CyberStep Holdings, Inc.

Following four consecutive fiscal years of losses through the previous consolidated fiscal year, the Group recorded an operating loss of ¥1,787 million, an ordinary loss of ¥1,916 million, and a net loss attributable to owners of the parent of ¥1,695 million in FY2025 (ending May 2025), while cash flow from operating activities was negative ¥2,048 million. Cash and cash equivalents at fiscal year-end declined to ¥212 million, giving rise to a material concern regarding cash flow and an event that raises material doubt regarding the going concern assumption. As countermeasures, the Group has raised funds through a third-party allotment of new shares and the issuance of the 41st series of stock acquisition rights, implemented cost reductions, and pursued measures to improve profitability; however, as these measures remain in progress, it is recognized that material uncertainty exists at this time.

Prolonged development periods for new titles led to delayed releases and increased development costs, while at the same time competition intensified due to other companies entering markets for existing titles, resulting in sluggish sales and reduced profits. Competitor entry into the online game market is an ongoing risk, and improving the profitability of existing titles Online Crane Game Toreba and Terabit has become an urgent priority. As countermeasures, the Group is pursuing differentiation strategies against other companies, global service expansion, the rollout of the new content "Furusato Catcher," and collaborations with influencers.

In FY2025 (ended May 2025), the overseas sales ratio reached 37%, and since overseas sales are conducted in local currencies, fluctuations in exchange rates directly affect operating results and financial condition. In the event of significant exchange rate movements, the yen-converted value of foreign currency-denominated sales may increase or decrease, creating a risk of earnings volatility. As a countermeasure, the Group seeks to reduce foreign exchange risk by concluding yen-denominated transaction contracts with major business partners.

Since the Group grants operating rights through license agreements with overseas online game operating companies, primarily in the Asian region, changes in the domestic economic environment, policies, legal regulations, and tax systems of the licensee countries, as well as changes in the business environment of the operating companies, may affect operating results. If this risk materializes, it may reduce sales and the amount of accounts receivable collected, becoming a factor that deteriorates earnings. As a countermeasure, the Group hedges this risk through fund management, adjustment of timing and amounts, and continuous receivables management.

Since online game services are provided via servers, there is a risk that service provision could become impossible if systems go down due to natural disasters such as earthquakes, computer viruses, power outages, communication failures, and the like. There is also a risk that servers could become inoperable due to unauthorized external intrusion, employee error resulting in content alteration, deletion of important data, unauthorized acquisition of data, or excessive load from concentrated access, which could lead to claims for damages or loss of credibility. As countermeasures, the Group is working to duplicate servers, thoroughly manage entry and exit from server rooms, and strengthen its management system.

Since the operation of online game services involves the handling of users' personal information, a leak of such information could result in loss of credibility and legal liability. As countermeasures, the Group is strengthening security on its computer systems, establishing and operating personal information protection regulations, and publishing its personal information protection policy. In addition, the Group works on regular identification and guidance regarding issues by the Internal Audit Office, strengthening of information handling management by the systems department, and formulation of measures to prevent information leakage to outside parties.

In the business centered on the planning, development, and commercialization of online games, securing excellent personnel such as programmers, designers, and planners is essential for the continuous improvement of game titles currently in commercial service and the development of new titles. If the Group is unable to secure a diverse range of specialized personnel as planned due to recent changes in the labor market environment, it may face difficulties in expanding existing businesses and building development systems for new businesses, which could affect operating results. As countermeasures, the Group is strengthening personnel development, including support for obtaining various qualifications, and striving to recruit excellent new graduates as well as highly specialized personnel who can contribute immediately.

While proceeding with the development of multiple new titles, development periods have become prolonged, and releases have been delayed from initially planned timing, resulting in increased development costs and, in the past, sluggish sales and reduced profits. The full-scale rollout of games for smartphones and tablet devices is also an urgent priority, requiring the securing of personnel with relevant experience. Since development delays are directly linked to the deterioration of cash flow, this represents a particularly significant risk given the Group's current financial condition.

To resolve the material doubt regarding the going concern assumption, the Group raised funds through a third-party allotment of new shares and the issuance of the 41st series of stock acquisition rights; however, further fundraising will be necessary going forward. If additional fundraising cannot be implemented as planned, material concerns regarding cash flow may arise, and it is recognized that material uncertainty regarding the going concern assumption exists at this time. The consolidated financial statements have been prepared on a going concern basis, and the impact of this uncertainty is not reflected in the financial statements.

As part of its profitability improvement measures, the Group is promoting the Merchandising Business as a new business, based on license agreements for the production and sale of goods with domestic artists. While the Group conducts in-house product planning, development, manufacturing, sales, and event hosting, this new business entails uncertainty regarding market environment changes and demand, and if the expected earnings contribution is not achieved, it could affect the profitability improvement plan. The Group seeks to reduce this risk by leveraging IP-handling know-how and expertise in prize procurement, logistics, and planning cultivated through its existing Online Crane Game Toreba business.