ReproCELL Incorporated

Research and development and clinical trial expenses for iPS cells and regenerative medicine products are incurred ahead of revenue, resulting in continuous operating losses, and events exist that raise material doubt about the going concern assumption. As of the end of the consolidated fiscal year under review, the Company held cash and deposits of ¥2,603 million and short-term investment securities of ¥3,904 million, and its financial base is stable to a certain extent; however, if profitability is not achieved through strengthening operations in the core business, launching new businesses, and early approval of regenerative medicine products, this could have a material impact on the continuity of operations.

Substantial research and development expenses are recorded in advance as R&D activities progress, resulting in continuous operating losses. Increased demand for funds for working capital, R&D investment, and capital expenditures is expected going forward, and the Company intends to strengthen its financial base through fundraising in the equity market and utilization of public subsidies; however, if securing revenue or fundraising does not proceed as planned, this could have a material impact on business performance and financial condition.

The Group holds four pipelines: somatic stem cell-derived StemChymal, iPS Neural Glial Cells, TIL Therapy (Tumor-Infiltrating Lymphocyte Therapy), and GPC-1 CAR-T Therapy. There is a risk that clinical trials could be discontinued or approval not obtained due to unexpected adverse events or unproven efficacy. There is also a risk of delays in the approval application and review process, either of which could have a material impact on the business plan and business performance.

In the iPS cell field, technological innovation is rapid and new entrants are increasingly active, with competitors including major companies on the rise. Products from later entrants may have advantages in functionality and cost, and intensifying competition with companies that surpass the Group in productivity, sales capability, and financial strength could result in the Group being unable to achieve revenue as planned. The Group is engaged in developing cutting-edge technology through collaboration with universities and public research institutions worldwide.

As overseas sales account for approximately 70% of total sales, if the yen appreciates against the US dollar and British pound, the main transaction currencies, this would result in decreased sales as well as foreign exchange losses on foreign currency deposits and loans to subsidiaries, expanding losses. Conversely, yen depreciation is expected to increase sales and reduce losses, but the impact of exchange rate fluctuations on business performance and financial condition is significant.

The Group conducts R&D-focused activities at four locations in Japan, the United States, Europe, and India, but there is no guarantee that R&D activities will always proceed as planned. Although efficiency is being sought through effective use of public funds and industry-academia collaboration, if progress does not proceed as originally planned, this could affect business performance and financial condition.

There is a risk that the Group's patent rights could be infringed by other companies, as well as a risk that the Group could infringe on other companies' patent rights. If conflicting patents exist beyond the scope of investigation, or if patent infringement occurs covertly, this could result in the loss of technological advantage or claims for substantial damages. The Group addresses this through information gathering using various databases and patent firms, but complete elimination of this risk is difficult.

The patent license agreement related to the iPS cell business is a material contract for management, and if the contract expires, is terminated, is revised unfavorably, or if the counterparty's financial condition deteriorates or its management policy changes, this could have a material impact on the Company's business strategy and business performance.

Securing and developing diverse personnel with advanced specialized knowledge, skills, and experience is essential to achieving the growth strategy, but there is a high risk of losing talented personnel, particularly overseas where labor mobility is high. The Group is addressing this through the introduction of incentive systems and active new recruitment, but if personnel acquisition and recruitment do not proceed as planned, this could affect business performance and financial condition.

As tax loss carryforwards currently exist, if business performance progresses steadily due to the advancement of the business plan and the deduction of taxable income by tax loss carryforwards becomes unavailable, corporate tax, resident tax, and business tax will be recorded based on the standard tax rate. This could affect net income for the period or cash flow.