DLE Inc.

The Group has continued to record operating losses and negative operating cash flows through the current consolidated fiscal year, and recognizes that events or conditions exist that raise material doubt about its ability to continue as a going concern. Although the Group has implemented measures such as scrapping unprofitable subsidiaries/businesses and raising funds through equity finance, these measures are still in progress, and depending on future business progress, they could have a material impact on business performance and cash flow. The Group continues to aim for cash generation through the sale of financial assets and early achievement of operating profit and positive operating cash flow through its two pillars of Alternative Video Production and AI Video Production.

The performance of the marketing service and licensing service businesses is susceptible to economic trends, and if companies reduce their marketing initiatives or demand for character merchandise declines, the Group's business and performance could be affected. In the event of economic difficulties such as a global pandemic, a decline in the number of orders received is also a concern. Although the internet advertising market is expected to remain steady, there is also a risk that the market size may not develop as anticipated.

Not all new IP will necessarily match user preferences, and progress may not proceed as initially planned. If the growth of numerous IPs does not proceed as planned, this could impact performance, such as through the recording of impairment losses on investments in production committees. The Company seeks to mitigate this risk by continuously developing new IP to build out its IP portfolio.

The Group actively utilizes generative AI as a video production tool; however, content generated by AI may infringe on third-party rights such as copyrights, which could lead to a decline in social credibility and affect operating results and financial condition. The Group is addressing this by strengthening employee awareness training and developing guidelines.

The Group currently employs Adobe Animate and generative AI as its main video production tools; however, if technological innovation in production tools progresses faster than anticipated and the Group is unable to smoothly transition to new tools, this could affect its business and performance. The Company is pursuing diversification of expression methods through the adoption of new production tools, seeking to enhance added value.

If the recognition level of owned IP significantly exceeds the level of copyright protection, opportunity losses from pirated copies, counterfeit goods, and illegal distribution could exceed promotional costs. In its global IP expansion, the Company plans to flexibly select IP strategies while balancing IP recognition and copyright protection levels, and to respond appropriately on a case-by-case basis.

In global expansion, potential risks exist including changes in market needs and preferences in each country, economic fluctuations, political and social unrest, changes in laws and regulations, and significant exchange rate fluctuations. Failure to address these risks could affect the Group's business and performance.

The Group is a small organization, and the promotion of business strategy tends to be heavily dependent on the person in charge of each department. If the securing and training of personnel does not proceed as planned, or if personnel turnover occurs, this could hinder the promotion of business strategy. The Company plans to promote recruitment and skills development and to enhance its internal management systems.

In the advertising and video production business, some projects require several months to about a year from order receipt to collection of accounts receivable, and the collection period for accounts receivable tends to lengthen particularly with the expansion of the film business. If temporary working capital requirements increase, this could affect cash flow. Since business partners are mainly major industry players, the Group addresses collection risk through thorough credit management.

If stock options granted as incentives to directors, employees, and business partners are exercised, new shares will be issued, potentially diluting the share value and voting rights ratio of existing shareholders. As of the end of the current consolidated fiscal year, the number of potential shares was 1,864,200, equivalent to 4.29% of the total number of issued shares of 43,448,440.