CAICA DIGITAL Inc.

In system development undertaken by the subsidiary CAICA Technologies, there is a risk that the company will have to bear additional costs if development troubles or specification changes cause work-hour overruns, or if post-delivery defect remediation becomes necessary. This may affect the Group's business results and financial position. As a countermeasure, detailed estimates are prepared for each development phase in an effort to prevent divergence between estimated and actual work hours.

If a system failure caused by a natural disaster or accident, or the loss of important data due to a virus or unauthorized intrusion, results in prolonged system downtime, the Group may be forced to suspend operations, which could significantly affect business performance. Since the Group's core businesses center on system development and information-system-based services, the impact on business continuity would be particularly severe. The Group works to maintain stable system operation and strengthen security through the establishment of information security management regulations and a security policy.

If confidential customer information handled in the course of providing services is leaked externally, this could result in claims for damages and loss of social credibility, affecting the Group's business results and financial position. CAICA Technologies, which holds Privacy Mark certification, conducts internal awareness activities through employee training and audits. In addition, the Group has established an information management framework by obtaining confidentiality pledges from employees and concluding confidentiality agreements with outsourcing partners.

In the crypto asset investment activities conducted by the Company and its subsidiary Kaika Financial Holdings, risks exist such as an inability to trade or disadvantageous trading due to price volatility or market disruption, derivative trading system failures, failures or bankruptcy of crypto asset exchanges, and theft due to unauthorized access. If these risks materialize, increased response costs and reputational decline could occur, affecting the Group's business results and financial position. At present, no specific disclosure of a maximum loss limit has been made, and disclosure of the detailed risk management framework in the securities report is also limited.

The Group may undertake capital expenditures, establishment of subsidiaries, joint ventures, M&A, and other measures to expand its business, and if the net assets of an investee are significantly impaired or reduced due to deteriorating performance, a valuation loss may occur, affecting the Group's business results and financial position. The securities report states that it can be difficult to accurately predict how the business conditions of investees will affect the Group. As a countermeasure, the Group conducts prior risk and recoverability assessments and continues periodic monitoring after making investments.

The subsidiary Kaika Financial Holdings has been sued by Kushim Co., Ltd. for damages of ¥1,033,935,471 on grounds of joint tort. The Company believes that the transfer of the loan receivables was conducted lawfully and appropriately, but the outcome of the litigation could affect business results, financial position, and cash flows, and the Company states that it is currently difficult to estimate the impact on performance. The Company intends to demonstrate the legitimacy of its position through the litigation process.

The subsidiary Nexs records new product development costs related to IoT products as work in process, and the balance of work in process may increase further as new product development continues. If such products are not commercialized as expected, or if the adoption of local 5G does not progress as initially anticipated, it may become necessary to recognize an impairment loss on work in process, affecting the Group's business results and financial position. This is a structure in which changes in the market environment directly impact financial figures.

While there have been no instances to date of claims for damages or injunctions arising from intellectual property rights infringement, if a customer or third party were to file a claim for damages or an injunction against use in the future, or if payment of patent royalties becomes necessary, this could affect the Group's business results and financial position. The Group conducts its business activities with the utmost care to avoid infringing intellectual property rights.

If a large-scale disaster or serious infectious disease outbreak occurs, the systems and services provided by the Group, as well as its business locations and employees, could be affected, leading to a decline in social credibility and brand image, reduced revenue, and substantial repair expenses, which could affect business results and financial position. The Group addresses this risk by establishing a business continuity framework in accordance with government guidelines and conducting disaster prevention drills.

The Group operates diverse businesses—including system development, crypto asset investment, and IoT product development—through multiple subsidiaries such as CAICA Technologies, Kaika Financial Holdings, and Nexs, creating a structure in which risks specific to each subsidiary can spread to the Group's overall performance. In particular, risks that materialize at the subsidiary level, such as litigation risk and work-in-process impairment risk, could directly affect consolidated performance. The effectiveness of the Group-wide risk management framework is being tested in this environment.