KLab inc.

The Group has continuously recorded operating losses and negative cash flows from operating activities, giving rise to a situation raising material doubt about its ability to continue as a going concern. As of the end of the fiscal year under review, the Group judges that such doubt has been resolved through measures including the implementation of voluntary early retirement programs, fixed cost reductions through office downsizing and relocation, sale of investment securities, and fundraising through the issuance of new shares and share subscription rights. However, there remains a risk that the financial condition could deteriorate again depending on the success of new titles and the progress of new businesses.

The Group depends on the Game Business as its source of revenue, and the degree to which a title becomes a hit significantly affects business performance. In recent years, rising demands for development quality have led to a continuing trend of longer development periods and increased development costs. If a title fails to become a hit, or if a game already in operation declines faster than planned, impairment of intangible fixed assets (software) may occur. The Group seeks to reduce this risk by acquiring strong IP, narrowing its focus to genres of strength, and continuously holding events and adding overseas distribution areas to acquire users.

As part of its financial strategy, the Group holds Bitcoin and gold (ETFs, etc.). The market price of Bitcoin may fluctuate significantly due to factors such as economic conditions, monetary policy, and regulatory developments. If the fair value at the end of the fiscal period falls significantly below the acquisition cost, recording of valuation losses may adversely affect the Group's financial position and operating results. The Group seeks to reduce this risk through diversified holdings with gold (ETFs, etc.) and disciplined rebalancing, but the high volatility unique to cryptoassets remains an ongoing risk factor.

The Group's Game Business is highly dependent on revenue from two platform providers, Apple Inc. and Google Inc. If these companies change their terms of service or fee structures, this could have a direct impact on the Group's business and operating results. Decisions made by platform providers are external factors beyond the Group's control, and the high dependence on specific platforms constitutes a structural risk. At present, the securities report does not describe specific diversification measures.

In the mobile online game market, developers and publishers around the world are constantly launching new titles, and competition may intensify further due to new entrants from competitors and other entertainment industries. The Group seeks to acquire and differentiate global IP by leveraging its IP expression capabilities, game engine, operational know-how, and global distribution expertise, but if competition intensifies further, this could affect the Group's business and operating results.

The spread of advanced technologies such as generative AI is causing rapid changes in business structures and market trends. Progress in AI technology may lower barriers to entry for competitors, and as publishers' hurdles for in-house development decrease, there is a risk of reduced opportunities for outsourced and joint development. There are also risks of third-party intellectual property infringement or leakage of confidential information due to inappropriate use of generative AI, as well as damage to brand image from negative user reactions to creative works. The Group is addressing this by formulating generative AI usage guidelines, providing employee training, and strengthening recruitment and development of specialized personnel, but delays in response could lead to reduced competitiveness.

Some of the Group's games use characters and other elements whose rights are held by third parties, under license agreements. If the Group becomes unable to use such characters for any reason, this could affect its business and operating results. The Group strives to build good relationships with rights holders by respecting IP and IP fans, developing coordinated systems between administrative and business divisions, and complying with laws and regulations, but it is difficult to reasonably predict the likelihood and timing of this risk materializing.

Overseas, unexpected changes in political and economic conditions, social circumstances, laws and regulations, etc. may prevent business from developing as planned, and differences in foreign consumers' preferences and consumption behavior may create risks that overseas market expansion does not proceed as planned. In addition, since the Group conducts business globally and holds foreign currency-denominated transactions and receivables/payables, fluctuations in exchange rates may affect its operating results. The Group seeks to reduce this risk by striving to understand various overseas conditions and responding appropriately as needed.

If servers go down due to failures in computer systems or communication networks, power supply disruptions, natural disasters, accidents, etc., this could affect the Group's business and operating results, and the discovery of fraudulent activity could lead to user attrition through damage to service trust and brand reputation. There is also a risk of incurring costs exceeding the original plan or having to bring forward capital expenditures to resolve such issues. The Group seeks to reduce this risk by using a combination of cloud infrastructure and its own server infrastructure, duplicating equipment, and implementing multiple security measures.

Legal regulations and tax systems related to cryptoassets, including Bitcoin, are still being developed in various countries. Future tightening or changes in regulation could result in restrictions on holding or disposal, or additional costs, affecting asset value and liquidity. Additionally, if the external exchange operators used for custody experience cyberattacks, system failures, or loss or theft of private keys, held assets could be lost and difficult to recover. The Group seeks to reduce this risk through continuous monitoring of regulatory developments, review of holding formats, and by selecting reliable external institutions with established security systems and building a management framework based on internal regulations.