Quantum Computing Inc. (QUBT) Risk Factors

ITEM 1A. RISK FACTORS.

This Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary statements
made in this Annual Report on Form 10-K should be read as applicable to all forward-looking statements wherever they appear in this report.
Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Annual Report on Form 10-K.

Risks Related to Our Financial Condition and
Status as an Early-Stage Company

We are in our early stages and have a limited
operating history, which makes it difficult to forecast the future results of our operations.

QCi was formed in 2018 and merged with QPhoton
in June 2022. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limited,
inherently uncertain and subject to numerous factors outside our control, including our ability to plan for and model future growth. Our
ability to generate revenues will largely be dependent on our ability to develop and produce a suite of products based on quantum photonic
technologies, with steadily increasing capabilities. Our technical roadmap may not be realized as quickly as hoped, or even at all. As
a result, our historical results should not be considered indicative of our future performance. Further, in future periods, our growth
could slow or decline for a number of reasons, including but not limited to slowing demand for our quantum products and services, increased
competition, changes to technology, our inability to scale up our technology, a decrease in the growth of the market, or our failure,
for any reason, to continue to take advantage of growth opportunities.

We have also encountered, and will continue to
encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding
these risks and uncertainties and our future growth are incorrect or change, or if we do not address these risks successfully, our operating
and financial results could differ materially from our expectations, and our business could suffer. Our success as a business ultimately
relies upon fundamental research and development breakthroughs in the coming years. There is no certainty these research and development
milestones will be achieved as quickly as hoped, or even at all.

We have a history of operating losses and
expect to incur significant expenses and continuing losses for the foreseeable future.

We incurred net losses each year since 2018 and
we expect to continue to incur operating and net losses for the foreseeable future and may never achieve or sustain profitability, even
if we begin generating significant revenue from our products and services, which may never occur. Even with significant production, we
may never become profitable from the sale of our products and services.

We expect to incur significantly higher losses
in future periods as we continue to incur significant expenses in connection with the design, development and manufacturing of our quantum
computers and other products and services, and as we expand our research and development activities, invest in manufacturing capabilities,
build up inventories of components for our quantum computers and other products, increase our sales and marketing activities, develop
our infrastructure, and increase our general and administrative functions to support our growing operations. We may find that these efforts
are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses.
If we are unable to achieve and/or sustain profitability, or if we are unable to achieve the growth that we expect from these investments,
it could have a material adverse effect on our business, financial condition or results of operations. Our business model is unproven
and may never allow us to cover our costs.

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We have a history
of accumulated deficits, recurring losses and negative cash flows from operating activities. We may be unable to achieve or sustain profitability
or continue operations as planned.

We are an early-stage
company and we have not generated any material revenues to offset our operating expenses. We incurred negative cash flows from operating
activities and recurring net losses in fiscal years 2025, 2024 and 2023. As of December 31, 2025 and 2024, our accumulated deficit was
$219.2 million and $200.5 million, respectively. If we are unable to generate significant revenues in future periods, we will not be able
to achieve profitability, and even if we achieve profitability, we may be unable to maintain it. Beyond this, we may incur significant
losses in the future for a number of reasons including other risks described in this document, and we may encounter unforeseen expenses,
difficulties, complications, delays and other unknown events. Accordingly, we may not ever achieve profitability.

We may not be able to scale our business
quickly enough to meet customer and market demand, which could adversely affect our financial condition and results of operations or cause
us to fail to execute on our business strategies.

In order to grow our business, we will need to
continually evolve and scale our business and operations to meet customer and market demand. Quantum computing technology has never been
sold at large-scale commercial levels. Evolving and scaling our business and operations places increased demands on our management as
well as our financial and operational resources to:

Commercial adoption of quantum computing technology is uncertain and
may never occur. We have no experience in producing large quantities of our products and are currently constructing advanced generations
of our products. There are significant technological challenges associated with developing, producing, marketing and selling products
and services in the high-performance computing industry, including our products and services, and we may not be able to resolve all of
the difficulties that may arise in a timely or cost-effective manner, or at all. We may not be able to cost effectively manage production
at a scale or quality consistent with customer demand in a timely or economical manner.

Our ability to scale is dependent also upon components that we must
source from multiple countries, including China. Our supply chain could be adversely affected by geopolitical tensions, export controls,
trade restrictions, tariffs or other changes in U.S. or foreign government policies affecting cross-border commerce. Shortages or supply
interruptions in any of these components will adversely impact our ability to generate revenues. Recent tensions between the United States
and China have resulted in the U.S.’s imposition of a series of tariffs and other restrictions on imports from China and sourcing
from certain Chinese persons or entities, as well as other business restrictions. Further, deterioration in the political relationship
between the U.S. and China may result in loss of access to suppliers of key components with little or no warning, which would adversely
affect our ability to develop and manufacture our products. We are actively searching for alternative suppliers outside of China, including
in the United States, but there is no assurance that we can locate comparable components at reasonable prices within the desired timeframes.

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If we commence large-scale development of our
quantum computers and other products, they may contain defects in design and manufacture that may cause them to not perform as expected
or that may require repair and design changes. Our quantum computers are inherently complex and incorporate technology and components
that may not have been used for computing products and that may contain defects and errors, particularly when first introduced. We have
a limited frame of reference from which to evaluate the long-term performance of our computers. There can be no assurance that we will
be able to detect and fix any defects in our quantum computers in a timely manner that does not disrupt our services to our customers.
If our technology fails to perform as expected, customers may seek out a competitor or turn away from quantum computing entirely, each
of which could adversely affect our sales and brand and could adversely affect our business, prospects and results of operations. If defects
in our technology lead to erroneous outputs, third parties relying on those outputs may draw from them erroneous conclusions, creating
a risk that we will be liable to those third parties.

If we cannot evolve and scale our business and
operations effectively, we may not be able to execute our business strategies in a cost-effective manner and our business, financial condition,
profitability and results of operations could be adversely affected.

Even if the market in which we compete achieves
its anticipated growth levels, our business could fail to grow at similar rates, if at all.

Our business model depends on our ability to expand
and scale our operations and to increase our sales and support capability. Even if the market in which we compete meets the size estimates
and growth forecasted, our business could fail to grow at similar rates, if at all.

Our growth is dependent upon our ability to successfully
expand our products and services, retain customers, bring in new customers and retain critical talent. Unforeseen issues associated with
scaling up and constructing quantum computing technology at commercially viable levels could negatively affect our business, financial
condition and results of operations.

Our growth is dependent upon our ability to successfully
market and sell our quantum computers and quantum computing products and services. We do not have experience with the large-scale production
and sale of quantum computing technology. Our growth and long-term success will depend upon the development of our sales and production
capabilities.

Moreover, because of our advanced technology,
our customers will require particular support and service functions, some of which are not currently available and may never be available.
If we experience delays in adding such support capacity or servicing our customers efficiently, or experience unforeseen issues with the
reliability of our technology, we could overburden our servicing and support capabilities. Similarly, increasing the number of our products
and services would require us to rapidly increase the availability of these services. Failure to adequately support and service our customers
may inhibit our growth and ability to expand.

There is no assurance that we will be able to
ramp our business to meet our sales, manufacturing, installation, servicing and quantum computing targets, that expected growth levels
will prove accurate or that the pace of growth will continue at the current rate. Failure of QCi to grow at rates similar to that of the
broader quantum computing industry may adversely affect our operating results and ability to effectively compete within the industry.

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We may not manage growth effectively.

Our failure to manage growth effectively could
harm our business, results of operations and financial condition. We anticipate that a period of significant expansion will be required
to address potential growth. This expansion will place a significant strain on our management, operational and financial resources. Expansion
will require significant cash investments and management resources and there is no guarantee that they will generate additional sales
of our products or services, or that we will be able to avoid cost overruns or be able to hire additional personnel to support us. In
addition, we will also need to ensure our compliance with regulatory requirements in various jurisdictions applicable to the sale, installation
and servicing of our products. To manage the growth of our operations and personnel, we must establish and maintain appropriate and scalable
operational and financial systems, procedures and controls and a qualified finance, administrative and operations staff. We may be unable
to acquire the necessary capabilities and personnel required to manage growth or to identify, manage and exploit potential strategic relationships
and market opportunities.

We will require a significant amount of
cash for expenditures as we invest in ongoing research and development and business operations and may need additional capital sooner
than planned to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, and we cannot
be sure that additional financing will be available. If we are unable to raise additional funding when needed, we may be required to delay,
limit or substantially reduce our development efforts.

Our business and future plans for expansion are
capital-intensive, and we will require additional capital for equipment and facilities for hardware manufacturing and optical chip fabrication.
The specific timing of cash inflows and outflows may fluctuate substantially from period to period. We will require a significant amount
of cash for expenditures as we invest in ongoing research and development and business operations. Our operating plan may change because
of factors currently unknown, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings
or other sources. Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend
and other rights more favorable than those of our common stock, imposition of debt covenants and repayment obligations or other restrictions
that may adversely affect our business. Any funds we raise may not be sufficient to enable us to continue to implement our long-term business
strategy. Further, our ability to raise additional capital may be adversely impacted by worsening global economic conditions and disruptions
to and volatility in the credit and financial markets in the United States and worldwide resulting from disruptions in access to bank
deposits or lending commitments due to bank failures, the ongoing war between Russia and Ukraine and the related sanctions imposed against
Russia, and the war between Israel and Hamas, the state of the military conflict between Israel and Hezbollah and the related risk of
a larger regional conflict. In addition, we may seek additional capital due to favorable market conditions or strategic considerations
even if we believe that we have sufficient funds for current or future operating plans.

We may be unable to obtain additional financing
on acceptable terms, or at all, and any such financing may be dilutive to existing stockholders. The inability to obtain financing when
needed may make it more difficult for us to operate our business or implement our growth plans and we may be required to delay, limit
or substantially reduce our quantum computing development efforts. Our ability to raise additional capital through the sale of securities
could be significantly impacted by the resale of our securities by holders of our securities, which could result in a significant decline
in the trading price of our securities and potentially hinder our ability to raise capital on terms that are acceptable to us or at all.

Failure to identify errors in the quantitative
models we utilize to manage our business could adversely impact product performance and client relationships.

We employ various quantitative models to manage
our business. Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business
and reputation.

Our ability to use net operating loss carryforwards
and other tax attributes may be limited in connection with the QPhoton Merger or other ownership changes.

We have incurred losses during our history, do
not expect to become profitable in the near future and may never achieve profitability. To the extent that we continue to generate taxable
losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire, if at all.

Under current law, U.S. federal net operating
loss carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility
of such net operating loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income, or less.
It is uncertain if and to what extent various states will conform to the current law.

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In addition, our net operating loss carryforwards
are subject to review and possible adjustment by the IRS, and state tax authorities. Under Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended (the “Code”), our federal net operating loss carryforwards and other tax attributes will become subject
to an annual limitation in the event of certain cumulative changes in the ownership of the Company. An “ownership change”
pursuant to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s
stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.
Similar rules apply under state tax laws. Our ability to utilize our federal net operating loss carryforwards and other tax attributes
to offset future taxable income or tax liabilities may be limited as a result of ownership changes, including potential changes in connection
with the QPhoton Merger, the acquisition of Luminar Semiconductor, Inc., or other transactions. Similar rules may apply under state tax
laws.

If we earn taxable income, such limitations could
result in increased future income tax liability and our future cash flows could be adversely affected. We have recorded a valuation allowance
related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization of the
future benefits of those assets.

Risks Related to Our Business and Industry

We have not produced any of our products
at volume and we face significant barriers in our attempts to develop and manufacture our products, including the need to invent and develop
new technology. If we cannot successfully overcome those barriers, our business will be negatively impacted and could fail.

Producing quantum computers, sensors and networks
is a difficult undertaking. There are significant manufacturing and engineering challenges that we must overcome. We face significant
challenges in completing development of our quantum computers and other products, and in producing quantum computers in sufficient volumes.
Even if we complete development and achieve volume production of our products, if the cost, accuracy, performance characteristics or other
specifications fall short of our expectations, our business, financial condition and results of operations would be adversely affected.

The performance capabilities of our products will
depend on the development and production of TFLN Optical Chips to achieve scale, performance and cost. There is significant development
and intellectual property risk in the specification, design and development of TFLN Optical Chips and our plans could be impacted by lack
of funding, competition or even unknown core technology factors intrinsic to the work. This would limit the ability of QCi to scale its
growth to expected levels over the longer term and the Company could lose momentum.

We may be unable
to reduce the production cost sufficiently, which may prevent us from pricing our quantum systems competitively.

Our revenue projections are dependent on the cost
per manufactured system decreasing over the next several years as our quantum computers advance. These cost projections are based on economies
of scale due to demand for our products and services, technological innovation and negotiations with third-party parts suppliers. If these
cost savings do not materialize, the production cost may be higher than projected, making our quantum computing products and services
less competitive than those offered by our competitors, which could have a material adverse effect on our business, financial condition
or results of operations.

If our products and services fail to deliver
customer value to a broader range of customers than classical approaches, our business, financial condition and future prospects may be
harmed.

“Quantum advantage”
refers to the moment when a quantum computer can compute faster than existing classical computers, while quantum supremacy is achieved
once quantum computers are powerful enough to complete calculations that traditional supercomputers cannot perform at all. Broad quantum
advantage is when quantum advantage is seen in many applications and developers prefer quantum computers to a traditional computer. No
current quantum computers have reached a broad quantum advantage and they may never reach such advantage. While achieving a broad quantum
advantage will be critical to the success of any quantum computing company, including us, it would not necessarily lead to commercial
viability of the technology that accomplished such advantage, nor would it mean that such system could outperform classical computers
in tasks other than the one used to determine a quantum advantage. As quantum computing technology continues to mature, broad quantum
advantage, and quantum supremacy, may take years or decades to be realized, if it ever is. If we cannot develop quantum computers that
have quantum advantage, customers may not continue to purchase our products and services. If other companies’ quantum computers
reach a broad quantum advantage prior to the time we reach such capabilities, it could lead to a loss of customers and the inability to
secure new customers. If any of these events occur, it could have a material adverse effect on our business, prospects, financial condition
or results of operations.

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The quantum computing industry is competitive
and we may not be successful in competing in this industry or establishing and maintaining confidence in our long-term business prospects
among current and future partners and customers.

Since the QPhoton Merger, our business strategy
has broadened to include the manufacture of several lines of hardware in addition to the underlying software. As a result, we now operate
in markets that are rapidly evolving and highly competitive. We expect competition to intensify as the marketplace continues to mature
and new technologies and competitors enter. Our current competitors include:

We compete based on various factors, including
technology, price, performance, multi-cloud availability, brand recognition and reputation, customer support and differentiated capabilities,
including ease of administration and use, scalability and reliability, data governance and security. Many of our competitors have substantially
greater brand recognition, customer relationships, and financial, technical and other resources than we do, including an experienced sales
force and sophisticated supply chain management. They may be able to respond more effectively than us to new or changing opportunities,
technologies, standards, customer requirements and buying practices. In addition, many countries are focused on developing quantum computing
solutions either in the private or public sector and may subsidize quantum computers, which may make it difficult for us to compete. Many
of these competitors do not face the same challenges we do in growing our business. In addition, other competitors might be able to compete
with us by bundling their other products in a way that does not allow us to offer a competitive solution.

Further, the industry might recognize the intrinsic
advantages of optical integrated circuits in information processing applications and our competitors could shift to a more direct competitive
approach using similar technologies, even with strong intellectual property protection.

Additionally, we must be able to achieve our objectives
in a timely manner such that we don’t lose ground to competitors, including competing technologies. Because there are a large number
of market participants, including certain sovereign nations, focused on developing quantum computing technology, we must dedicate significant
resources to achieving any technical objectives on the timelines established by our management team. Any failure to achieve objectives
in a timely manner could adversely affect our business, operating results and financial condition.

For all of these reasons, competition may negatively
impact our ability to maintain and grow consumption of our platform or put downward pressure on our prices and gross margins, any of which
could materially harm our reputation, business, results of operations, and financial condition.

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We rely on access to high-performance third-party
classical computing through public clouds and high-performance computing centers to deliver quantum products and services to customers.
We may not be able to maintain connectivity with these resources, which could make it harder for us to reach customers or deliver products
and services in a cost-effective manner.

Our products and services may from time to time
incorporate high-performance classical computing through public clouds to provide services to end users and our partners. These public
cloud services are predominantly on Amazon Web Services at the present time.

Any material change in our contractual and other
business relationships with Amazon Web Services or other cloud providers could result in reduced use of our products and services, increased
expenses, including service credit obligations, and harm our brand and reputation, any of which could have a material adverse effect on
our business, financial condition and results of operations.

Further, if our contractual and other business
relationships with our partners are terminated or suspended, either by our partner or by us, or suffer a material change to which we are
unable to adapt, such as the elimination of services or features on which we depend, we would be unable to provide our quantum computing
products and services business at the same scale and would experience significant delays and incur additional expense in transitioning
customers to a different public cloud provider.

We depend on certain suppliers to source
products. Failure to maintain our relationship with any of these suppliers, or a failure to replace any of these suppliers, could have
a material adverse effect on our business, financial position, results of operations and cash flows.

We buy our products and supplies from companies
that manufacture and source products from the United States and abroad. Our ability to develop and maintain relationships with qualified
suppliers who can satisfy our standards for quality and delivery in a timely and efficient manner is a significant challenge. Any failure
to maintain our relationship with any of our key suppliers, or a failure to replace any such supplier that is lost, could have a material
adverse effect on our business, financial position, results of operations and cash flows.

We may be required to replace a supplier if their
products do not meet our quality or safety standards, or if the United States government imposes restrictions on trade with certain countries,
such as China. In addition, our suppliers could discontinue selling products at any time for reasons that may or may not be in our control
or the suppliers’ control, including shortages of raw materials, environmental and social supply chain issues, public health emergencies,
labor disputes or weather conditions. Disruptions in transportation lines or geopolitical conditions including the ongoing war between
Russia and Ukraine, the war between Israel and Hamas, the state of the military conflict between Israel and Hezbollah or an invasion of
Taiwan by China, may also cause global supply chain issues that affect us or our suppliers. While we generally have multiple sources of
supply, we do rely on a single supplier for materials in some cases. The loss of, or substantial decrease in the availability of, products
from our suppliers, or the loss of a key supplier, temporarily or permanently, could result in a material shortage of products, which
could lead to price escalations that we may be unable to offset by our prices to our customers. When supply chain issues are later resolved
and prices return to normal levels, we may be required to reduce the prices at which we sell our products to our customers in order to
remain competitive. In addition, even where these risks do not materialize, we may incur costs as we prepare contingency plans to address
such risks. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier who is unwilling or
unable to satisfy our requirements with a supplier providing similar products. In addition, our suppliers’ ability to deliver products
may also be affected by raw material and commodity cost volatility or financing constraints caused by credit market conditions, which
could materially and negatively impact our net sales and operating costs, at least until alternate sources of supply are arranged. Any
delay or unavailability of key products required for our development activities in a timely or cost-effective manner could delay or prevent
us from further developing our products and services on our expected timelines or at all and could materially harm our business.

Acquisitions or divestitures could result
in adverse impacts on our operations.

In order to grow our business, we may acquire
additional assets or companies. For example, we acquired Luminar in February 2026. In connection with these acquisitions or any future
acquisitions, there can be no assurance that we will be able to identify, acquire or obtain the required regulatory approvals, or profitably
manage the additional businesses or successfully integrate any acquired businesses, products, or technologies without substantial expenses,
delays or other operational, regulatory or financial problems. In addition, any acquired businesses, products or technologies may not
achieve anticipated revenues and income growth.

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Further, acquisitions may involve a number of
additional risks, including diversion of management’s attention, failure to retain key personnel, or failure to attract the necessary
talent to manage organizational growth. We may become responsible for unexpected liabilities that were not discovered or disclosed in
the course of due diligence in connection with historical acquisitions and any future acquisitions. Additionally, acquisitions with international
operations expose us to greater international business risks. If we do not realize the expected benefits or synergies of an acquisition,
such as revenue gains or cost reductions, there could be a material adverse effect on our business, results of operations, and financial
condition.

We may also seek to divest portions of our businesses
which may no longer be aligned with our strategic initiatives and long-term objectives. Various factors could materially affect our ability
to successfully do so, including the availability of buyers willing to purchase the assets on terms acceptable to us, difficulties in
the separation of operations, the diversion of management’s attention from other business concerns, the disruption of our business,
the potential loss of key employees, and the retention of uncertain contingent liabilities related to the divested business. We cannot
assure that we will be successful in managing these or any other significant risks that we encounter in divesting a business or product
line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations
and cash flows.

TFLN Optical Chips manufacturers, suppliers and distributors are concentrated
primarily in China and other parts of East Asia, which is an area that is or may be subject to geopolitical uncertainty, trade disputes
and restrictions, environmental disasters, and other risks. Any disruption to the operations of these manufacturers or distributors could
cause significant delays in the production or shipment of our products and impact our financial condition.

Our success also depends in part on the manufacturing
of TFLN Optical Chips for which we may rely, at least in part, on third-party manufacturers and suppliers. Unforeseen disruption of the
manufacture of TFLN Optical Chips could be caused by a number of events, including a maintenance outage, systems outage or other disruption,
power or equipment failure, fires, floods, earthquakes or other natural disasters, social unrest or terrorist activity, work stoppages,
public health concerns (including pandemics), regulatory measures, or other operational problems. Any disruption in the manufacture of
TFLN Optical Chips resulting from such events could cause significant delays in the development and production of our products.

In addition, we may depend on third-party TFLN
Optical Chips and wafer manufacturing partners or distributors who may be affected by changes in governmental policies, taxation, rising
inflation or interest rates, social instability, geopolitical conflicts and tensions, and diplomatic and social developments which are
outside of our control.

Furthermore, our industry generally relies on
a limited number of TFLN Optical Chips and wafer manufacturers whose operations tend to be concentrated in China and other parts of East
Asia, which makes us especially susceptible to adverse developments in these regions’ economic and political conditions, particularly
to the extent that such developments create an unfavorable business environment that significantly affects our operations. Our supply
chain could be adversely affected by geopolitical tensions, trade restrictions, export controls, tariffs or changs in United States or
foreign government policies affecting cross-border commerce. Although the governments of certain countries, including the United States,
have taken actions to make their countries more attractive for chip manufacturing operations, there can be no assurances that the current
geographic concentration of chip manufacturing will be meaningfully changed in the near term or at all.

If any of these events, or other macroeconomic trends, should cause
a prolonged disruption of operations that impact our third-party TFLN Optical Chips and wafer manufacturing partners, they may experience
operational downtimes or have to operate at reduced capacities, which could have a material adverse effect on our business, financial
condition, and results of operations.

In order to compete, we must attract, retain
and motivate key associates, and the failure to do so could have an adverse effect on our business, financial condition and results of
operations.

We depend on our executive officers and management
team to run our business. As we develop new business models and new ways of working, we will need to develop suitable skill sets within
our organization. In addition, our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified
and skilled employees that have highly technical set of skills. The current market for such positions is highly competitive. Qualified
individuals are in high demand and we may incur significant costs to attract and retain them. Moreover, the loss of any of our senior
management or other key employees or our inability to recruit and develop capable managers could adversely affect our ability to execute
our business plan and we may be unable to find adequate replacements.

Even if we are successful in developing
our products and executing our strategy, competitors in the industry may achieve technological breakthroughs that render our quantum computing
systems obsolete or inferior to other products.

Our continued growth and success depend on our
ability to innovate and develop quantum computing technology in a timely manner and effectively market these products. Without timely
innovation and development, our quantum computing products and services could be rendered obsolete or less competitive by changing customer
preferences or because of the introduction of a competitor’s newer technologies. We believe that many competing technologies will
require a technological breakthrough in one or more problems related to science, fundamental physics or manufacturing. While it is uncertain
whether such technological breakthroughs will occur in the next several years, that does not preclude the possibility that such technological
breakthroughs could eventually occur. Any technological breakthroughs that render our technology obsolete or inferior to other products
could have a material adverse effect on our business, financial condition or results of operations.

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The quantum computing industry is in its
early stages and volatile, and if it does not develop, if it develops slower than we anticipate, if it encounters negative publicity or
if our quantum computing products and services do not achieve commercial adoption, the growth of our business will be harmed.

The nascent market for quantum computers is still
rapidly evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation
and industry standards, and changing customer demands and behaviors. Our success will depend to a substantial extent on the willingness
of our potential customers to use, and increase their utilization of, our products and services, as well as on our ability to demonstrate
the value of quantum computing to their respective organization, government agencies, and other purchasers of quantum computing offerings.
Negative publicity concerning our products and services or the quantum computing industry as a whole could limit market acceptance of
our offerings. If our clients and partners do not perceive the benefits of our products and services, or if they do not drive customer
engagement, then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual and industry concerns
or negative publicity regarding technophobic views in the context of quantum computing could limit market acceptance of our quantum computing
products and services. If any of these events occur, our business, prospects, financial condition and operating results could be harmed.

In addition, our growth and future demand for
our products is highly dependent upon the adoption by developers and customers of quantum computers, as well as on our ability to demonstrate
the value of quantum computing to our customers. Delays in future generations of our quantum computers or technical failures at other
quantum computing companies could limit acceptance of our products and services. Negative publicity concerning our products and services
or the quantum computing industry as a whole could limit acceptance of our products and services. While we believe that quantum computing
will solve many large-scale problems, it is possible that such problems may never be solvable by quantum computing technology. If our
customers and partners do not see the benefits of our products and services, or if our products and services do not drive commercial sales,
then demand for our products and services may not develop at all, or it may develop slower than we expect. If any of these events occur,
it could have a material adverse effect on our business, financial condition and results of operations.

We have experienced in the past and could
also suffer future disruptions, outages, defects and other performance and quality problems with our quantum computing products and services,
our production technology partners or with the public cloud, data centers and internet infrastructure on which we rely.

Our business depends on our quantum computing
systems being available through the cloud with a high level of reliability. We have experienced, and may in the future further experience,
disruptions, outages, defects and other performance and quality problems with our systems. We have also experienced, and may in the future
experience, disruptions, outages, defects and other performance and quality problems with the public cloud and internet infrastructure
on which our systems rely. These problems can be caused by a variety of factors, including failed introductions of new functionality,
vulnerabilities and defects in proprietary and open- source software, hardware components, human error or misconduct, capacity constraints,
design limitations, denial of service attacks or other security-related incidents, foreign objects or debris, weather, construction, supply
chain events, or accidents and other force majeure. We do not have a contractual right with our public cloud providers that compensates
us for any losses due to availability interruptions in the public cloud.

Any disruptions, outages, defects and other performance
and quality problems with our quantum computing system or with the public cloud, internet, and other infrastructure on which they rely
could result in reduced use of our systems, increased expenses, including service credit obligations, and harm to our brand and reputation,
any of which could have a material adverse effect on our business, financial condition and results of operations.

Our future growth and success depend on
our ability to sell effectively to government entities and large enterprises.

Our potential customers are likely to include
government agencies and large commercial enterprises. Therefore, our future success will depend on our ability to effectively sell our
products to such customers. Sales to these end-customers involve risks that may not be present (or that are present to a lesser extent)
with sales to non-governmental agencies or smaller customers. These risks include, but are not limited to, (i) increased purchasing power
and leverage held by such customers in negotiating contractual arrangements with us and (ii) longer sales cycles and the associated risk
that substantial time and resources may be spent on a potential end-customer that elects not to purchase our solutions. In addition, government
contracts generally include the ability of government agencies to terminate early which, if exercised, would result in a lower contract
value and lower than anticipated revenues. Such government contracts also may limit our ability to do business with foreign governments
or prevent us from selling our products in certain countries.

19

Government agencies and large organizations often
undertake a significant evaluation process that results in a lengthy sales cycle. Our contracts with government agencies are typically
structured in phases, with each phase subject to satisfaction of certain conditions. As a result, the actual scope of work performed pursuant
to any such contracts, in addition to related contract revenue, could be less than total contract value. In addition, product purchases
by such organizations are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and
other delays. Finally, these organizations typically have longer implementation cycles, require greater product functionality and scalability,
require a broader range of services, demand that vendors take on a larger share of risks, require acceptance provisions that can lead
to a delay in revenue recognition and expect greater payment flexibility. All of these factors can add further risk to business conducted
with these potential customers and could lead to lower revenue results than originally anticipated.

Additionally, changes in government spending could
negatively impact us. Our anticipated future revenues from the U.S. government are expected to result from contracts awarded under various
U.S. government programs. Cost cutting, including through consolidation and elimination of duplicative organizations, has become a major
initiative for within the U.S. government. Significant reduction in U.S. government spending could have adverse consequences on our prospects,
financial position, results of operations and business.

Our quantum computing systems may not be
compatible with some or all industry-standard software and hardware in the future, which could harm our business.

Since the QPhoton Merger, we have been focusing
more of our efforts on creating quantum computing hardware, in addition to refining the software development platform to access our hardware,
and application programing interfaces to access our systems. The industry is rapidly evolving, and customers have many choices for programming
languages, some of which may not be compatible with our own application programming interfaces. Our quantum computing development platform
is designed to be compatible with most major software languages. If a proprietary (not open source) software toolset became the standard
for quantum application development in the future by a competitor, however, usage of our hardware might be limited, which would have a
negative impact on the Company. Similarly, if a piece of hardware that we could not integrate with became a necessary component for quantum
computing (for instance, quantum networking), the result might have a negative impact on the Company.

Cybersecurity risks and the failure to maintain
the integrity of data belonging to the Company could expose us to data loss, litigation and liability, and our reputation could be significantly
harmed.

We may from time to time collect and retain large
volumes of data relating to our business and from our customers for business purposes, including for transactional and promotional purposes,
and our various information technology systems enter, process, summarize and report such data. The integrity and protection of this data
is critical to our business. Maintaining compliance with the evolving regulations and requirements applicable to data security and information
privacy protection could be difficult and may increase our expenses. In addition, a penetrated or compromised data system or the intentional,
inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent or unlawful use of data relating to our
company or our employees, independent distributors or preferred customers, which could harm our reputation, disrupt our operations, or
result in remedial and other costs, fines or lawsuits.

Remote work has become
more common and has increased risks to our information technology systems and data, as more of our employees utilize network connections,
computers and devices outside our premises or network, including working at home, while in transit and in public locations. In addition,
future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities,
as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it
may be difficult to integrate companies into our information technology environment and security program.

Computer malware, viruses, hacking, phishing
attacks and spamming could harm our business and results of operations.

Computer malware, viruses, physical or electronic
break-ins and similar disruptions could lead to interruption and delays in our services and operations and loss, misuse or theft of data.
Computer malware, viruses, computer hacking and phishing attacks against business networks have become more prevalent and may occur on
our systems in the future.

20

Any attempts by hackers to disrupt our internal
systems, if successful, could harm our business, be expensive to remedy and damage our reputation or brand. We could incur significant
expenses and losses related to direct attacks on our website or internal systems. Efforts to prevent hackers from entering our computer
systems are expensive to implement and may limit the functionality of our services. Though it is difficult to determine what, if any,
harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability
of our products and services and technical infrastructure may harm our reputation, brand and our ability to attract customers. Any significant
disruption to our website or internal computer systems could result in a loss of customers and could adversely affect our business and
results of operations.

We have previously experienced, and may in the
future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes,
third-party service providers, human or software errors and capacity constraints. If our software application is unavailable when customers
attempt to access it or it does not load as quickly as they expect, customers may seek other services.

Our quantum computer products rely on software
that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in
our software code may only be discovered after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our code
after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or difficultly
maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage to our reputation
or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial results.

We expect to continue to make significant investments
to maintain and improve the availability of our cloud- based products and services and to enable rapid releases of new features and products.
To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology
and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.

Unfavorable conditions in our industry or
the global economy could limit our ability to grow our business and negatively affect our results of operations.

Our results of operations may vary based on the
impact of changes in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general
economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial
and credit market fluctuations, inflation, international trade relations, tariffs, public health emergencies (such as the recent COVID-19
pandemic), political turmoil, natural catastrophes, warfare, and terrorist attacks on the United States or elsewhere, could cause a decrease
in business investments, including the progress on development of quantum technologies, and negatively affect the growth of our business.
In addition, in challenging economic times, our current or potential future customers may experience cash flow problems and as a result
may modify, delay or cancel plans to purchase our products and services. Additionally, if our customers are not successful in generating
sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, amounts they owe. Moreover,
our key suppliers may reduce their output or become insolvent, thereby adversely affecting our ability to continue our research and development
activities or manufacture our products.

Furthermore, uncertain economic conditions may
make it more difficult for us to raise funds through borrowings or sales of debt or equity securities. We cannot predict the timing, location,
strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.

21

Government actions and regulations, such
as tariffs and trade protection measures, especially in China and the United States, may adversely impact our business, including our
ability to obtain products from our suppliers

Government actions and regulations, such as tariffs
and trade protection measures, may limit our ability to obtain products from our suppliers or sell our products and services to customers.
Political challenges between the United States and countries in which our suppliers are located and changes to trade policies, including
tariff rates and customs duties, trade relations between the United States and those countries and other macroeconomic issues could adversely
impact our business. During the last few years, including under the new Presidential administration, the United States has imposed tariffs
on certain products imported into the United States from China and some other countries, and China and some other countries have imposed
tariffs on U.S. imports in response. The U.S. government continues to add additional entities, in China and elsewhere, to restricted party
lists affecting the ability of U.S. companies to provide products and technology and, in certain cases, services, to these entities and,
in some cases, to receive products, technology or services from these entities. The U.S. government also continues to increase end-use
restrictions on the provision of products, technology and services to China and other countries including end-uses related to advanced
computing. The new U.S. presidential administration has signaled its intention to use U.S. trade policy, including tariffs and other trade
restrictions, as an important foreign policy tool presenting uncertainty regarding the impact of future trade policies on our business.
As such, there is also a possibility of future tariffs, trade protection measures or other restrictions imposed on our products or on
our customers by the United States, China or other countries that could have a material adverse effect on our business. Our technology
could be deemed a matter of national security and, as such, our customer base could be tightly restricted. We also may accept government
grants that place restrictions on the business’ ability to operate. Any such actions could impact our business operations and have
a material adverse effect on our business prospectus, financial condition and results of operations.

In addition, the Chinese
government exercises significant control over China’s economy through the allocation of resources, control of the incurrence and
payment of foreign currency-denominated obligations, setting of monetary policy and provision of preferential treatment to particular
industries or companies. Changes in any of these policies, laws and regulations could adversely affect the overall economy in China or
our Chinese suppliers, which could harm our business through higher supply costs, reduced availability or both.

Also, due to concerns
with the security of products and services from certain telecommunications equipment and services companies based in China, U.S. Congress
has enacted bans on the use of certain Chinese-origin components or systems either in items sold to the U.S. government or in the internal
networks of government contractors and subcontractors (even if those networks are not used for government-related projects). Further,
the Chinese government has responded to these U.S. actions by developing an unreliable entity list, which may limit the ability of companies
on the list to engage in business with Chinese counterparties.

In June 2022, the import
restrictions contained in the Uyghur Forced Labor Prevention Act (“UFLPA”) became effective. The UFLPA creates a rebuttable
presumption that any goods mined, produced or manufactured, wholly or in part, in the Xinjiang Uyghur Autonomous Region (“XUAR”)
of China, or produced by a listed entity, were made with forced labor and would therefore not be entitled to entry at any U.S. port. Importers
may be required to present clear and convincing evidence that such goods are not made with forced labor. While we do not source items
from the XUAR or from listed parties, and we have increased our supply chain diligence, there is risk that our ability to import components
and products may be adversely affected by the UFLPA.

Given the relatively
fluid regulatory environment in China and the United States and uncertainty regarding how the U.S. government or Chinese and other foreign
governments will act with respect to tariffs and international trade agreements and policies, a trade war, further governmental action
related to tariffs or international trade policies, or additional tax or other regulatory changes in the future could directly and adversely
impact our financial results and results of operations. We cannot predict what actions may ultimately be taken with respect to trade relations
between the United States and China or other countries, what products may be subject to such actions or what actions may be taken by the
other countries in retaliation. If we are unable to obtain or use components for inclusion in our products, if component prices increase
significantly or if we are unable to export or sell our products to any of our customers, our business, liquidity, financial condition
and/or results of operations would be materially and adversely affected.

22

We may become subject to legal proceedings
that could have a material adverse impact on our financial position and results of operations.

From time to time and in the ordinary course of
our business, we and certain of our subsidiaries may become involved in various legal proceedings. All such legal proceedings are inherently
unpredictable and, regardless of the merits of the claims, litigation may be expensive, time-consuming and disruptive to our operations
and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts, injunctive relief or
other equitable relief that may affect how we operate our business. Similarly, if we settle such legal proceedings, it may affect how
we operate our business. Future court decisions, alternative dispute resolution awards, business expansion or legislative activity may
increase our exposure to litigation and regulatory investigations. In some cases, substantial noneconomic remedies or punitive damages
may be sought. Although we maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular
verdict, judgment or settlement that may be entered against us, that such coverage will prove to be adequate or that such coverage will
continue to remain available on acceptable terms, if at all. If we incur liability that exceeds our insurance coverage or that is not
within the scope of the coverage in legal proceedings brought against us, it could have an adverse effect on our business, financial condition
and results of operations.

We intend to continue exploring strategic
business acquisitions and other business combinations and transactions, which are subject to inherent risks.

In order to expand our products and services and
grow our market and client base, we may continue to seek and complete strategic business acquisitions and other combinations, investments,
or partnerships that we believe are complementary to our business. For example, in February 2026, we acquired Luminar. The identification
of suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our
management team from our current operations. The completion of such transactions also have inherent risks that may have a material adverse
effect on our business, financial condition, operating results or prospects, including, but not limited to: (i) failure to successfully
integrate the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to
maintain uniform standard controls, policies and procedures; (ii) diversion of management’s attention from other business concerns;
(iii) entry into markets in which we have little or no direct prior experience; (iv)) failure to achieve projected synergies and performance
targets; (v) loss of clients or key personnel; (vi) incurrence of debt or assumption of known and unknown liabilities; (vii)) write-off
of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; (viii) dilutive issuances
of equity securities; and (ix) accounting deficiencies that could arise in connection with, or as a result of, such transactions, including
issues related to internal control over financial reporting and the time and cost associated with remedying such deficiencies. Even if
we successfully complete a strategic transaction, we may not be able to effectively integrate the acquired business, technology, systems,
control environment, solutions, personnel or operations into our business or not be able to achieve projected results or support the amount
of consideration paid for such acquired businesses or invested in such transactions. In addition, we may incur unexpected costs, claims
or liabilities during the strategic transaction or that we assume from the acquired company, or we may discover adverse conditions post-
acquisition for which we have limited or no recourse, and we may not achieve the anticipated benefits of any strategic transaction.

We have identified material weaknesses
in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain
an effective system of internal control, which may result in material misstatements of our financial statements or cause us to fail to
meet our periodic reporting obligations.

We have identified material weaknesses in
our internal controls over financial reporting as of December 31, 2024 and 2023. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Please see
Item 9A. Controls and Procedures included elsewhere in this Annual Report for more information about identified material
weaknesses.

23

We
are in the process of designing and implementing measures to improve our internal controls over financial reporting to remediate the
material weaknesses described in Item 9A. Controls and Procedures, primarily by implementing additional review procedures within our
accounting and finance department, hiring additional personnel within the Company’s accounting and finance function, designing
and implementing information technology and application controls in our financially significant systems, providing internal resources
with enhanced access to accounting literature and research materials, engaging additional external accounting experts to supplement our
internal resources and increasing communication with third-party professionals with whom we consult regarding the application of accounting
standards on complex transactions and instruments.

While we are designing
and implementing measures to remediate the material weaknesses, we cannot predict the success of such measures or the outcome of our assessment
of these measures at this time. We can give no assurance that these measures will remediate the weaknesses in internal control or that
additional material weaknesses or significant deficiencies in our internal controls over financial reporting will not be identified in
the future. Our failure to implement and maintain effective internal controls over financial reporting could result in errors in our financial
statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations. Further,
any failure to implement and maintain effective internal controls over financial reporting, information technology and management processes
could adversely affect our financial results and the assessments by our independent registered public accounting firm and their attestation
reports, if applicable. Additionally, Astra may not be able to complete our evaluation, testing and any required remediation in a timely
fashion. Finally, our current controls and any new controls that we develop may become inadequate because of poor design and changes in
our business, including increased complexity resulting from any international expansion.

To comply with the requirements
of being a public company, we are undertaking various actions and expect to need to undertake additional actions, such as implementing
new internal controls and procedures and hiring additional accounting or internal audit staff. Failure to comply with the Sarbanes-Oxley
Act could potentially subject us to sanctions or investigations by the SEC, the Nasdaq Stock Market LLC (“Nasdaq”) or other
regulatory authorities, which would require additional financial and management resources.

If we are unable to certify
the effectiveness of our internal controls, or if our internal controls have material weaknesses, we may not detect errors in a timely
manner, our financial statements could be misstated, we could be subject to regulatory scrutiny and a loss of confidence by stakeholders,
which could harm our business, financial condition and results of operations and adversely affect the market price of our securities.
We may also face litigation as a result of the material weaknesses in our internal control over financial reporting. Any such litigation,
whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

Unstable market and economic conditions
may have serious adverse consequences on our business, financial condition and share price.

From time to time the global economy, including
credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, inflation rates higher than historical norms, higher interest rates, bank
failures and uncertainty about economic stability. Any volatility or disruptions in market and economic conditions may have adverse consequences
on us or the third parties on whom we rely. If the equity and credit markets were to deteriorate, including as a result of political unrest
or war, it may make any necessary financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.
While inflation rates have during the last 18 months or so have been more in line with historical levels, the higher than anticipated
inflation rates experienced in the wake of the COVID-19 pandemic did, and any similar higher than normal and/or unexpectedly high inflation
rates in the future, may adversely affect us by increasing our costs, including labor and employee benefit costs, and costs for equipment
and system components associated with system development. In addition, higher inflation could also increase our customers’ operating
costs, which could result in reduced budgets for our customers and potentially less demand for our products and services. Any significant
increases in inflation and related increase in interest rates could have a material adverse effect on our business, results of operations
and financial condition. Further, subsequent decreases in inflation and interest rates may not result in a reduction of costs.

24

We are subject to governmental export and
import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability
if we are not in compliance with applicable laws.

Our products, technology and services are subject
to U.S. export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations,
and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control.
U.S. export control and economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products, technologies,
and services to U.S. Government embargoed or sanctioned countries, governments, persons and entities. In addition, certain products and
technology may be subject to export licensing or approval requirements. Exports of our products and technology must be made in compliance
with export control and sanctions laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees
could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines that may
be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers.

In addition, various countries regulate the import
of certain encryption technology, including through import permit and license requirements and have enacted laws that could limit our
ability to distribute our products and technologies or could limit our end customers’ ability to implement our services in those
countries. Changes in our products or technologies or changes in applicable export or import laws and regulations also may create delays
in the introduction and sale of our products and technologies in international markets or, in some cases, prevent the export or import
of our products and technologies to certain countries, governments or persons altogether. Any change in export or import laws and regulations,
shift in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies targeted
by such laws and regulations could also result in decreased use of our products and services or in our decreased ability to export or
sell our products and services to existing or potential customers. Any decreased use of our products and services or limitation on our
ability to export or sell our products and services would likely adversely affect our business, financial condition and results of operations.

We expect to incur significant costs in complying
with these regulations. Regulations related to quantum computing are currently evolving and we face risks associated with changes to these
regulations.

We may become subject to product liability
claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

We may become subject to product liability claims,
even those without merit, which could harm our business prospects, operating results, and financial condition. We may face inherent risk
of exposure to claims in the event that our products do not perform as expected or malfunction. A successful product liability claim against
us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity
about our quantum computers and business and inhibit or prevent commercialization of other future quantum computers, which would have
material adverse effects on our brand, business, prospects and operating results. Any insurance coverage might not be sufficient to cover
all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside
of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure
additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we
do face liability for our products and are forced to make a claim under our policy.

25

Risks Related to Intellectual Property

Any failure to obtain, maintain and protect
our intellectual property rights could impair our ability to protect and commercialize our proprietary products and technology and cause
us to lose our competitive advantage.

Our success depends, in significant part, on our
ability to obtain, maintain, enforce and defend our intellectual property rights, including patents and trade secrets. We rely upon a
combination of the intellectual property protections afforded by patent, copyright, trademark and trade secret laws in the United States
and other jurisdictions, as well as license agreements and other contractual protections, to establish, maintain and enforce rights in
our proprietary technologies. In addition, we seek to protect our intellectual property rights through nondisclosure and invention assignment
agreements with our employees and consultants and through non-disclosure agreements with business partners and other third parties.

However, we may not be able to prevent unauthorized
use of our intellectual property. Our trade secrets may also be compromised, which could cause us to lose our competitive advantage. Third
parties may attempt to copy or otherwise obtain, use or infringe our intellectual property.

Monitoring and detecting unauthorized use of our
intellectual property is difficult and costly, and the steps we have taken or take in the future to prevent infringement or misappropriation
may not be sufficient. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert
management’s attention, which could harm our business, results of operations, and financial condition. In addition, existing intellectual
property laws and contractual remedies may afford less protection than needed to safeguard our intellectual property portfolio, and third
parties may develop competitive offerings in a manner that leaves us with limited means to enforce our intellectual property rights against
them.

Patent, copyright, trademark and trade secret
laws vary significantly throughout the world. A number of foreign countries do not protect intellectual property rights to the same extent
as do the laws of the United States. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of
the United States and efforts to protect against the unauthorized use of our intellectual property rights, technology and other proprietary
rights may be more expensive and difficult outside of the United States.

Failure to adequately protect our intellectual
property rights could result in our competitors using our intellectual property to offer products, potentially resulting in the loss of
some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, financial condition and operating
results.

Our inability to secure patent protection
or enforce our patent rights could have a material adverse effect on our ability to prevent others from commercializing similar products
or technology.

The application and registration of patents involves
complex legal and factual questions. As a result, we cannot be certain that the patent applications that we file will result in patents
being issued or that our patents (including licensed patents) and any future patents that do issue will afford protection against competitors
with similar technology. Numerous patents and pending patent applications owned by others exist in the fields in which we have developed
and are developing our products and services, and this may make it difficult for us to obtain certain patent coverage on our own. Any
of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable. Furthermore,
patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States,
and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued.

Even if our patent applications succeed, it is
still uncertain whether these patents (or any of the issued patents exclusively licensed to us) will be contested, circumvented, invalidated,
found to be unenforceable or limited in scope in the future. The rights granted under any issued patents may not provide us with meaningful
protection or competitive advantages. The intellectual property rights of others could bar us from licensing and exploiting any patents
that issue from our pending applications, and the claims under any patents that issue from our patent applications may not be broad enough
to prevent others from developing technologies that are similar or that achieve results similar to ours. In addition, patents issued to
us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of
which would increase costs and may adversely affect our business, prospects, financial condition and operating results.

26

We may face patent infringement and other
intellectual property claims that could be costly to defend, result in injunctions and significant damage awards, or limit our ability
to use certain key technologies in the future, all of which could harm our business.

Our success depends, in part, on our ability to
develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property
rights of third parties. However, we may not be aware that our products, services or technologies are infringing, misappropriating or
otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation
or violation.

For example, there may be issued patents of which
we are unaware, held by third parties that, if found to be valid and enforceable, could be alleged to be infringed by our current or future
products, services or technologies. Also, because patent applications can take years to issue and are often afforded confidentiality for
some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover
our current or future products, services or technologies. The strength of our defenses will depend on the rights asserted, the interpretation
of these rights, and our ability to invalidate the asserted rights. However, we could be unsuccessful in advancing non-infringement and/or
invalidity arguments in our defense.

Although we carry general liability insurance,
our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed.
We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our
business, financial condition or results of operations. Even if the claims do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating
results. Further, there could be public announcements of the intellectual property litigation, and if securities analysts, investors or
others perceive the potential impact to be negative or risks to be substantial, it could have an adverse effect on the price of our common
stock. The occurrence of infringement claims may grow as the market for our products, services and technologies grows. Accordingly, our
exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.

Growing our customer base depends upon the
effective operation of our applications with operating systems, networks and standards that we do not control.

We will be dependent on the interoperability of
our applications with operating systems that we do not control, and any changes in such systems that degrade our potential products’
functionality or give preferential treatment to competitive products could adversely affect the usage of our applications on quantum processing
units. Additionally, in order to deliver high quality products, it is important that our products work well with a range of quantum computers,
conventional computers, systems, networks and standards that we do not control. We may not be successful in developing relationships with
key participants in the quantum computing industry or in developing products that operate effectively with these technologies, systems,
networks or standards.

We may not be able to protect our source
code from copying if there is an unauthorized disclosure of source code.

Source code, the detailed program commands for
our operating systems and other software programs, is critical to our business. While, from time to time, we may license portions of our
application and operating system source code to one or more licensees, we take significant measures to protect the secrecy of large portions
of our source code. If a significant portion of our source code leaks, however, we might lose future trade secret protection for that
source code. It may become easier for third parties to compete with our products by copying functionality, which could adversely affect
our revenue and operating margins.

27

Risks Related to Our Common Stock

Our stock price has been and may continue
to be volatile or may decline regardless of our operating performance, and you may lose part or all of your investment.

The market price of our common stock has in the
past and may going forward fluctuate widely in response to various factors, some of which are beyond our control, including:

In addition, the stock markets, including the
Nasdaq on which our common stock is listed, have experienced extreme price and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies. These broad market fluctuations may materially affect our stock price,
regardless of our operating results. Furthermore, the market for our common stock historically has been limited and we cannot assure you
that an active trading market will ever be developed or maintained. The price at which investors purchase shares of our common stock may
not be indicative of the price that will prevail in the trading market. Market fluctuations and volatility, as well as general economic,
market and political conditions, could reduce our market price. As a result, these factors may make it more difficult or impossible for
you to sell your shares of our common stock for a positive return on your investment. In the past, stockholders have instituted securities
class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial
costs and our resources and the attention of management could be diverted from our business.

Future sales of shares of our common stock,
or the perception in the public markets that these sales may occur, may depress our stock price.

The market price of our common stock could decline
significantly as a result of sales of a large number of shares of our common stock. In addition, if our significant stockholders sell
a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Any issuance of additional
common stock by us in the future, or warrants or options to purchase our common stock, if exercised, would result in dilution to our existing
stockholders. Such issuances could be made at a price that reflects a discount or a premium to the then-current trading price of our common
stock. Moreover, the perception in the public market that stockholders might sell shares of our stock or that we could make a significant
issuance of additional common stock in the future could depress the market for our shares. These sales, or the perception that these sales
might occur, could depress the market price of our common stock or make it more difficult for us to sell equity securities in the future
at a time and at a price that we deem appropriate.

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Delays in filing financial reports, internal
control weaknesses, and restatements could hinder our ability to maintain Form S-3 eligibility and adversely affect our business and stock
price.

To maintain eligibility to use Form S-3, we must
be timely and current in our public reporting. There can be no guarantees that we will remain timely and current in our public reporting
in the future. Should we wish to register the offer and sale of our securities to the public without the ability to use Form S-3, both
our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute
any such transaction successfully and potentially harming our financial condition.

While we continue to evaluate steps to remediate
the material weaknesses in our internal control over financial reporting, as effective internal controls are necessary for us to provide
reliable financial reports and prevent fraud, we can give no assurance that the measures we have taken and plan to take in the future
will remediate the material weaknesses or that any additional material weaknesses or restatements of financial results will not arise
in the future due to a failure to implement and maintain adequate internal control over financial reporting, circumvention of these controls,
or otherwise. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately
have the intended effects. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls
and procedures may not be adequate to prevent or identify errors or to facilitate the fair presentation of our consolidated financial
statements. Failure to address and remediate any internal control weaknesses could affect our ability to maintain Form S-3 eligibility
and adversely affect our business, operations, and stock price.

Shares of our currently issued and outstanding
stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price
of the shares of our common stock.

Some of our outstanding shares of common stock
are “restricted securities” within the meaning of Rule 144 under the Securities Act. In addition, we have issued or obligated
to issue options to purchase common stock pursuant to certain employment, director and consultant agreements which shares of common stock,
when purchased pursuant to the exercise of such options, would also be considered “restricted securities.” As restricted securities,
these shares may be resold only pursuant to an effective registration statement or in accordance with the requirements of Rule 144 or
other applicable exemptions from registration under the Securities Act and applicable state securities laws. Rule 144 provides in essence
that an Affiliate (as such term is defined in Rule 144(a)(1)) of an issuer who has held restricted securities for a period of at least
six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1% of the issuer’s outstanding shares of common stock or the average weekly trading volume during the four calendar
weeks prior to the sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person
who is not an Affiliate of the issuer and who has satisfied a one-year holding period. The resale of significant amounts of our common
stock under Rule 144 or under any other exemption from the registration requirements of the Securities Act, if available, or pursuant
to subsequent registrations of shares of our common stock, could cause the market price of our shares of common stock to decline significantly.

We currently do not intend to pay dividends
on our common stock. As a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We currently do not expect to declare or pay dividends
on our common stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends
on our common stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our common
stock appreciates and you sell your shares at a profit.

You may experience dilution of your ownership
interest due to the future issuance of additional shares of our common stock.

We are in a capital-intensive business and we
do not have sufficient funds to finance the growth of our business or the costs of our development projects or to support our projected
capital expenditures indefinitely. As a result, we will very likely require additional funds from future equity or debt financings, which
may include the issuance of shares of preferred stock, convertible debt, or warrants to purchase shares of common stock, to purchase capital
equipment, complete the development of new products and pay the general and administrative costs of our business. We may in the future
issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of holders of our common
stock. We are currently authorized to issue 250,000,000 shares of common stock. The potential issuance of additional shares of common
stock or of preferred stock or convertible debt may create downward pressure on the market price of our common stock. We may also issue
additional shares of common stock or other securities that are convertible into or exercisable for common stock in the future for capital
raising purposes or for other business purposes. Our future issuance of a substantial number of shares of common stock or the sale of
a substantial number of shares in the public market, or the perception that such issuances or sales could occur, could adversely affect
the prevailing market price of our common stock. A decline in the market price of our common stock could make it more difficult to raise
funds through future offerings of our common stock or securities convertible into common stock.

In addition, these new securities could contain
provisions, such as priorities on distributions and voting rights, that could affect the value of our existing shares of common stock.

Our executive officers and directors possess
significant voting power with respect to our common stock, which will limit your influence on corporate matters.

As of February 27, 2026, our directors and executive
officers collectively beneficially own approximately 12.4% of the shares of our common stock including the beneficial ownership of Dr.
Yuping Huang of 10.9% of the shares of our common stock.

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As a result, our insiders have the ability to
significantly influence our management and affairs through the election and removal of the members of our board of directors (the “Board”)
and all other matters requiring stockholder approval, including any future merger, consolidation or sale of all or substantially all
of our assets. This concentrated voting power could discourage others from initiating any potential merger, takeover or other change-of-control
transaction that may otherwise be beneficial to our stockholders. Furthermore, this concentrated control will limit the practical effect
of your influence over our business and affairs, through any stockholder vote or otherwise. Any of these effects could depress the market
price of our common stock.

Our articles of incorporation grant the
Board the power to issue additional shares of common and preferred shares and to designate other classes of preferred shares, all without
stockholder approval.

Our authorized capital consists of 260,000,000
shares of capital stock of which 10,000,000 shares are authorized as preferred stock. The Board, without any action by our stockholders,
may designate and issue shares of preferred stock in such series as it deems appropriate and establish the rights, preferences and privileges
of such shares, including dividends, liquidation and voting rights, provided it is consistent with Delaware law. To date the Board has
authorized two classes of Preferred, Series A and Series B, for a total of 4,630,000 authorized shares, leaving an additional 5,370,000
preferred shares to be authorized at the discretion of the Board.

The rights of holders of our preferred stock that
may be issued could be superior to the rights of holders of our shares of common stock. The designation and issuance of shares of capital
stock having preferential rights could adversely affect other rights appurtenant to shares of our common stock. Furthermore, any issuances
of additional stock (common or preferred) will dilute the percentage of ownership interest of then-current holders of our capital stock
and may dilute our book value per share.