Axelspace Holdings Corporation

Because of upfront investment in research and development for both the AxelLiner Business and AxelGlobe Business, the Group needs to continue raising external funds, and if it is unable to raise funds or fails to do so on favorable terms, a cash flow shortfall or delay/abandonment of business plans may occur. Through the public offering associated with the listing on the TSE Growth Market in August 2025, the Group raised ¥7,128,010 thousand, and cash and deposits at the end of the current consolidated fiscal year stood at ¥5,006,833 thousand, but continued fundraising through share issuance (dilution risk) or borrowing is expected to be necessary going forward. There exists a material event or circumstance that raises substantial doubt about the Group's ability to continue as a going concern, and there is also a concurrent risk of breaching the financial covenants attached to the loan agreements with Sumitomo Mitsui Banking Corporation and Mizuho Bank.

At the end of the current consolidated fiscal year, venture capital firms and others held 59.5% of the total number of issued shares, and depending on future stock price movements, they may sell all or part of their holdings. If large-scale sales occur, the supply-demand balance in the stock market could be temporarily disrupted, adversely affecting the share price. In addition, the number of potential shares from stock acquisition rights is 5,452,000 shares (equivalent to 12.6% of the 43,390,000 total issued shares), and there is also a concurrent dilution risk upon exercise.

Technical demonstration of the general-purpose bus system has not been completed; the demonstration satellite "PYXIS" failed to complete on-orbit demonstration due to a failure in its power supply system, and the demonstration experiment on "GRUS-3α," launched in June 2025, may also fail to complete as planned due to malfunctions or space weather conditions. Combined with the risk of delayed development of AxelLiner Terminal and stable-operation risk arising from software complexity, monetization may be significantly delayed. The Company has signed MOUs with multiple private companies, but there is no guarantee that final agreements will be concluded, and even where they are concluded, the terms may differ substantially from those in the MOUs.

In the current consolidated fiscal year (FY2025 (ended May 2025)), sales to NEDO accounted for 72.3% of total sales, NICT for 11.0%, and the Ministry of Economy, Trade and Industry for 6.8%, meaning the majority of sales depend on government-affiliated institutions. Orders from government-affiliated institutions are susceptible to national budget conditions and geopolitical risk, and in addition to reductions in order amounts and project changes or cancellations, there are risks of administrative sanctions or bidding bans in the event of contract violations. The Company is working to diversify revenue by securing new contracts with private companies, but a high level of dependence is expected to continue until at least FY2029 (ending May 2029).

The loan agreements with Mizuho Bank (total credit line of ¥2 billion) and Sumitomo Mitsui Banking Corporation (loan of ¥4 billion) are subject to financial covenants requiring maintenance of positive net assets, achievement of a profitable ordinary income/loss from FY2027 (ending May 2027) onward, and maintenance of cash and deposits of ¥2 billion or more, and interest-bearing debt at the end of the current consolidated fiscal year reached ¥5,337,939 thousand (56.1% of total assets). If these covenants are breached, the Group could lose the benefit of the term on its loans, which may have a material adverse effect on the Group's continued existence. Amid continuing operating losses and negative operating cash flow, any delay in achieving profitability increases the risk of covenant breach.

Launches of the Company's satellites depend on external rocket launch providers, and to some extent launch failures, delays in obtaining permits/licenses, and delays in launch timing due to weather and other factors cannot be avoided. If a launch fails, the Group may lose the opportunity for on-orbit demonstration and lose opportunities for image sales, potentially incurring damages not fully covered by insurance, including claims for damages from customers. The Group addresses this by obtaining launch insurance and selecting providers based on launch track record and frequency, but the impact on the technical demonstration schedule of the AxelLiner Business is particularly significant.

The satellite imagery market is projected to grow at an average annual rate of approximately 5%, from US$1,913 million in 2023 to US$3,005 million in 2033, but the market may not grow as expected due to economic slowdown, technological evolution, regulatory developments, declining demand, government budget cuts, or changes in international circumstances. In addition, the satellite imagery market could be substituted by advances in imaging technologies other than satellite imagery. The market forecast is based on assumptions and premises set by Novaspace, and if these premises change and the growth rate slows significantly, it would have a material impact on the Group's business performance.

Multiple important R&D projects are underway, including the general-purpose bus system and AxelLiner Terminal in the AxelLiner Business, and medium- and high-resolution satellites and satellite data utilization systems in the AxelGlobe Business, and there is a risk that these may take longer than expected or fail. If a development delay or failure occurs, it could lead to delay or abandonment of service launch, claims for damages from customers, and cancellation of contracts by existing customers or difficulty acquiring new customers. Progress is continuously monitored and managed at monthly board meetings and other venues, but there is also a risk that costs to address unexpected technical issues could expand beyond expectations.

Some components required for satellite manufacturing are produced by an extremely limited number of manufacturers, and if the supply chain is disrupted due to rising fuel prices, disasters, infectious diseases, deterioration in the financial condition of specific companies, or other factors, delays could occur in R&D and manufacturing schedules. In particular, if delivery of long-lead-time parts is delayed, selecting alternative parts may take time, potentially forcing changes to satellite development and manufacturing plans. The Group seeks to reduce this risk by selecting suppliers with an emphasis on the availability of procurement from multiple companies and by regularly checking delivery status, but complete control is difficult.

Research and development of space technology requires substantial upfront investment and a long payback period, and the Group has continued to record operating losses and net losses. If customer contracts are terminated midway, expected customer acquisition is delayed, or satellite manufacturing or launches are delayed or fail, achieving profitability may be delayed or become difficult, and profitability may not be sustainable even after it is achieved. The Group expects operating losses to narrow due to revenue contributions from both the AxelLiner Business and the AxelGlobe Business, but losses are expected to continue for a certain period due to increased R&D investment.