MOBCAST HOLDINGS INC.

The Group has recorded operating losses, ordinary losses, and net losses attributable to owners of the parent for 10 consecutive fiscal years since the fiscal year ended December 2015, and conditions causing doubt about the going concern assumption continue to exist. As a countermeasure, the Group raised ¥1,200 million in funds through the issuance of share subscription rights and other means by the end of the fiscal year under review; however, there remains a possibility that revenue will not improve as planned, which could have a material impact on cash flow. At present, material uncertainty regarding the going concern assumption is recognized, and the consolidated financial statements do not reflect the effects of this uncertainty.

The Investment & Development Business, which aims to enhance the value of IP companies through corporate investment including M&A and generate profit through the sale of shares, is essential to the Group's growth but involves significant uncertainty. During the fiscal year under review, the Group was unable to realize the transfer of held operational investment securities, and if investment returns as planned are not achieved, this could affect operating results and financial condition. There is also an inherent risk that impairment of fixed assets could occur due to deterioration in the future cash flows of held assets.

The Group has begun acquiring the cryptoasset "Solana" as part of its Solana Treasury Business (DAT Business / Validator Business), expecting income gains from staking rewards. However, since the market price of Solana fluctuates significantly, valuation losses, if incurred, could affect the Group's business results. Although this new business is intended to strengthen the financial foundation, it carries a risk that the high volatility of the cryptoasset market could undermine financial stability.

Since trends and preferences for household goods and fashion accessories can change significantly in the short term, business results may be affected if developed products fail to match consumer preferences or if new product development is delayed. If demand forecasting is unsuccessful, excess inventory may arise, and the risk of recording valuation losses on slow-moving inventory could worsen business performance. The Group strives to optimize inventory levels by, among other measures, minimizing order quantities, but complete avoidance is considered difficult.

In April 2021, an information leak occurred due to unauthorized external access, and the Group has continued to implement measures to prevent recurrence. If such measures prove insufficient due to the penetration of digital technology or increasingly sophisticated and elaborate attacks, or if new information leaks or service outages occur due to intentional or negligent acts by employees, this could damage the Group's credibility and brand value and affect its business results and financial condition. The Group is working to strengthen security through measures such as installing servers at data centers and utilizing cloud services.

In the Digital IP Business, against a backdrop of rising development costs and intensifying competition to acquire popular licensed IP, the Group is shifting its strategy toward creating proprietary IP. This entails multiple compound risks, including the risk that proprietary IP created by the Group may infringe upon the intellectual property rights of third parties, image deterioration of IP due to inadequate management, non-acceptance of content due to cultural differences and customs when expanding overseas, and failure to achieve revenue targets if the Group is unable to attract users. The Group has released the horse racing gaming SNS "Oshiuma Derby Blood (service discontinued)" and is working to promote its adoption, but there remains a possibility of impact on business development and operating results.

The Group provides food products at some of its stores, and if large-scale product recalls or product liability issues arise due to product defects or the contamination of raw materials with inappropriate substances, this could affect operating results and financial condition. The Group is subject to various legal regulations, including the Food Sanitation Act, the Product Liability Act, and the Act against Unjustifiable Premiums and Misleading Representations, and there is a risk that tightened regulations or the introduction of new regulations could lead to increased costs or restrictions on business activities. The Group addresses these risks through the establishment of quality assurance systems, the formulation of response manuals, and enrollment in product liability insurance, but unforeseen circumstances cannot be completely ruled out.

Raw materials used in the Lifestyle IP Business are primarily agricultural products, and procurement prices may fluctuate due to changes in harvest volumes caused by bad weather or natural disasters, as well as changes in supply and demand conditions. There is also a risk of rising procurement prices for imported raw materials due to exchange rate fluctuations, and for containers and packaging materials due to crude oil price fluctuations. The Group addresses these risks by securing stable supply sources and negotiating prices in advance, but if stable procurement becomes difficult or procurement prices spike due to unforeseen circumstances, this could affect operating results and financial condition.

Securing excellent personnel involved in IP creation, content planning, and lifestyle product planning and development is essential for the continuation and expansion of business, but the Group recognizes that securing such personnel is not easy given the rapid pace of technological innovation and the small absolute number of personnel with extensive experience. If the Group is unable to secure and appropriately deploy personnel, or if personnel leave the Group, this could affect business development and operating results. The Group is addressing this through strategic investment in its human resources department, which is responsible for group-wide knowledge sharing and incentive design.

If natural disasters such as earthquakes or typhoons, or other events that impede the continuation of business activities occur, this could affect the Group's business and operating results. The Group plans to consider a business continuity plan and implement advance measures according to circumstances, but if physical or human damage far exceeds expectations, business continuity may become difficult.