MBK Co.,Ltd.

The Group conducts investment operations in domestic and overseas equities, and may be significantly affected not only by fluctuations in the share prices of listed stocks but also by the timing and pricing of the public listing or sale of unlisted shares. Since sales at prices exceeding acquisition cost are not guaranteed, capital losses, recognition of valuation losses, or failure to recover invested funds may occur. These factors have a direct impact on the Group's financial position and operating results.

The Group conducts investment operations in domestic and overseas real estate, and significant fluctuations in the real estate market may affect its financial position and operating results. Sales of real estate held for sale and securities backed by real estate at prices exceeding acquisition cost are not guaranteed, giving rise to inherent risks of capital losses, valuation losses, and failure to recover invested funds. Real estate transactions involve large monetary amounts, and, combined with the actions of competitors, this affects transaction opportunities and pricing.

The Group raises funds through both capital contributions from equity investors and borrowings from financial institutions, so a rise in interest rate levels directly leads to an increase in funding costs. In addition, there may be knock-on effects such as a rise in the expected returns demanded by client investors and declines in the prices of stocks, real estate, and other assets, which could adversely affect the Group's financial position and operating results. Some loan agreements with financial institutions include financial covenants, and there are concerns that a downturn in performance could seriously affect the Group's cash flow.

Some loan agreements between the Group and financial institutions include financial covenants, which may be breached in the event of significant impairment of net assets or a prolonged downturn in performance. A breach could seriously affect the Group's cash flow and pose a risk to business continuity. Given the nature of investment operations, net assets and performance tend to deteriorate simultaneously during market downturns, creating a structure in which the risk of covenant breach can readily materialize.

The Group conducts investment activities primarily targeting the East Asia region, centered on China, and fluctuations in foreign exchange rates may affect its financial position and operating results. For some investments, the Group hedges risk through forward foreign exchange contracts and foreign-currency-denominated borrowings, but there is no guarantee that all foreign exchange risk can be avoided. If combined with sudden changes in the international situation or regulatory changes, the impact could be further amplified.

In conducting business overseas, the Group is exposed to a variety of inherent risks, including unpredictable changes in local laws and regulations, sudden shifts in political and economic conditions, and social unrest caused by terrorism or war. Although the Group conducts its management activities in accordance with local laws, regulations, and business customs, the occurrence of such events may affect its financial position and operating results. In particular, due to the concentration of investments in the East Asia region, the Group's operations are structurally susceptible to geopolitical risk.

The Company, which serves as the core of the Group, operates with a small-scale organization and structure, and its internal control system remains commensurate with this organizational scale. In the event of rapid business expansion, the Group may be unable to respond adequately in terms of personnel and organizational capacity, which could affect its financial position and operating results. While the Group is working to develop human resources, including external hires, and to strengthen its internal control systems, its organizational response capacity currently remains limited.

Officers and employees engaged in investment operations and management duties are required to have considerable knowledge, ability, and business experience, and under a lean, elite-focused organizational structure, the resignation or leave of absence of core personnel poses a risk of operational difficulties. The Group implements measures such as securing replacement personnel, enhancing recruitment activities, and utilizing outsourcing, but replacing highly specialized personnel is not easy. The loss of personnel directly affects the quality of investment decisions and the ability to execute operations, and may adversely affect operating results.

As of the end of the fiscal year under review, the top three major shareholders (Art Port Invest Co., Ltd., Porto Co., Ltd., and TOTAL NETWORK HOLDINGS LIMITED) held a combined voting rights ratio of 63.33%, and the manner in which these major shareholders exercise their voting rights or dispose of their shares in the future may significantly affect corporate governance. Each major shareholder has indicated that it has no joint holding relationship with the others, does not intend to exercise voting rights in a unified manner, and intends to hold its shares on a stable basis; however, the possibility of a future change in policy cannot be ruled out. From the standpoint of protecting the interests of minority shareholders, this remains a governance issue requiring ongoing attention.

The Group's Merchant Banking Business is subject to regulation under the Financial Instruments and Exchange Act, the Building Lots and Buildings Transaction Business Act, the Money Lending Business Act, and other laws, and if the Group becomes subject to administrative sanctions for any reason, this could have a material impact on its business performance. In addition, there is a risk that future changes to various regulations or changes in the interpretation or application of laws could make it difficult to obtain necessary licenses and permits or to take other necessary measures. Changes to accounting standards concerning the scope of consolidation for investment partnerships and similar entities are also cited as an additional regulatory risk that could affect the Group's operating results and financial position.