HODL1,lnc.

As a result of the extraordinary change in management that occurred in fiscal 2025, major subsidiaries and assets were improperly transferred, etc., to the former management side, causing a significant decline in net sales and resulting in material operating loss, ordinary loss, and net loss. This has given rise to a situation raising material uncertainty about the going concern assumption. Although the financial statements have been prepared on a going concern basis, the impact of this material uncertainty is not reflected in the financial statements. As countermeasures, the Company is pursuing legal recovery of the subsidiaries and assets, organizational restructuring, early establishment of a revenue base, and consideration of additional fundraising, but all of these are still in progress and their outcomes are also subject to the intentions of stakeholders.

In the course of the extraordinary change in management, major subsidiaries and assets were improperly transferred, etc., to the former management side, resulting in the loss of the Company's business foundation and personnel. The Company group is pursuing legal measures to recover the subsidiaries and assets, but there remains uncertainty regarding the prolongation of litigation and its outcome. The organization has become a hollowed-out shell with zero employees, and substantial time and resources will be required for business reconstruction.

In addition to legal actions aimed at recovering the subsidiaries and assets from the former management side, lawsuits have been filed against the Company by companies within the SEQ Edge group (FISCO Ltd. and High Voltage Capital Co., Ltd.), and multiple lawsuits are proceeding in parallel. The Company recognizes that it has no payment obligations and intends to contest these matters legally; however, additional lawsuits or a prolongation of legal proceedings could increase litigation costs, which may negatively affect business results. The outcome of the litigation is currently uncertain, and there is a risk that the cost burden will continue.

In the process of rebuilding its business foundation, the Company needs to stably secure the funds required for working capital, business development, and organizational restructuring; however, given the impaired financial foundation, there is a risk that the necessary funds may not be secured in a timely manner, which could affect cash flow. The Company is considering fundraising measures such as strengthening internal fund generation, asset recovery, equity financing, and the sale of held assets, but the feasibility and terms of these measures depend on market conditions, creditworthiness, and the progress of negotiations.

The Company is considering fundraising measures involving share issuance, such as equity financing, and if implemented, this may affect the ownership ratio of existing shareholders. The Company states that it will comprehensively consider capital policy while giving due consideration to the impact on shareholders; however, given the impaired state of its financial foundation, the need for fundraising is high, and dilution risk is a realistic concern.

In the course of the change in management by the former management, the organization was hollowed out to the point of having zero employees, resulting in the loss of the personnel and systems necessary to conduct business. The Company is proceeding with organizational restructuring, but recruiting, training, and retaining personnel will take time, which poses a risk of impeding the early establishment of a revenue base. Delays in establishing the organizational structure may also affect the overall schedule of business reconstruction.

Litigation aimed at recovering the improperly transferred subsidiaries and assets is still in progress, and the legal proceedings are expected to be prolonged. A prolongation of litigation could not only increase the cost burden but also hinder the concentration of management resources, potentially delaying business reconstruction. Furthermore, depending on the outcome of the litigation, the possibility that the subsidiaries and assets will not be recovered cannot be ruled out.

Due to the loss of major subsidiaries, businesses, and personnel, net sales have declined significantly compared to the same period of the previous year, and there is currently no stable revenue base. While the Company aims to establish a revenue base at an early stage, the progress of business reconstruction depends on stakeholder support and the outcome of legal proceedings, and there is a risk that business recovery will be significantly delayed if progress does not proceed as planned.

The measures aimed at resolving the material uncertainty regarding the going concern assumption are said to depend on the intentions of stakeholders (investors, financial institutions, business partners, etc.), and if such support is not obtained, the Company may be unable to escape its current situation. The high degree of dependence on external support indicates the limits of the Company group's ability to autonomously reconstruct its business, and there is a risk regarding the continuity and certainty of such support.