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significant  diversion  of  management’s  attention  and  resources  and  significant  defense  costs  and  other 
professional fees.

Governmental  trade  controls,  including  export  and  import  controls,  sanctions,  customs 
requirements,  and  related  regimes,  could  subject  us  to  liability  or  loss  of  contracting 
privileges or limit our ability to compete in certain markets.

Our models, platform, and applications are subject to U.S. export controls, and our current or future models, 
platform, and applications may be controlled under the Export Administration Regulations administered by the 
U.S.  Department  of  Commerce  or,  in  more  limited  circumstances,  under  the  International  Traffic  in  Arms 
Regulations  (the  “ITAR”)  administered  by  the  U.S.  Department  of  State.  Because  the  capabilities  of  our  AI 
models are currently evolving rapidly through ongoing training and frequent model development, and because 
the  export  control  treatment  of  AI  technologies  under  relevant  laws  is  developing,  the  classification  of,  and 
controls  related  to,  our  models,  platform,  applications,  and  technologies  under  these  regimes  is  inherently 
uncertain  and  is  likely  to  change  over  time.  Certain  of  our  models,  platform,  and  applications,  and  the 
underlying  technology  and  source  code  associated  with  our  models,  platform,  and  applications,  may  require 
authorization for export, re-export, or transfer in-country, and for individuals of certain nationalities to access 
such technology or source code, including within the United States. 

In particular, our core models, platform, and applications leverage encryption for data protection, and some of 
our  future  models,  platform,  and  applications  may  be  able  to  produce  export-controlled  software,  which  may 
subject  exports,  re-exports,  and  transfer  of  such  models,  platform,  and  applications  to  export  authorization 
requirements.

Our  commercially  available  models,  platform,  and  applications  generally  can  be  exported  without  an  export 
license. However, some exports may require us to obtain authorization from the cognizant government agency. 
In  certain  contexts,  the  provision  of  our  models,  platform,  and  applications  may  constitute  export  of  defense 
articles or defense services subject to the ITAR, which can be exported only if we obtain required export licenses 
or other government authorizations. Compliance with applicable export controls may delay the introduction or 
sale of our models, platform, and applications outside the United States, restrict our customers’ ability to deploy 
our  models,  platform,  and  applications  globally,  inhibit  our  ability  to  engage  in  certain  research  and 
development activities, limit the performance of our models, platform, and applications, or prohibit exports to 
certain  jurisdictions  altogether.  Such  restrictions  have  already  affected  our  offerings  directly.  For  example,  in 
June  2026,  the  U.S.  Department  of  Commerce  imposed  worldwide  export  restrictions  on  our  Fable  5  and 
Mythos 5 models. To ensure compliance, we disabled Fable 5 and Mythos 5 for all of our customers; access to 
our  other  models  was  not  affected.  We  re-deployed  the  Fable  5  and  Mythos  5  models  after  we  updated  our 
safeguards in coordination with the U.S. government and our industry partners and once the U.S. Department 
of Commerce lifted its restrictions. Similar export controls could recur, could remain in place longer, or could 
extend  to  additional  models  or  capabilities.  In  addition,  future  updates  to  our  safeguards  or  other  remedial 
measures may not be sufficient to obtain relief from such restrictions or relief may not be granted on a similar 
timeline or at all. The restrictions imposed in June 2026 and potential restrictions in the future may also limit 
our  ability  to  recruit  talent,  to  fully  utilize  our  existing  workforce,  to  continue  to  improve  our  models,  and  to 
make our products available internationally. Any such restrictions could adversely affect our financial results; 
impair  the  research,  compute,  and  development  investment  our  models  represent;  and  cause  us  to  lose 
customers, partners, and market share, including to competitors not subject to similar restrictions. 

Further, our activities are subject to economic, financial, and trade sanctions administered by the United States 
and other countries. Economic, financial, and trade sanctions restrict or prohibit providing certain services and 
engaging  in  certain  transactions  or  other  activities  or  dealings  with  individuals,  entities,  organizations, 
governments, territories, and countries targeted by or the subject of these sanctions. These restrictions, as well 
as other applicable international trade rules, are subject to change with little to no notice. In addition, U.S. law 
increasingly  authorizes  the  U.S.  government  to  restrict  or  review  the  use  of  hardware,  software,  and  services 
originating  from,  or  linked  to,  countries  it  designates  as  adversaries,  including  such  technology  incorporated 
into the supply chains for the data centers and compute infrastructure on which we depend. Such restrictions 
could  narrow  our  choice  of  suppliers,  delay  our  infrastructure  projects,  or  increase  our  costs,  and  any 
noncompliance could result in penalties, loss of contracting privileges, or reputational harm.

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