FISCO Ltd.

Net losses have been recorded for four consecutive periods including the current fiscal year, giving rise to material events that raise substantial doubt about the company's going concern assumption. Extraordinary losses of ¥29 million were recorded due to a surcharge payment to the Financial Services Agency associated with the correction of crypto asset valuations in prior periods, among other factors. Cash and deposits (excluding time deposits) at the end of the fiscal year under review stood at ¥192 million, showing an improving trend due to a cost reduction of approximately ¥123 million compared to the previous fiscal year and the recording of operating income and ordinary income; however, achieving stable profitability remains an ongoing challenge.

The company holds crypto assets, and price fluctuations arising from various factors may affect its business performance and financial condition. In a prior period, corrections to the valuation amount and valuation timing of crypto assets were required, resulting in a surcharge payment to the Financial Services Agency and the recording of extraordinary losses of ¥29 million. As the company develops its Crypto Asset & Blockchain Business, managing price volatility risk has become a critical issue directly linked to financial stability.

In the Information Services Business and Advertising Agency Business, sales from specific business partners account for a high proportion of revenue, and if issues arise in transactions with such partners, this could have a material impact on business performance. The company is implementing measures to develop new business partners in order to reduce this dependence, but the securities report explicitly states that such measures may not necessarily succeed. Concentration of the customer base continues to exist as a risk factor that undermines the stability of earnings.

In handling customers' personal information and confidential information of other companies in the Information Services Business and other businesses, if erroneous or unauthorized leakage of information occurs, this could damage the brand value of the company, whose most important management policy is to be "neutral and fair," potentially having a material impact on its social credibility. Compliance with domestic and international laws and regulations (the Financial Instruments and Exchange Act, the Act on the Protection of Personal Information, etc.) is required, but it is recognized that completely avoiding compliance risk is difficult. Should misconduct by officers or employees occur, this could also have a material impact on business performance and financial condition.

Fluctuations in domestic and overseas economic conditions, reorganization within the financial industry—a key customer segment—and sharp fluctuations in financial markets such as stocks and foreign exchange may have a material impact on business performance and financial condition. In addition, if the company fails to respond to the sophistication of financial market analysis methods and the diversification of service delivery methods, there is a risk that its services will no longer match customer needs. It is explicitly stated that the timing and impact of these fluctuations are difficult to predict.

The company's business is highly dependent on human resources, and the departure of talented personnel resulting in the outflow of know-how and technology, or failure in the continuous training and securing of personnel, may affect business performance. In addition, if human error leads to mistakes in information or distribution errors, the information provided may contain inappropriate content or infringe on third-party rights, potentially damaging brand value. Securing the quality and quantity of personnel is fundamental to business continuity in maintaining the quality of the Information Services Business.

If core systems such as the database management and operation system, content distribution system, and Club FISCO operation management system experience failures due to natural disasters, fires, or unauthorized external intrusion, this could have a material impact on the business. Although measures such as strengthening server room monitoring, duplicating power supplies, equipment, and programs, and installing firewalls have been implemented, complete protection is difficult to achieve. Unexpected distribution failures due to system malfunctions could lead to a decline in evaluation from customers and business partners, potentially affecting subsequent business strategy as well.

The company may undertake capital expenditures, establishment of subsidiaries, joint ventures, M&A, and other activities aimed at business expansion, and it may be difficult to accurately predict the impact that the business conditions of investees will have on the company. If invested or loaned amounts cannot be recovered, this could affect business performance and financial condition. Although prior risk assessments and evaluations of recoverability are conducted, the possibility of sudden business investment funds or acquisition funds arising in connection with entry into new businesses is also anticipated.

Taking into account specialization, internationality, efficiency, and avoidance of conflicts of interest, new businesses are developed group-wide through separate legal entities; however, depending on the performance of group companies, the expected profits may not materialize, potentially having a material impact on the company's business performance and financial condition. The management conditions of group companies directly affect the standalone financial position of the company, making monitoring of investees important.

Because many of the domestic financial institutions and business companies that are the main customers of the Information Services Business have a fiscal year ending in March, contract cancellations tend to occur during the company's first half (around the time of customers' fiscal year-end), while additional and new contracts tend to increase in the second half, creating a seasonal skew. This imbalance in the revenue structure may affect first-half cash flow and the accuracy of business performance forecasts.