinet and is available for purchase through their respective distribution channels. In April of 2024, it was announced that Arqit has collaborated with Intel and demonstrated world’s First Quantum-Safe, 1.89 Tb IPsec products running on Intel Xeon Scalable processors. Arqit is in discussions with additional firewall and network device manufacturers regarding integrating NetworkSecureTM. Integrating into firewall and network devices makes the purchasing decision for the end customer simpler as upgrading to Arqit’s symmetric key cryptography becomes an up-sell rather than a discrete purchasing decision and implementation.

During the fiscal year Arqit discontinued its TradeSecureTM and WalletSecureTM standardized products in order to focus resource on our core SKA product.  Arqit expects to introduce additional standardized product in the future which have at their core Arqit’s SKA PlatformTM symmetric key technology.

Go-to-Market Strategy

Arqit is focused on the following key end markets:

Arqit has entered into contracts for SKA-Platform™ service in several geographies and sectors, including DETASAD in the Kingdom of Saudi Arabia, AUCloud in Australia and BT and Nine23 in the UK.  

Arqit’s initial go-to-market had been focused on developing an enterprise license sales model directly to customers. The May 2022 publication of the independent review and assurance of the security proofs for the design aspects of the key-establishment protocols used to enable symmetric key agreement over classical IP network infrastructures within the SKA-Platform™ by the University of Surrey, a GCHQ UK National Cyber Security Centre Accredited Centre of Excellence for Cyber Security, increased interest in Arqit’s symmetric key agreement software by leading technology companies.

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During 2022, Arqit shifted its focus to the establishment of channel partner relationships. Arqit has established relationships with Sparkle, Juniper Networks, Fortinet, AWS, Dell, Sierra Nevada Corporation Mission Systems UK (SNC), SecureCloud+, Exclusive Networks, DETASAD, AIEE Carahsoft and SoftIron. Pursuant to these relationships, channel partners will offer the SKA-Platform™ and/or Arqit’s standardized products directly or indirectly to customers as part of their integrated product offering. Arqit primarily focuses on maximizing sales opportunities through these and other potential major technology partners. The following are Arqit’s current channel and distribution partner relationships:

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Arqit expects to continue to use a direct enterprise sales model for certain customers, including government customers for specified programs.

Other Technologies

Arqit may create other novel technologies which can be developed using its specific expertise in quantum physics, engineering and software. Where early customers can be identified to share risks in the development of such technologies, Arqit is likely to partner with such customers to develop technologies.

Competition

Arqit’s competitors are suppliers of QKD, quantum encryption and legacy encryption services. There have been a significant number of entrants into these markets in the last five years, mostly in the areas of QKD and post-quantum cryptography. While potential competitors, Arqit believes there may be opportunities for collaboration with entities which are pursuing competing solutions.

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Satellite Infrastructure

Arqit’s technology stack previously contemplated the use of satellite technology for the distribution of replicated entropy. Through innovation Arqit was able to replace satellite distribution with terrestrial distribution, which also had the benefit of eliminating future capital and operating expenditures associated with use of satellites as part of its core product offering. Arqit announced in December 2022 that it expected that these changes to its technology strategy may result in a portion of capitalized satellite costs recouped as a result of a sale of the satellite currently under construction, joint venture development and operation of the satellite, and/or the licensing of its ARQ19 intellectual property. In May 2023 Arqit retained an adviser to assist in the process of pursing the sale of its satellite division amongst other potential transactions. Arqit discontinued its pursuit of such potential transactions in mid-2024 and novated its satellite construction contracts with the European Space Agency and QinetiQ Space NV to Com Dev Europe Limited (t/a Honeywell) in September 2024.

Intellectual Property

The ability to protect its material intellectual property is paramount to Arqit’s business. Arqit relies upon a combination of protections afforded to owners of patents, designs, copyrights, trade secrets, and trademarks, along with employee and third-party non-disclosure agreements and other contractual restrictions to establish and protect its intellectual property rights. In particular, unpatented trade secrets in the fields of research, development and engineering are an important aspect of Arqit’s business by ensuring that its technology and strategic business assets remain confidential. Arqit pursues patent protection when it believes it has developed a patentable invention and the benefits of obtaining a patent outweigh the risks of making the invention public through patent filings.

As of the date of this Annual Report, Arqit has approximately 25 granted patents and 20 pending patents in the UK. Arqit pursues global registration of its domain names and products and services trademarks and as of the date of this Annual Report, Arqit had 28 registered trademarks.

Based on the filing dates of Arqit’s existing patent applications, and assuming the patents are granted and renewed throughout their lifetimes, Arqit currently expects each patent right to provide protection for up to 20 years from the relevant filing dates which, as of the date of this Annual Report, range from June 4, 2018 to June 28, 2024.

Arqit regularly reviews its development efforts to assess the existence and patentability of new inventions and is prepared to file additional patent applications when it determines it would benefit its business to do so.

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Group Structure

Arqit Limited, a company limited by shares incorporated in England, is a wholly-owned subsidiary of the Company and is the Company’s primary operating subsidiary. Arqit Limited has four wholly-owned subsidiaries: Arqit Inc., a Delaware corporation, Arqit LLC, a Delaware limited liability company, Arqit Italia S.R.L., an entity organized in Italy and Arqit Quantum (Singapore) Pte. Ltd, a limited liability Singapore company. None of Arqit Limited’s subsidiaries currently has any material operations. Arqit Italia S.R.L. and Arqit Quantum (Singapore) Pte. Ltd are in the process of being liquidated.

Government Regulation

International Traffic in Arms Regulations and Export Controls

Arqit is subject to U.S. and U.K. import and export control laws, including the International Traffic in Arms Regulations (“ITAR”) and Export Administration Regulations (“EAR”) of the Bureau of Industry and Security of the U.S. Department of Commerce and the U.K. Export Control Act 2002 (as amended and extended by the Export Control Order 2008) and their respective implementing rules and regulations. The ITAR generally restricts the export of hardware, software, technical data, and services that have defense or strategic applications. The EAR similarly regulates the export of hardware, software, and technology that has commercial or “dual-use” applications (i.e., for both military and commercial applications) or that have less sensitive military or space-related applications that are not subject to the ITAR. The regulations exist to advance the national security and foreign policy interests of the U.S.

The U.S. government agencies responsible for administering the ITAR and the EAR have significant discretion in the interpretation and enforcement of these regulations. The agencies also have significant discretion in approving, denying, or conditioning authorizations to engage in controlled activities. Such decisions are influenced by the U.S. government’s commitments to multilateral export control regimes, particularly the Missile Technology Control Regime concerning the spaceflight business.

Many different types of internal controls and measures are required to ensure compliance with such export control rules. The inability to secure and maintain other necessary export authorizations could negatively impact Arqit’s ability to compete successfully. Failure to comply with export control laws and regulations could expose Arqit to civil or criminal penalties, fines, investigations, more onerous compliance requirements, loss of export privileges, debarment from government contracts, or limitations on its ability to enter into contracts with the U.S. or U.K. government. In addition, any changes in export control regulations or U.S. or U.K. government licensing policy, such as that necessary to implement U.S. and U.K. government commitments to multilateral control regimes, may restrict its operations. See “Risk Factors — Risks Relating to Arqit’s Business and Operations — Failure to comply with governmental trade controls, including export and import control laws and regulations, sanctions, and related regimes could subject Arqit to liability or loss of contracting privileges, limit its ability to compete in certain markets or harm its reputation with the governments.”

Anti-Bribery, Anti-Corruption and Sanctions Laws and Regulations

Arqit’s operations are subject to anti-bribery and anti-corruption laws and regulations, including the Foreign Corrupt Practices Act and the UK Bribery Act, and economic and trade sanctions, including those administered by the Office of Foreign Assets Control of the U.S. Treasury, the U.S. Department of State and the European Union. These statutes generally prohibit providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. Arqit may deal with both governments and state-owned business enterprises, the employees of which are considered foreign officials for purposes of these laws.

Data Protection Laws and Regulations

Arqit’s operations and sales are subject to laws and regulations addressing privacy and the collection, use, storage, disclosure, transfer and protection of a variety of types of data, including the UK Data Protection Act 2018, the UK General Data Protection Regulation, European Directive 2002/58/EC (the ePrivacy Directive) and implementing national legislation and any data laws and regulations enacted in the United Kingdom post-Brexit. These regimes may, among other things, impose data security requirements, disclosure requirements, and restrictions on data collection, uses, and sharing that may impact Arqit’s operations and the development of its business. Arqit’s products collect, store and process certain information and its products may evolve to collect additional information. Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and Arqit may be required to put in place additional mechanisms to ensure compliance with new data protection rules. For further information, see “Item 3.D. Risk Factors — Risks Relating to Arqit’s Business — Failures, or perceived failures, to comply with privacy, data protection, and information security requirements in the jurisdictions in which Arqit operates may adversely impact its business, and such legal requirements are evolving and may require improvements in, or changes to, its policies and operations.”

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Other Regulations

In addition, Arqit is subject to laws and regulations relating to antitrust, competition, intellectual property and other matters. Arqit has implemented internal controls designed to minimize and detect potential violations of laws and regulations in a timely manner, but can provide no assurance that such policies and procedures will be followed at all times or will effectively detect and prevent violations of the applicable laws by one or more of its employees, consultants, agents, or partners.

4.C. ORGANIZATIONAL STRUCTURE

Organizational Structure

The legal name of the company is Arqit Quantum Inc. which is an exempted limited liability company incorporated under the laws of the Cayman Islands.

Significant Subsidiaries

The subsidiaries of the Company are listed below.

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Arqit Italia S.R.L. and Arqit Quantum (Singapore) Pte. Ltd are in the process of being liquidated. None of the subsidiaries of the Company other than Arqit Limited has any material operations.

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4.D. PROPERTY, PLANTS AND EQUIPMENT

Arqit operates from serviced offices for its headquarters at 3 Orchard Place, London SW1H 0BF, United Kingdom.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5. OPERATING RESULTS

This operating and financial review should be read together with the section captioned “Item 4, Information on the Company-4.B. Business Overview” and the audited consolidated financial statements of the Company and the related notes to those statements included elsewhere in this Annual Report. Among other things, the audited consolidated financial statements include more detailed information regarding the basis of preparation for the following information. The audited consolidated financial statements of the Company have been prepared in accordance with IFRS. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Form 20-F, our actual results may differ materially from those anticipated in these forward-looking statements. Please see “Cautionary Note About Forward-Looking Statements” in this Annual Report.

Overview

Arqit is a cybersecurity company that has pioneered a unique symmetric key agreement technology which makes the communications links of any networked device or data at rest secure against current and future forms of cyber-attack — even an attack from a quantum computer. Arqit delivers its symmetric key agreement technology via its SKA-Platform TM.

The SKA-Platform™ is a software platform as a service that creates unbreakable software encryption keys that are low cost and easy to use within existing information technology standards with no new hardware and no major software upgrades or “rip and replace” required.

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The software has potentially universal application to every edge device and cloud machine in the world. The security proofs for the design aspects of the key-establishment protocols used to enable symmetric key agreement over classical IP network infrastructures within SKA-Platform™ were independently assured in 2022 by the University of Surrey, which is accredited as a Centre of Excellence for Cyber Security by the UK Government’s National Cyber Security Centre. Arqit believes that its symmetric key agreement platform is compliant with the NSA Commercial Solutions for Classified Symmetric Key Management Requirements Annex 1.2 which dictates how Government agencies can incorporate quantum-safe symmetric key protections into solutions which use off-the-shelf commercial products to protect classified networks.

Arqit’s technology combines world-leading innovation in two areas: the secure distribution of replicated entropy to data centres and a software agent that can be downloaded onto any device and makes the use of symmetric key encryption a scalable business model.

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Arqit began commercializing its products in the fiscal year ended September 30, 2021. Arqit has already signed contracts for its services with large companies and government institutions. Arqit sold its product to select early customers on a master distribution agreement basis, an enterprise license basis and as a platform as a service, including BT plc, AUCloud and Nine23. Arqit announced in December 2022 that it will focus on selling its products on a Platform as a Service basis, primarily through channel partners and distributors, which is expected to generate annual recurring revenue. Arqit platform as a service will be sold as standardized products to specific target markets or a Private Instance to customers to require control of the end-to-end technology Arqit has established relationships with Sparkle, Juniper Networks, Fortinet, AWS, Dell, Sierra Nevada Corporation Mission Systems UK (SNC), SecureCloud+, Exclusive Networks, DETASAD, AIEE Carahsoft and SoftIron. Pursuant to these relationships, channel partners will offer the SKA-Platform™ and/or Arqit’s standardized products directly or indirectly to customers as part of their integrated product offering.  Going forward Arqit intends to primarily focus on maximizing sales opportunities through these and other potential major technology partners. Arqit is currently engaged in discussions with additional customers, channel partners and distributors.

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The Business Combination

Arqit Limited was incorporated in England in 2017.  In September 2021, the Company completed the Business Combination pursuant to which the Company merged with and into Centricus Acquisition Corp., with the Company surviving the merger, and the security holders of Centricus Acquisition Corp. (other than those who elected to redeem their ordinary shares) became security holders of the Company, and the Company acquired all of the issued and outstanding share capital of Arqit Limited from the shareholders of Arqit Limited in exchange for ordinary shares of the Company, such that Arqit Limited is a direct wholly owned subsidiary of the Company.  

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The acquisition of Arqit Limited’s shares by the Company has been accounted for as a “reverse acquisition” in accordance with IFRS. Under this method of accounting, the Company will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the fact that Arqit Limited’s shareholders hold a majority of the voting power of the combined company, Arqit Limited’s operations substantially comprise the ongoing operations of the combined company, Arqit Limited’s designees comprise a majority of the governing body of the combined company, and Arqit Limited’s senior management comprises the senior management of the combined company. Accordingly, for accounting purposes, the acquisition of Arqit Limited’s shares by the Company has been treated as the equivalent of Arqit Limited issuing shares for the net assets of the Company, accompanied by a recapitalization. It has been determined that the Company is not a business under IFRS, hence the transaction is accounted for within the scope of IFRS 2 (Share-based Payments). In accordance with IFRS 2, the difference in the fair value of the Arqit Limited equity instruments deemed issued to the Company’s shareholders over the fair value of identifiable net assets of the Company represents a service for listing, and is accounted for as a share-based payment which is expensed as incurred. The net assets will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the acquisition of the Arqit Limited shares by the Company have been deemed to be those of Arqit Limited. Upon closing of the Business Combination, the Company became the successor SEC registrant, and Arqit Limited’s financial statements for previous periods have been included as part of the Company’s audited consolidated financial statements included in this Annual Report, and to be disclosed in its future periodic reports filed with the SEC. The Company is a foreign private issuer as defined under Rule 405 under the Securities Act and prepares its financial statements denominated in U.S. dollars and in accordance with IFRS.

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Key Factors Affecting Operating Results

Arqit has not yet begun to generate material revenues through the commercialization of its products and believes that its performance and future success depend on several factors that present significant opportunities for it but also pose risks and challenges, including those discussed below and in the section of this Annual Report entitled “Item 3.D, Risk Factors — Risks Related to Arqit’s Business and Operations”.

Accounting for Business Combination

The acquisition of Arqit Limited’s shares by Arqit in connection with the Business Combination was accounted for as a “reverse acquisition” in accordance with IFRS. Under this method of accounting, Arqit was treated as the “acquired” company for financial reporting purposes.

This determination was primarily based on the fact that Arqit Limited’s shareholders hold a majority of the voting power of the combined company, Arqit Limited’s operations substantially comprise the ongoing operations of the combined company, Arqit Limited’s designees are comprised a majority of the governing body of the combined company, and Arqit Limited’s senior management is the senior management of the combined company.

Accordingly, for accounting purposes, the acquisition of Arqit Limited’s shares by Arqit is treated as the equivalent of Arqit Limited issuing shares for the net assets of Arqit, accompanied by a recapitalization. It has been determined that Arqit is not a business under IFRS, hence the transaction is accounted for within the scope of IFRS 2 (Share-based Payments).

In accordance with IFRS 2, the difference in the fair value of the Arqit Limited equity instruments deemed issued to Arqit shareholders over the fair value of identifiable net assets of Arqit represents a service for listing, and is accounted for as a share-based payment which is expensed as incurred, and is reflected on Arqit’s consolidated statement of comprehensive income as “reverse acquisition expense.” Operations prior to the acquisition of the Arqit Limited shares by Arqit will be deemed to be those of Arqit Limited.

Valuation of Warrants

Pursuant to the guidance in IFRS 9 (Financial Instruments), Arqit has determined that its Business Combination Warrants should be classified as derivative liabilities measured at fair value on its statement of financial position, with any changes in fair value to be reported each period in earnings on its statement of comprehensive income.  As a result of the recurring fair value measurement, Arqit’s financial statements may fluctuate quarterly, based on factors which are outside of its control. Due to the recurring fair value measurement, Arqit expects that it will recognize non-cash gains or losses on its Business Combination Warrants each reporting period and that the amount of such gains or losses could be material.

Technologically Advanced Product Portfolio

Arqit has invented a unique symmetric key agreement technology which makes the communications links of any networked device secure against current and future forms of cyber-attack — even an attack from a quantum computer. Arqit’s product, called SKA-Platform ™, creates unbreakable software encryption keys that are low cost and easy to use. Arqit’s software is fulfilled from the cloud requiring no extra infrastructure or hardware on the part of the customer. Its products have broad application across industries, including 5G networks, connected autonomous vehicles, national security and financial services network security. Arqit’s future success will be dependent on its ability to continue to execute against its product roadmap.

Commencement of Commercialization and Partnerships

Arqit is early in the process to generate material revenues through the commercialization of its products, and in December 2022 began transitioning its distribution model from an enterprise license model to distribution through channel partners. Although enterprise licenses attract higher upfront revenues, operational licenses sold through channel partners are expected to result in growing annual recurring revenue as consumption of Arqit’s symmetric key agreement software increases. Arqit ultimately achieving profitability is dependent upon the successful development, commercial introduction and acceptance of its products, the continued interest of potential customers in its products and the successful negotiation of contracts with those customers. Should Arqit’s assumptions about the commercialization of its encryption technology prove overly optimistic or if Arqit is unable to develop, obtain or progress its partnerships, Arqit may fail to generate operating cash flow and may incur delays in its ability to achieve profitability. This may also lead Arqit to make changes to its commercialization plans, which could result in cost overruns or unanticipated delays, which could in turn adversely impact margins and cash flows.

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Market Trends

Arqit believes there will be a transformation in the cyber encryption industry over the next decade as PKI, the most widely-used encryption technology, is becoming less secure as new technologies develop, and is not secure against quantum computers, which are expected to become available within the next few years. Arqit anticipates that there will be robust demand for its products as consumers, businesses and governments across all geographies and industries will need to replace the existing cyber encryption technology used in almost all electronic interfaces in order to maintain cyber security and that, as a result, there is significant market opportunity for Arqit’s more secure cyber encryption products. Gartner estimates that the global addressable market for information security services will be $294 billion by the end of 2028.

There will continue to be demand for more secure encryption products and Arqit is not currently aware of any competitors that offer or are developing encryption technology that addresses the threat of quantum computers. Arqit’s competitors are suppliers of QKD, quantum encryption and legacy encryption, each of which has inherent limitations. Therefore, Arqit believes that it is well positioned to take advantage of this market opportunity. Arqit’s future growth and financial performance is highly dependent on the continued demand for its products and on its ability to successfully compete with any current or new competitors.

Margin Improvements

Arqit believes that it has the opportunity to establish high margin unit economics when operating at scale as its software, fulfilled from the cloud, automatically creates keys in infinite volumes at minimal cost, resulting in low capital expenditure once deployed. Its business model is positioned for scalability due to the low costs of software distribution, ability to leverage the same product platform across its partner base and limited personnel costs. From an operating cost perspective, there is no human analysis or information processing required by Arqit’s product, so personnel costs are limited to maintaining core infrastructure, marketing and customer support. Arqit’s future performance will depend on its ability to deliver on these economies of scale with lower product costs to enable widespread adoption. Achievement of cash flow generation is dependent on order volume, which will dictate pricing and margin. Achieving this scale is further dependent on successful adoption of Arqit’s products and expansion of its contracts with existing customers. While Arqit believes its unique technology provides a compelling value proposition for favorable margins and expects to achieve and maintain high margins on its products, emergence of competition in the cyber encryption industry may negatively impact its pricing, margins and market share.

Satellite Infrastructure

In December 2022 Arqit updated its technology strategy to eliminate quantum satellites and the associated ground infrastructure from its core product offering.  See “Item 4.B. Business Overview - Satellite Infrastructure.”

In connection with this update, Arqit was planning to sell or otherwise monetize its quantum satellite currently under construction.  During the fiscal year ended September 30, 2023, Arqit reclassified its satellite assets from “intangible assets” to “assets classified as held for sale”, in connection with which it recognised an impairment loss of $17.6 million. During the fiscal year ended September 30, 2024, Arqit determined that its satellite assets were no longer considered to be “held for sale” given it was unsuccessful in its efforts to identify a buyer for the satellite division and/or related IP. As a result, the satellite assets were fully impaired, and an impairment loss was recognized as part of “(loss)/profit from discontinued operations, net of tax” for the fiscal year ended September 30, 2024. Arqit remains open to discussions regarding disposal of the satellite assets in order to potentially recover some proceeds in a future period.  Income and expenses from Arqit’s satellite construction contracts with the European Space Agency and QinetiQ Space NV during the years ended September 30, 2022, 2023 and 2024 were recognised by Arqit as part of “(loss)/profit from discontinued operations, net of tax” in its statement of comprehensive income.  In September 2024, Arqit novated its satellite construction contracts to a third party, and therefore those contracts will not result in generation of income or expenses in future periods.

Key Components of Statement of Comprehensive Income

Basis of Presentation

Currently, Arqit conducts business through one operating segment, which is the provision of cybersecurity services. Prior to July 2021, Arqit was a pre-revenue company and as of the date of this Annual Report, it still has only limited commercial operations relating to its core product — SKA-Platform ™. Its activities to date have been conducted in the United Kingdom and the United States of America. Arqit’s historical results are reported in IFRS.

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Revenue

Arqit commenced commercialization and began generating revenue in the fiscal year ended September 30, 2021 through SKA-Platform ™ — its core product. The majority of revenue is expected to be derived from the sale of SKA-Platform ™ and other related services through channel partners.

Other income

Other income relates to income from the sale of property, plant and equipment and IFRS 16 gain as a result of Arqit’s termination of its UK office lease.

Administrative Expenses

Administrative expenses primarily consist of the costs associated with employment of Arqit’s non-satellite construction staff, legal, insurance, accounting and consulting expenses, travel and marketing expenses such as public relations activities, rent and general office expenses.

Administrative expenses also include depreciation charges. Depreciation charges mainly relate to the depreciation of computer equipment calculated under the straight-line depreciation method over the equipment’s estimated useful life. The rate used is between three and five years. Computer equipment is written off over three years.

Arqit operates an equity-settled share-based incentive scheme and its share-based charges are included as part of administrative expenses.  In addition, changes in the valuation of accounts denominated in currencies other than British pounds sterling are reflected in administrative expenses.

Arqit expects its administrative expenses to increase as its overall activity levels increase due to the commencement and expansion of commercial operations, and costs associated with being a public company.

Impairment Loss on Intangible Assets

Intangible assets with a definite useful life within continuing operations are tested for impairment when an indication for impairment is identified, and any impairment is recognised as “impairment loss on intangible assets”.   During the year ended September 30, 2024, Arqit impaired development costs related to its digital bills of exchange intangibles in connection with the discontinuation of the TradeSecure product resulting in impairment losses of $2.032 million for the year ended September 30, 2024. Arqit discontinued the satellite division during the year and as a result reclassified $17.6 million of impairment loss related to its satellite assets for the year ended September 30, 2023 from “impairment loss on intangible assets” to “(loss)/profit from discontinued operations, net of tax” during the year ended September 30, 2024.  The company has no intangible assets with an indefinite useful life.

Impairment Loss on Trade Receivables and Contract Assets

Impairment loss on trade receivables and contract assets relates to trade debtors assessed as unrecoverable and written off as bad debt. Arqit discontinued the satellite division during the year and as a result reclassified $12.3 million of impairment loss related to a provision for amounts owed to Arqit by Virgin Orbit Inc, which filed for bankruptcy in the U.S., for the year ended September 30, 2023, from “impairment loss on trade receivables and contract assets” to “(loss)/profit from discontinued operations, net of tax” during the year ended September 30, 2024

Change in Fair Value of Warrants

Arqit’s Business Combination Warrants are classified as financial liabilities at fair value, and the change in the fair value of the warrants is reflected in Arqit’s consolidated statement of comprehensive income. A valuation of the warrants was performed as of each period end, and the difference between the two valuations is non-cash profit or loss that is reflected in Arqit’s consolidated statement of comprehensive income.

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Finance Costs

Finance costs relate to interest costs on agreements subject to accounting recognition and measurement in accordance with IFRS 16 (Leases).

Finance costs for the year ended September 30, 2021 also related to the accounting recognition and measurement of Arqit’s £3,500,000 convertible loan notes issued June 21, 2019 and November 6, 2019 (the “Series B convertible loan notes”) in line with the requirements of IFRS, which were converted to equity in connection with the completion of the Business Combination and are no longer outstanding.

The Series B convertible loan notes had a 0% interest rate and were redeemable at the principal amount plus an amount equal to 20% of such principal amount at any time on or after the maturity date. As the Series B convertible loan notes were redeemable at the request of the holder and convertible into a variable number of equity instruments, they were treated as a financial liability in accordance with IFRS International Accounting Standards (“IAS”) 32. At initial recognition on day one, the Series B convertible loan notes were measured at fair value, calculated by applying the prevailing market interest rate at the time of issue, for similar non-convertible debt. As the discount unwound over the period from subscription date to maturity date, it was reflected as finance costs in Arqit’s statement of comprehensive income.

Finance Income

Finance income is related to bank interest income from Arqit’s deposits of cash and cash equivalents.

(Loss)/Profit from Discontinued Operations, Net of Tax

(Loss)/profit from discontinued operations, net of tax is the profit and loss from impaired and discontinued assets.

During the fiscal year ended September 30, 2023, Arqit reclassified its satellite assets from “intangible assets” to “assets classified as held for sale”, and in connection with this reclassification, Arqit recognized an impairment loss on its satellite assets. During the fiscal year ended September 30, 2024, Arqit determined that its satellite assets were no longer considered as “held for sale” given it was unsuccessful in its efforts to identify a buyer for the satellite division and/or related IP. As a result, the satellite assets have been fully impaired, an impairment loss was recognized as part of “loss from discontinued operations, net of tax” for the fiscal year ended September 30, 2024 and impairment loss related to the satellite assets that was recognized as “impairment loss on intangible assets” for the fiscal year ended September 30, 2023 was reclassified as “loss from discontinued operations, net of tax.

In periods prior to the fiscal year ended September 30, 2023, Arqit reported income from its agreement with the European Space Agency (“ESA”) for the partial funding of the construction of its satellites as “other operating income” as a component of “operating profit/(loss)”.  During the fiscal year ended September 30, 2023, however, Arqit reclassified its satellite assets from “intangible assets” to “assets classified as held for sale”, and therefore income from the ESA agreement for the fiscal year ended September 30, 2023 and prior periods was reclassified by Arqit as a component of “(loss)/profit on discontinued operations, net of tax” in its statement of comprehensive income.  

During the year ended September 30, 2023, Arqit incurred impairment loss on trade receivables and contract assets as a result of impairment recognized in connection with a provision for amounts owed to Arqit by Virgin Orbit Inc, which has filed for bankruptcy in the U.S. These amounts have been reclassified from “impairment loss on trade receivables and contract assets” to “(loss)/profit from discontinued operations, net of tax” following the discontinuation of the satellite division during the year ended September 30, 2024. The resolution of accounts associated with the bankruptcy remain on-going. Recovery of amounts claimed or owed, if any, is not likely to occur until calendar year 2025.

Impairment loss on trade receivables and contract assets and intangible assets in fiscal year ended September 30, 2023 related to the satellite division have been reclassified from continuing operations to “loss from discontinued operations, net of tax”.

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Results of Operations

Comparison of the Years Ended September 30, 2024 and 2023

The following table presents Arqit’s historic operating results:

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Revenue

Revenue decreased by $0.347 million from $0.640 million for the year ended September 30, 2023 to $0.293 million for the year ended September 30, 2024. The decrease was due to no significant perpetual enterprise licenses sold in the year ended September 30, 2024, compared with the sale of two perpetual enterprise licenses with high upfront revenue sold in the year ended September 30, 2023, which represented a significant portion of revenue during that period

Other income

Other income increased by $0.339 million for the year ended September 30, 2024 from $0.053 million for the year ended September 30, 2023. Other income relates to the sale of property, plant and equipment and IFRS 16 gain as a result of Arqit’s termination of its UK office lease.

Administrative Expenses

The following table summarizes Arqit’s administrative expenses for the periods presented:

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Total administrative expenses have decreased by $32.024 million from $55.201 million for the year ended September 30, 2023 to $23.177 million for the year ended September 30, 2024. The decrease was primarily the result of lower staff expenses and reductions in operating expenses as part of Arqit’s previously announced cost reduction measures and lower professional fees. Administrative expense for the fiscal year ended September 30, 2024 also included a $1.636 million non-cash credit for share based compensation compared with a $14.118 million charge for the fiscal year ended months ended September 30, 2024.

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Impairment loss on intangible assets

Impairment loss on intangible assets of $2.032 million for the year ended September 30, 2024 related to the impairment of development costs for Arqit’s digital bills of exchange intangibles, which was discontinued during the year in connection with the discontinuation of the TradeSecure product.  No impairment loss on intangible assets was recognized for the year ended September 30, 2023 with respect to continuing operations.

Impairment Loss on Trade Receivables and Contract Assets

Arqit incurred impairment loss on trade receivables and contract assets of $0.166 million for the year ended September 30, 2024 as a result of impairment recognised in connection with an unrecoverable customer balance.  No impairment loss on trade receivables and contract assets was recognized for the year ended September 30, 2023 with respect to continuing operations.

Change in Fair Value of Warrants

The change in fair value of Business Combination Warrants represents the difference in valuation of Arqit’s warrants as of September 30, 2024, compared with the valuation as of September 30, 2023, which was non-cash profit of $0.006 million for the year ended September 30, 2023, compared with a non-cash profit of $10.638 million for the year ended September 30, 2023.

Finance Costs

Finance costs decreased by $0.061 million from $0.284 million for the year ended September 30, 2023 to $0.223 million for the year ended September 30, 2024. The decrease was due to a termination of the lease for the U.K. office in the year resulting in lower finance costs.

Finance Income

Finance income increased to $0.930 million for the year ended September 30, 2024 from $0.041 million for the year ended September 30, 2023. Finance income for the year ended September 30, 2023 related to bank interest income from Arqit’s deposits of cash and cash equivalents.

(Loss)/Profit from Discontinued Operations, Net of Tax

Loss from discontinued operations increased by $7.607 million from $26.421 million for the year ended September 30, 2023 to $30.604 million for the year ended September 30, 2024. During the fiscal year ended September 30, 2024, Arqit determined that its satellite assets were no longer considered as “held for sale”. As a result, the satellite assets have been fully impaired, and an impairment loss was recognized as part of “loss from discontinued operations, net of tax” for the fiscal year ended September 30, 2024.
Impairment loss on trade receivables and contract assets and intangible assets in fiscal year ended September 30, 2023 related to the satellite division have been reclassified from continuing operations to “loss from discontinued operations, net of tax”.

Comparison of the Years Ended September 30, 2023 and 2022

The following table presents Arqit’s historic operating results:

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Revenue

Revenue decreased by $6.572 million from $7.212 million for the year ended September 30, 2022 to $0.640 million for the year ended September 30, 2023. The decrease was due to the time required to establish revenue generation through channel partnerships following Arqit’s change in sales model from primarily enterprise sales to sales through channel partners during the year ended September 30, 2023

Other income

Other income increased by $0.53 million for the year ended September 30, 2023 from $nil for the year ended September 30, 2022. Other income related to the sale of property, plant and equipment.

Administrative Expenses

The following table summarizes Arqit’s administrative expenses for the periods presented:

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Total administrative expenses have decreased by $15.776 million from $70.977 million for the year ended September 30, 2022 to $55.201 million for the year ended September 30, 2023. The decrease was primarily the result of decreases in foreign exchange due to the difference in year end rates as at September 30, 2023 and September 30, 2022, and decreases in share based compensation as a result of the switch to the RSU scheme in the year ended September 30, 2022. These decreases were partially offset in part by increases in professional fees and staff costs.

Change in Fair Value of Warrants

The change in fair value of Business Combination Warrants represents the difference in valuation of Arqit’s warrants as of September 30, 2023, compared with the valuation as of September 30, 2022, which was non-cash profit of $10.638 million for the year ended September 30, 2023, compared with a non-cash profit of $117.394 million for the year ended September 30, 2022.

Finance Costs

Finance costs increased by $0.063 million from $0.221 million for the year ended September 30, 2022 to $0.284 million for the year ended September 30, 2023. The increase was due to a new lease being signed for the U.S. office in the year resulting in higher finance costs.

Finance Income

Finance income increased to $0.041 million for the year ended September 30, 2023 from $nil for the year ended September 30, 2022. Finance income for the year ended September 30, 2023 related to bank interest income from Arqit’s deposits of cash and cash equivalents.

(Loss)/Profit from Discontinued Operations, Net of Tax

(Loss)/profit from discontinued operations, net of tax decreased by $38.088 million from $11.667 million profit for the year ended September 30, 2022 to $26.421 million loss for the year ended September 30, 2023. During the year ended September 30, 2023, Arqit reached fewer revenue recognition milestones under the ESA contract, compared with the number of milestones during the year ended September 30, 2022.

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Arqit incurred impairment loss on trade receivables and contract assets of $12.335 million for the year ended September 30, 2023 as a result of impairment recognised in connection with a provision for amounts owed to Arqit by Virgin Orbit Inc., which filed for bankruptcy in the U.S. No impairment loss on trade receivables and contract assets was recognized for the year ended September 30, 2022.

Arqit also incurred impairment losses on intangible assets of $17.601 million for the year ended September 30, 2023 as a result of impairment recognised in connection with the reclassification of its satellite assets from “intangible assets” to “assets classified as held for sale”.  No impairment losses on intangible assets were recognized for the year ended September 30, 2022.

Quantitative and Qualitative Disclosures about Market Risk

Arqit is exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact Arqit’s financial position due to adverse changes in financial market prices and rates. It is, and has been throughout the period under review, Arqit’s policy not to use or trade in derivative financial instruments. Arqit’s financial instruments comprise its cash and cash equivalents and various items such as trade creditors that arise directly from its operations. The main purpose of Arqit’s financial assets and liabilities is to provide finance for its operations in the near term.

Interest Rate Risk Management

Arqit would be exposed to interest rate risk if it borrows funds, when required, at variable interest rates. There is currently no exposure to interest rate risk.

Credit Risk

Credit risk is the risk of financial loss where counterparties are not able to meet their obligations. Arqit’s policy is that surplus cash, when not used to pay liabilities, is placed on deposit with its main relationship banks and with other banks or money market funds based on a minimum credit rating of A3/A- and maximum exposure.  There is no significant concentration of risk to any single counterparty.  Arqit considers that the credit quality of the various receivables is good in respect of the amounts outstanding and therefore credit risk is considered to be low. There is no significant concentration of risk.  The carrying amount of financial assets, represents Arqit’s maximum exposure to credit risk at the reporting date assuming that any security held has no value.

Foreign Exchange Risk

Arqit operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to British pounds sterling and Euro. Arqit holds British pounds sterling, U.S. dollar and Euro bank accounts in order to limit its exposure.  Arqit is also exposed to foreign exchange risk to the extent that its ultimate parent entity has a U.S. dollar functional currency.

Liquidity Risk

Liquidity risk is the risk that Arqit does not have sufficient financial resources available to meet its obligations as they fall due. Arqit manages liquidity risk by continuously monitoring forecast and actual cash flows, matching the expected cash flow timings of financial assets and liabilities with the use of cash and cash equivalents, borrowings, overdrafts and committed revolving credit facilities with a minimum of 12 months to maturity.  Future borrowing requirements are forecast on a monthly basis and funding headroom is maintained above forecast peak requirements to meet unforeseen events.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. Arqit qualifies as an “emerging growth company” under the JOBS Act.

Arqit is in the process of evaluating the benefits of relying on the reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” Arqit chooses to rely on such exemptions it may not be required to, among other things, (i) provide an auditor’s attestation report on its system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), (iii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act (applicable only if Arqit ceased to be a foreign private issuer), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation (applicable only if Arqit ceased to be a foreign private issuer). These exemptions will apply until September 3, 2026 (five years following the closing of the Business Combination) or until Arqit is no longer an “emerging growth company,” whichever is earlier.

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Although emerging growth companies are permitted under the JOBS Act to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies, Arqit does not intend to take advantage of the option to delay compliance.

5.B. LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

Arqit began to generate revenue from its principal business operations — the provision of cybersecurity services — in the fiscal year ended September 30, 2021. The net losses Arqit has incurred since inception are consistent with its strategy and budget. Arqit will continue to incur net losses in accordance with its operating plan as it begins commercialization of its products.

In the period under review, Arqit has funded its operations, capital expenditure and working capital requirements through public offerings of its securities including proceeds from (1) sales of ordinary shares under its ATM Program (as defined below) and (2) sales of ordinary shares in a registered direct offerings in February 2023, September 2023 and September 2024. Historically, Arqit also funded its operations from the completion of its Business Combination in September 2021, capital contributions, loans and borrowings from certain venture investors and grants from the UK government’s Future Fund, including convertible loan notes that were converted into ordinary shares in connection with the Business Combination. Arqit’s primary uses of liquidity in the period under review have been working capital requirements as it continues to increase commercialization of its products.

In December 2022, Arqit filed a registration statement on Form F-3 in order to establish an at-the-market equity offering program (the “ATM Program”) pursuant to which it may issue and sell ordinary shares with an aggregate offering price of up to $30.0 million.  Arqit has no obligation to sell any such shares under its ATM Program. Actual sales will depend on a variety of factors to be determined by the Group from time to time, including, among others, whether additional capital is required, market conditions, the trading price of Arqit’s ordinary shares, determination of the appropriate sources of funding for the Group, and potential uses of available funding. Arqit intends to use the net proceeds from the offering of such shares, if any, for general corporate purposes. In the year ended September 30, 2024, Arqit issued 48,803 shares under the ATM Program, generating proceeds to the Company before fees and expenses of approximately $0.467 million. In the previous year ended September 30, 2023, Arqit issued 312,579 shares under the ATM Program, generating proceeds to the Company before fees and expenses of approximately $11.5 million.

In February 2023, Arqit completed a registered direct offering in which it sold 400,000 ordinary shares, together with warrants to purchase 300,000 ordinary shares (the “February 2023 Investor Warrants”) at a combined purchase price of $2.00 per share and accompanying warrant, generating proceeds to the Company before fees and expenses of approximately $20.0 million. The February 2023 Investor Warrants have an exercise price of $2.00 per share, are currently exercisable and will expire on February 22, 2028. In addition, in connection with the February 2023 registered direct offering Arqit issued warrants to purchase 22,000 ordinary shares (the “February 2023 Placement Agent Warrants”) to H.C. Wainwright & Co., LLC or its designees. The February 2023 Placement Agent Warrants have an exercise price of $2.50 per share, are currently exercisable and will expire on February 22, 2028.

In September 2023, Arqit completed a registered direct offering in which it sold 830,227 ordinary shares, together with warrants to purchase 830,227 ordinary shares (the “September 2023 Investor Warrants”) at a combined purchase price of $0.78 per share and accompanying warrant, generating proceeds to the Company before fees and expenses of approximately $16.2 million. The September 2023 Investor Warrants have an exercise price of $0.78 per share, are currently exercisable and will expire on September 12, 2028. In addition, in connection with the September 2023 registered direct offering Arqit issued warrants to purchase 28,205 ordinary shares (the “September 2023 Placement Agent Warrants”) to H.C. Wainwright & Co., LLC or its designees. The September 2023 Placement Agent Warrants have an exercise price of $0.975 per share, are currently exercisable and will expire on September 8, 2028. The September 2023 registered direct offering included the sale of 317,407 ordinary shares, together with September 2023 Investor Warrants to purchase 317,407 ordinary shares at a combined offering price of $0.78 per ordinary share and accompanying warrant to existing shareholders Heritage Assets SCSP, Ropemaker Nominees Limited and Carlo Calabria. Arqit director Manfredi Lefebvre d’Ovidio has sole investment and voting power over the shares held by Heritage Assets SCSP, and Arqit director Stephen Chandler is on the investment committee of Notion Capital Managers LLP, which is the beneficial owner of the Company shares held by Ropemaker Nominees Limited, and Carlo Calabria is an Arqit director. See “Item 7.B. Related Party Transactions.”

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In September 2024, Arqit entered into a registered direct offering in which it sold 5,440,000 ordinary shares at an offering price of $2.50 per share. In a concurrent private placement, Arqit issued unregistered warrants to purchase up to 5,440,000 shares (the "September 2024 Investor Warrants") at an exercise price of $2.50 per share, exercisable only upon 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. The warrants will be exercisable for a period of one year following the Exercise Date. The Warrants will terminate on the earlier of (x) 5:00 p.m. (New York City time) on the last day of the exercise period or (y) 5:00 p.m. (New York City time) on the date falling five years after the date of issuance. The investors in the September 2024 offering were existing shareholders Heritage Assets SCSP, Ropemaker Nominees Limited, Carlo Calabria and Garth Ritchie.  Arqit director Manfredi Lefebvre d’Ovidio has shared investment and voting power over the shares held by Heritage Assets SCSP, Arqit director Stephen Chandler is on the investment committee of Notion Capital Managers LLP, which is the beneficial owner of the Arqit shares held by Ropemaker Nominees Limited, and Carlo Calabria and Garth Ritchie are both Arqit directors. See “Item 7.B. Related Party Transactions.”

Cash Flows Summary

The following table shows a summary of Arqit’s cash flows for the years ended September 30, 2024 and 2023 and 2022.

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Cash Flows Used in Operating Activities

Cash flows used in operating activities to date have primarily resulted from personnel related costs, fluctuations in trade payables and other current assets and liabilities. As Arqit expects to continue to increase hiring in connection with further expansion of its commercial operations, it expects its cash used in operating activities to increase significantly before it starts to generate material cash flows from commercialization of its products.

During the year ended September 30, 2024 cash used in operating activities was $34.126 million. The primary factors affecting operating cash flows during the period were a net loss of $23.977 million and adjustments for non-cash items of $35.446 million.

During the year ended September 30, 2023 cash used in operating activities was $32.825 million. The primary factors affecting operating cash flows during the period were a net loss of $44.113 million and adjustments for non-cash items of $37.708 million.

During the year ended September 30, 2022 cash used in operating activities was $26.720 million. The primary factors affecting operating cash flows during the period were a net profit of $53.408 million and adjustments for non-cash items of $91.796 million.

Arqit’s non-cash items primarily consist of fair value movement on warrant valuation, share-based charges and depreciation, while movements in working capital are primarily driven by changes in trade and other payables.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $2.398 million for the year ended September 30, 2024, compared with $16.082 million for the year ended September 30, 2023 and $24.432 million for the year ended September 30, 2022. The decrease in cash used in investing activities between 2022, 2023 and 2024 was as a result of lower costs incurred in the development of intangible fixed assets.

Cash Flows Generated from Financing Activities

Net cash generated from financing activities was $11.188 million for the year ended September 30, 2024, compared with $44.853 million for the year ended September 30, 2023 and $22.176 million for the year ended September 30, 2022. Net cash provided by financing activities for the year ended September 30, 2024 was primarily related to proceeds from the Company’s issuance of shares under its ATM Program and a registered direct offering in September 2024. Net cash provided by financing activities for the year ended September 30, 2023 was primarily related to proceeds from the Company’s issuance of shares under its ATM Program and in registered direct offerings in February 2023 and September 2023.

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Net cash provided by financing activities for the year ended September 30, 2022, was limited to proceeds from shares issued upon the exercise of Business Combination Warrants.

5.C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Arqit’s policy regarding research and development expenses is consistent with the requirements of IAS 38. Research costs are expensed as incurred through the income statement, while development costs are capitalized after technical and commercial feasibility of the asset for sale or use have been established. Capitalized development costs are recorded as intangible assets and amortized from the point at which the asset is ready for use.

For the periods ended September 30, 2024, 2023 and 2022, there were no research costs reflected in the statement of comprehensive income. This is primarily due to the research phase being deemed as complete in 2018. For all periods presented, eligible costs have been treated as development costs and capitalized. As described in the “Risk Factors” section and elsewhere in this Annual Reports, government regulations and policies can make developing or marketing our technologies expensive or uncertain due to various restrictions. See “Item 3. Key Information—3.D. Risk Factors” and “Item 4. Information on the Company—4.B. Business Overview—Government Regulation.” For further information on our research and development policies and additional product information, see “Item 4. Information on the Company— 4.B. Business Overview.”

5.D. TREND INFORMATION

Other than as described in Item 3.D. “Risk Factors” and in Item 5.A. “Operating Results—Key Factors Affecting Operating Results—Market Trends” of this Annual Report, which are incorporated by reference herein, we are not aware of any trends, uncertainties, demands, commitments or events since the beginning of our year ended September 30, 2024 that are reasonably likely to have a material effect on our net revenues, income from operations, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.

5.E. CRITICAL ACCOUNTING ESTIMATES

Arqit’s financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. While significant accounting policies are described in more detail elsewhere in this Annual Report, management believes that the following accounting policies are those most critical to the judgments and estimates used in the preparation of its financial statements.

Warrants valuation

Estimating the fair value of warrants requires a determination of the most appropriate valuation model, which depends on the terms and conditions of the warrant. This estimate also requires determination of the most appropriate inputs to the valuation model including equity value, exercise price, volatility, dividend yield, risk free rate and exercise period and making assumptions about them. For the measurement of the fair value of warrants at both the acquisition and the reporting date, Arqit uses a Binomial Option Pricing Model. The assumptions and models used for this estimation are disclosed in the notes to Arqit’s audited consolidated financial statements.

Capitalization of Development Costs

Arqit capitalizes costs for product development projects. Initial capitalization of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model, and all other recognition criteria within IAS 38 can be demonstrated. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits. At September 30, 2024, the carrying amount of capitalized development costs were $1.939 million, compared with $3.414 million at September 30, 2023 and $40,291 million at September 30, 2022.

Share-Based Compensation

Estimating fair value for share-option payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making assumptions about them. For the measurement of the fair value of equity settled transactions with employees at the grant date, Arqit uses a Black Scholes valuation. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in the notes to Arqit’s audited consolidated financial statements.

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Compensation expense for RSUs is determined based upon the market price of the shares underlying the awards on the date of the grant and expensed over the vesting period, which is generally a one to five year service period. The compensation expense is adjusted based on actual forfeitures.

Deferred Tax Asset

Judgement is required to determine whether deferred tax assets are recognised in the statement of financial position. Deferred tax assets, arising from unutilised tax losses, require Arqit to assess the likelihood it will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets. To the extent that future cash flows and taxable income differ significantly from estimates, Arqit’s ability to realise the net deferred tax assets recorded at the reporting date could be impacted.

Discontinued Operations and Assets Held for Sale

The decision to discontinue the business activities of the satellite division to an increased level of judgment and estimation uncertainties with regard to provisions recognised in this context.

For assets held for sale, judgement is required when estimating expected fair value until any sale is contractually concluded. Changes in the economic environment or other facts and circumstances may cause revisions to these assumptions and could result in a material change to the realizable value of the Group's assets held for sale within the next financial year.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A. DIRECTORS AND SENIOR MANAGEMENT

The following persons serve as Arqit’s directors and executive officers. For biographical information concerning the directors and executive officers, see below.

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Andrew Leaver is the Chief Executive Officer of Arqit. Prior to becoming the Chief Executive Officer in September 2024, Mr. Leaver was the acting Chief Operating Officer of Arqit from July 2024 to September 2024. Mr. Leaver has been employed by Notion Capital, a venture capital firm focused on Cloud Computing and Software-as-a-Service, since February 2020 as an Operating Partner. From July 2016 to December 2019, Mr. Leaver was a Partner at Crane Venture Partners. Mr. Leaver began his career at GE, where he managed their eCommerce activities, followed by executive international and global leadership positions with consecutive IPO’s at Ariba (2000-2007), SuccessFactors (2007-2009), Bazaarvoice (2009-2011), Workday (2011-2014) and Hortonworks (2014-2017). Mr. Leaver received bachelor’s and master’s degrees in microelectronic systems engineering from the University of Manchester.

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Nick Pointon is the Chief Financial Officer and a member of the board of directors of Arqit. Prior to joining Arqit, from 2017 to 2021 Mr. Pointon was the Group CFO of Privitar, a venture capital-funded data privacy company, and from 2011 to 2016 was the Vice President of Finance at King Digital Entertainment plc, which listed on the NYSE prior to being bought by Activision Blizzard, Inc. Mr. Pointon has experience acting as Financial Controller in a number of private and public telecoms and technology businesses. Mr. Pointon holds an LLB in Law from Kings College London and trained as a Chartered Accountant with Moore Stephens before moving to KPMG for two years’ post-qualification experience.

Manfredi Lefebvre d’Ovidio is Vice Chairman and senior independent director of Arqit. Mr. Lefebvre d’Ovidio is Chairman of Heritage Group, a diversified conglomerate with interests in the cruise industry, property and financial investments. Mr. Lefebvre d’Ovidio assumed the role of Executive Chairman of Silversea Cruises from 2001 until 2020. During this period, Mr. Lefebvre d’Ovidio transformed Silversea Cruises from a cruise line with five vessels to a market leader covering over 900 destinations worldwide. Further, he expanded the product range of Silversea Cruises by adding an expedition fleet, which quickly became a leader in luxury expedition cruising as well.

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In 2018, Heritage Group sold two-thirds equity stake of Silversea Cruises to Royal Caribbean Cruises Ltd. for approximately $1 billion. In 2019, Heritage Group acquired a majority stake in the high-end tour operator Abercrombie & Kent. Manfredi Lefebvre d’Ovidio serves as Executive Chairman of A&K Travel Group Ltd, and has led the expansion of the group both internally and externally, notably with the acquisition of Cox & Kings and more recently (in June 2022) with the acquisition of the cruise ships Crystal Serenity and Crystal Symphony in addition to the Crystal Cruises brand. Mr. Lefebvre d’Ovidio serves as the Vice Chairman of the Monaco Chamber of Shipping, Vice Chairman of the World Travel and Tourism Council, and has held a number of key roles in Cruise Lines International Association, including European Chairman, Member of the Global Executive Committee, and Chairman from 2007 to 2013. Mr. Lefebvre d’Ovidio was honored by being awarded the rank of Knight of the Order of Saint Charles and Grimaldi by H.S.H. Prince Albert II of Monaco, and has been Honorary Consul of Ecuador in Monaco since April 2019.

Carlo Calabria is a member of the board of directors of Arqit. Mr. Calabria has close to four decades of experience in the financial services sector and has held multiple senior leadership positions at some of the world’s largest financial institutions. In 2012, he founded CMC Capital Limited, an investment banking boutique specializing in mergers and acquisitions and debt restructuring, which he led until 2016, and then returned in 2021. Mr. Calabria is a mergers and acquisitions expert with vast experience across different sectors and regions. In 2016, he joined Barclays as Chairman of M&A and then served as Head of Banking for Barclays Europe from 2016 to 2020 and was responsible for investment banking activities in Continental Europe and Central and Eastern Europe, Middle East and Africa. Prior to joining Barclays, he served as Head of International M&A, first at Credit Suisse and then at Merrill Lynch from 2006 to 2011. Prior to this, Mr. Calabria worked at Credit Suisse from 1990 to 2006 and began his investment banking career at Morgan Grenfell & Co. Ltd in 1983. Mr. Calabria holds a Master of Arts (Honors) in Economics from Rome University, La Sapienza.

Stephen Chandler is a member of the board of directors of Arqit. Mr. Chandler is an entrepreneur, investor and company builder, with 20 years of experience in forming, funding, running, advising and investing in technology businesses. Mr. Chandler is a co-founder of several businesses with involvement in many more. Since 2009 he has been the Co-founder and Managing Partner at Notion Capital, a venture capital firm focused on Cloud Computing and Software-as-a-Service. Following an early career at Deloitte and then UBS, he was the Chief Financial Officer at MessageLabs, a cyber security company, through to its acquisition by Symantec in 2008. He is a current or former board director of several growing tech companies, including GoCardless, Griffin, Paddle, Pana seer, Novatiq and Virtual Stock. Mr. Chandler is a qualified Chartered Accountant and holds a Bachelor of Arts (Honors) in Accounting & Economics from the University of Exeter.

Garth Ritchie is a member of the board of directors of Arqit. Mr. Ritchie has over 25 years of experience in banking and finance where he has held a number of senior leadership positions. In 1996, Mr. Ritchie joined Deutsche Bank in the Johannesburg office and went on to become a member of the Global Markets Executive Committee in 2009 as Head of Equities. In January 2016, Mr. Ritchie was appointed to Deutsche Bank’s Management Board with responsibility for Deutsche Bank’s markets division. In 2017, he became Co-Head of the newly created Corporate & Investment Bank. In 2018, he became its sole Head and was appointed as President. In June 2020, Mr. Ritchie joined Centricus, a London-based global investment firm, where he leads the firm’s capital markets and advisory business. Mr. Ritchie earned his B.Com. in Finance and Economics from the University of Port Elizabeth.

Nicola Barbiero is a member of the board of directors of Arqit. Mr. Barbiero has nearly two decades of experience in investment management and financial operations.  He has been Investment Director of the Heritage Group since 2020.  From 2013 to 2020, he held the positions of CFO and CIO at Solidarietà Veneto, one of Italy’s largest pension schemes. Mr. Barbiero holds a Master’s degree in Economics and Finance from Ca’ Foscari University of Venice.

Paul Feenan has served as the Chief Revenue Officer of Arqit since April 2021. Prior to this, Mr. Feenan was the Managing Director for Global Institutional Sales at Arqit since April 2020. Mr. Feenan was previously the Director for Strategic Partnerships at JUMO, a Cape Town headquartered, global financial technology company, from 2016 to 2020. Mr. Feenan was the Director for Government Services at Avanti Communications Group plc from 2012 to 2016. Prior to this, Mr. Feenan was a commissioned British Army Officer where he served for over 16 years in a variety of Command and Operational roles including as the lead for Domestic Counterterrorism in the run-up to the 2012 London Olympic Games. He has a Master of Arts (Honors) Degree in Geography from the University of Cambridge.

Dr. Daniel Shiu has served as the Chief Cryptographer of Arqit since 2021. Prior to joining Arqit, Dr. Shiu worked for the UK’s intelligence, cyber and security agency GCHQ for 19 years. He was the UK’s first National Technical Authority for Cryptographic Design and Quantum Information Processing and was part of the National Technical Authority function, assumed by the new National Cyber Security Centre (NCSC). He was responsible for briefing the Government’s Chief Scientific Adviser in Crypto mathematical matters. Dr. Shiu also served as Head of the Heilbronn Institute for Mathematical Research (HIMR) and represented GCHQ in co-directing the National Quantum Technologies Program. In 2023, Daniel Shiu was elected to the National Security Committee of the techUK trade body for which he undertakes duties for the sovereign skills subgroup. Throughout his career, Dr. Shiu’s has received multiple prizes, including an international, annual award for best crypto-mathematician and on three separate occasions an international award for the best cryptanalytic achievement of the year.

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He has a BSc (Honors) and ARCS in Mathematics from Imperial College London, and a DPhil in Mathematics from the University of Oxford (Pembroke College).

Patrick Willcocks is General Counsel and Corporate Secretary of Arqit. Prior to joining Arqit, Mr. Willcocks ran a legal consultancy. From 2009 to 2018, Mr. Willcocks was General Counsel and Company Secretary of Avanti Communications Group plc. Prior to this, Patrick was a senior attorney at HP/EDS, a banking and financing solicitor at Eversheds Sutherland, and an investment banker at a number of international banks. Patrick has an LLB (Honors) Degree in Law from Trinity College Dublin, a Barrister-at-Law degree from the Honorable Society of King’s Inns in Dublin, and a Masters in Business Studies (Strategic Planning) and a Diploma in Business Studies from UCD Business School.

Family Relationships

There are no family relationships between any of the executive officers and directors.

6.B. COMPENSATION

Historical Executive Officer and Director Compensation

The aggregate cash compensation paid by Arqit and its subsidiaries to its executive officers and directors for the year ended September 30, 2024 was $2.789 million. This amount includes $0.108 million, set aside or accrued to provide pension, severance, retirement or similar benefits or expenses.

As of September 30, 2024, 57,115 share options to purchase ordinary shares and 138,632 RSUs had been granted to Arqit’s executive officers and directors.  During the year ended September 30, 2024, 27,320 shares were issued to Arqit’s executive officers and directors in connection with the vesting of RSUs, and 14,213 options granted to Arqit’s executive officers and directors vested.

Executive Officer and Director Compensation

Arqit’s policies with respect to the compensation of its executive officers and directors are administered by its board of directors in consultation with the compensation committee. The compensation decisions regarding Arqit’s executives is based on the need to attract individuals with the skills necessary for the company to achieve its business plan, to reward those individuals fairly over time, and to retain those individuals who continue to perform at or above the company’s expectations.

Arqit has an executive compensation program that is competitive with other similarly-situated companies in its industry. This includes a base salary, cash annual bonus and long-term equity compensation awards that are, in each case, consistent with market practices and designed to incentivize, motivate and retain key employees. Each of Arqit’s executive officers and employees is party to an employment agreement with Arqit, all of which are in substantially the same form. Under their respective agreements, each executive officer and employee is compensated with an annual base salary and most are also eligible for an annual discretionary bonus. In addition, each executive officer and employee is subject to a perpetual confidentiality covenant, and non-competition and non-solicitation restrictive covenants during the term of employment and for a period of three to twelve months after the termination of employment. Each of the agreements also includes agreement by the executive officer or employee to assign all intellectual property rights created during the course of employment to Arqit. The agreements include a notice period of one week to one month if either Arqit or the executive officer or employee wishes to terminate the agreement, other than for cause, in which case termination is effective immediately. Arqit may provide payment in lieu of such notice or may require the executive officer or employee to be placed on garden leave.

Arqit has a compensation plan for its directors. Arqit, working with the compensation committee, has set director compensation at a level comparable with those directors with similar positions at comparable companies. Each non-executive director receives an annual cash retainer of $60,000. Each director who serves as the chairman of a committee receives an additional $20,000 per year and each other member of a committee receives an additional $10,000 per year per committee. Directors have the option to elect to receive their cash compensation in the form of either cash or RSUs. In addition, directors will benefit from an annual grant of 3,000 RSUs which will be awarded in accordance with Arqit’s incentive award plan.

Equity Compensation — Incentive Award Plan

Arqit’s board of directors adopted an incentive award plan (the “Incentive Award Plan”) in order to facilitate the grant of cash and equity incentives to its directors, employees (including executive officers) and consultants and its affiliates and to enable it and certain of its affiliates to obtain and retain services of these individuals, which is essential to Arqit’s long-term success.

The purpose of the Incentive Award Plan is to enhance Arqit’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions by providing these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities.

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Equity awards and equity- linked compensatory opportunities are intended to motivate high levels of performance and align the interests of directors, employees and consultants with those of stockholders by giving directors, employees and consultants the perspective of an owner with an equity or equity-linked stake in the company and providing a means of recognizing their contributions to our success. Arqit’s board of directors believes that equity awards are necessary to remain competitive in its industry and are essential to recruiting and retaining the highly qualified employees who help us meet our goals.

The aggregate number of ordinary shares available for issuance under the Incentive Award Plan, excluding awards granted, is equal to 2.1% of the sum of the total number of issued and outstanding ordinary shares as of December 3, 2024, which equals an aggregate pool of one million ordinary shares. Prior to the completion of the Business Combination, Arqit Limited granted options over Arqit Limited ordinary shares to its employees, consultants and advisors. The holders of each of these options agreed to exchange these options for equivalent options to acquire ordinary shares, 125,035 of which remain outstanding as of September 30, 2024, which were issued under amended option agreements with terms consistent with the Incentive Award Plan.  In addition, 180,106 restricted shares units (net of forfeitures) were granted during the year ended September 30, 2024, leaving 263,947 ordinary shares available for issuance in respect of future grants of awards under the Incentive Award Plan. The compensation committee may make grants of awards under the Incentive Award Plan to key employees, in forms and amounts to be determined by the compensation committee based on the recommendations of an independent compensation consultant.

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6.C. BOARD PRACTICES

Board Composition

Director Independence

The Nasdaq corporate governance rules require that a majority of the board of directors be independent. An “independent director” is defined generally as a person who has no material relationship with the listed company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the listed company). Arqit has six directors, four of whom – directors Calabria, Chandler, d’Ovidio, and Ritchie – the board has determined qualify as independent directors as defined in the Nasdaq corporate governance rules.

Classes of Directors

The board of directors is divided into three staggered classes of directors. At each annual meeting of its shareholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring, as follows:

Risk Oversight

The board of directors oversees the risk management activities designed and implemented by its management. The board of directors executes its oversight responsibility both directly and through its committees. The board of directors also considers specific risk topics, including risks associated with its strategic initiatives, business plans and capital structure. Arqit’s management, including its executive officers, are primarily responsible for managing the risks associated with the operation and business of the company and provides appropriate updates to the board of directors and the audit committee. The board of directors delegates to the audit committee oversight of its risk management process, and its other committees also consider risk as they perform their respective committee responsibilities. All committees report to the board of directors as appropriate, including when a matter rises to the level of material or enterprise risk.

Committees of the Board of Directors

Arqit has established a separately standing audit committee, nominations and corporate governance committee and compensation committee.

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Audit Committee

Listing Requirements

As permitted by Nasdaq Listing Rules, we have elected as a “foreign private issuer" to follow home country corporate governance practices with respect to our audit committee composition in lieu of the otherwise applicable Nasdaq corporate governance requirements.  Under Nasdaq corporate governance rules, we are still required to maintain an audit committee consisting of independent directors.

The audit committee is comprised of Stephen Chandler and Garth Ritchie. Stephen Chandler serves as the chairperson of the audit committee. All members of the audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq corporate governance rules. The board of directors has determined that Stephen Chandler is an audit committee financial expert as defined by the SEC rules and is financially literate as defined by Nasdaq corporate governance rules.

The board of directors has determined that each member of the audit committee is independent, as such term is defined in Rule 10A3(b)(1) under the Exchange Act, which is different from the general test for independence of board and committee members.

Audit Committee Role

The board of directors adopted an audit committee charter setting forth the responsibilities of the audit committee, which are consistent with the SEC rules and Nasdaq corporate governance rules. These responsibilities include:

Nominations and Corporate Governance Committee

Arqit’s nominations and corporate governance committee is comprised of Manfredi Lefebvre d’Ovidio and Carlo Calabria. Manfredi Lefebvre d’Ovidio serves as the chairperson of the nominations and corporate governance committee. The board of directors adopted a nominations and corporate governance committee charter setting forth the responsibilities of the committee, which include:

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Compensation Committee

Arqit’s compensation committee is comprised of Garth Ritchie and Carlo Calabria, all of whom are independent directors. Carlo Calabria serves as the chairperson of the compensation committee. The board of directors adopted a compensation committee charter setting forth the responsibilities of the committee.

The purpose of the compensation committee is to review and approve compensation paid to our officers and directors and to administer our incentive compensation plans, including authority to make and modify awards under such plans.

Code of Ethics

Arqit has a Code of Ethics that applies to all of its employees, officers, and directors. This includes Arqit’s principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. Arqit will disclose on its website any future amendments of the Code of Ethics or waivers that exempt any principal executive officer, principal financial officer, principal accounting officer or controller, persons performing similar functions, or directors from provisions in the Code of Ethics.

Compensation Recovery Policy 

In 2023, we adopted a compensation recovery policy to provide for the recovery of erroneously-awarded incentive compensation, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, final SEC rules and applicable listing standards.

Limitation on Liability and Indemnification of Officers and Directors

Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against willful default, fraud or the consequences of committing a crime. The amended and restated memorandum and articles of association provide for indemnification of Arqit’s officers and directors to the maximum extent permitted by law, including for any liability incurred in their capacities as such, except through their own actual fraud, willful default or willful neglect. In addition, Arqit entered into indemnification agreements with each of its executive officers and directors. The indemnification agreements provide the indemnitees with contractual rights to indemnification, and expense advancement and reimbursement, to the fullest extent permitted under Cayman Islands law, subject to certain exceptions contained in those agreements. Arqit has a policy of directors’ and officers’ liability insurance that insures Arqit’s officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures Arqit against its obligations to indemnify its officers and directors.

These indemnification obligations may discourage shareholders from bringing a lawsuit against Arqit’s officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against Arqit’s officers and directors, even though such an action, if successful, might otherwise benefit Arqit and its shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent Arqit pays the costs of settlement and damage awards against its officers and directors pursuant to these indemnification provisions.

Arqit believes that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors.

6.D. EMPLOYEES

As of September 30, 2024, Arqit had 74 full-time employees based in the UK and 8 full-time employees based in the US, a majority of which are engaged in research and development and related functions. Arqit is highly dependent on human capital and a strong leadership team. It aims to attract, retain and develop staff with the skills, experience and potential necessary to implement its growth strategy.

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6.E. SHARE OWNERSHIP

For information regarding the share ownership of directors and officers, see Item 7.A. “Major Shareholders and Related Party Transactions—Major Shareholders.” For information as to our equity incentive plans, see Item 6.B. “Director, Senior Management and Employees—Executive Officer and Director Compensation—Equity Compensation—Incentive Award Plan.”

6.F. DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION

Not applicable.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A. MAJOR SHAREHOLDERS

The following table sets forth information regarding the beneficial ownership of the Company as of December 3, 2024, by:

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days.

Each Company ordinary share will entitle the holder to one vote.

Beneficial ownership percentages are based on a total of 14,294,054 ordinary shares, which includes (i) 12,504,009 ordinary shares issued and outstanding as of December 3, 2024, (ii) 1,701,988 ordinary shares underlying our currently exercisable outstanding warrants, and (iii) 88,057 shares underlying outstanding equity incentives that are exercisable or that will become exercisable within 60 days of December 3, 2024.

* Less than 1.0%.

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(1) The business address for each of D2BW Limited, David Williams and David Bestwick is 3 Orchard Place, London SW1H 0BF, United Kingdom. David Williams and David Bestwick are the beneficial owners of D2BW Limited, and have shared investment and voting power over the shares held by D2BW Limited.

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David Williams also has shared voting power over 317,335 shares owned by Sarah Williams pursuant to a voting agreement. Information with respect to shares held by D2BW Limited, David Williams, David Bestwick and Sarah Williams is based upon information provided by those parties in Schedule 13D filings filed with the SEC.

Registered Holders

Based on a review of the information provided to us by our transfer agent, as of December 3, 2024, we had approximately 37 shareholders of record of our ordinary shares. We estimate that as of December 3, 2024, approximately 36.9% of our outstanding ordinary shares are held by two U.S. record holders. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust or by other entities.

7.B. RELATED PARTY TRANSACTIONS