Astroscale Holdings Inc.

Most of the EOL, ADR, and LEX services have not yet completed on-orbit demonstration, and failure or delay in technology development could significantly delay or force abandonment of service launches. In the case of ELSA-d, a thruster malfunction resulted in some planned demonstrations not being carried out. If a demonstration failure or loss of a satellite occurs, in addition to the risk of damage claims or contract cancellations from customers, the Group may incur losses not fully covered by insurance.

In FY2025 (ended April 2025), government and defense agencies accounted for 99.0% of project revenue, with the U.S. Space Force at 30.9%, MEXT at 28.7%, JAXA at 14.3%, and Eutelsat OneWeb at 13.9%, and the top four customers together reaching 87.8%. Reductions in government budgets, policy changes, or contraction/termination of transactions with major customers due to service delays could have a material impact on business and financial condition. Under phased bidding structures, there is also a risk of not winning subsequent phases, and revenue diversification toward private-sector customers may not proceed as planned.

The Company has recorded operating losses and net losses continuously since its second fiscal period, and losses are expected to continue for some time due to increasing expenses from R&D and headcount growth. If customer contract terminations, delays or failures in technology development or launches, and failure to acquire expected customers occur in combination, achieving profitability could be delayed or become difficult. There is also a risk that profitability, once achieved, may not be maintained.

The on-orbit servicing market is still in its infancy, and the market may not expand as the Group anticipates due to factors such as inadequate or ineffective debris removal regulations, deteriorating finances or reduced launch plans among constellation operators, substitution due to improved PMD rates of customer satellites, increasing difficulty of operations due to deteriorating space environment, and reductions in government space-related budgets worldwide. If market expansion is delayed, it may become difficult for the Group to achieve its targeted profitability, which could have a serious impact on the business, results of operations, and financial condition.

The Group does not possess its own launch technology and faces the risk of total loss of servicer satellites due to delays, failures, or insufficient orbit insertion accuracy by rocket launch service providers. Launch contracts generally include terms favorable to the launch provider, such as mutual indemnification clauses, and ADRAS-J actually experienced a delay from its originally planned September 2023 launch to February 18, 2024. There is also a risk of schedule changes and increased costs for private launch providers due to prioritization of national projects.

Because the Group handles confidential information and dual-use technologies for government and defense agencies, it is relatively more likely to be targeted by cyberattacks compared to other industries. If technical or customer information is leaked or lost due to a cyberattack or unauthorized access, this could result in a significant decline in competitiveness, legal violations, suspension from bidding on government projects, and other consequences, materially affecting the business, results of operations, and financial condition. There is also a risk that hacking or communication interference targeting on-orbit services could render service execution impossible, potentially resulting in substantial damages and security remediation costs.

Operating cash flow has been negative continuously since the Company's founding, and as a research-and-development-oriented company without sufficiently stable revenue sources, continuous fundraising is essential to sustain the upfront investment required to realize the On-Orbit Servicing Business. Failure to raise funds at the necessary timing and on appropriate terms could have a serious impact on the business, results of operations, and financial condition. The Company has borrowings with covenant provisions from multiple financial institutions, and breach of financial covenants could result in loss of the benefit of the term and forced immediate repayment.

Representative Director, President and CEO Mitsunobu Okada plays a central role in business strategy, corporate culture, brand building, and shaping industry regulation, and his unexpected departure could impede business continuity. The loan agreement with MUFG Bank (total available amount of ¥10,000,000 thousand, including ¥2,000,000 thousand in subordinated loans) includes a clause triggering loss of the benefit of the term if Mr. Okada ceases to serve as Representative Director and President, which, if triggered, could have a serious impact on financial condition.

The Group has operations in Japan, the UK, the US, Israel, France, and other locations, and has entered into multiple contracts with government agencies, so geopolitical events could cause delays in export authorization, license acquisition, decision-making, and payments. The Israel site is a manufacturing base for the LEX service, and deterioration of the situation in the Middle East is expected to affect human resources, the supply chain, and physical assets. There is also a possibility that U.S. FOCI regulations and similar rules could impose certain restrictions on the Company's management of its U.S. subsidiary as a non-U.S. company.

The Group operates multinational businesses with the Japanese yen, U.S. dollar, British pound, and euro as its main functional currencies, and significant exchange rate fluctuations could materially affect the consolidated financial statements. Overseas procurement of satellite components and other items involves a substantial portion of foreign-currency-denominated transactions, while fundraising is mainly conducted in Japanese yen, so yen depreciation effectively reduces the funds available for international transactions. As of the filing date of this document, no foreign exchange hedging transactions have been implemented, and even if implemented in the future, there is no guarantee that all risks can be hedged.