Monstarlab Inc.

In the previous consolidated fiscal year and the current consolidated fiscal year, the Company recorded negative operating cash flow and received a grace period for repayment of loan principal from financial institutions, resulting in a situation that raised material doubt about the going concern assumption. As a countermeasure, the Company completed the issuance and payment of Class A shares totaling ¥3,300,000 thousand allotted to San-in Godo Bank, resulting in net assets of ¥657,445 thousand at the end of the current consolidated fiscal year, thereby resolving the negative net worth, and securing cash and cash equivalents of ¥3,957,482 thousand. The Company has determined that no material uncertainty exists; however, maintaining a close relationship with financial institutions remains essential going forward.

The Company Group has recorded a substantial amount of goodwill through M&A, and if the expected results are not achieved due to changes in the business environment or competitive landscape, impairment losses may occur and adversely affect operating results. While the Company has established a system to conduct appropriate measurement procedures when indications of impairment are identified, there is an ever-present risk that synergy effects from acquired companies may not be realized as initially anticipated. The Company has established a framework for setting quantitative KPIs and conducting regular monitoring, with reporting and discussion at the most important management bodies.

Securing personnel to lead digital transformation and AI utilization is fundamental to the business, and if the Company is unable to secure such personnel due to a tight labor market or organizational factors, this may affect operating results. The Company is working to secure global talent through recruitment and M&A, and strives to secure, develop, and prevent the departure of excellent personnel through strengthened talent development programs, ensuring the fairness of personnel evaluations, and achieving work-life balance. Amid continued tightness in supply and demand for IT and AI talent, there is a risk that competition for talent with competitors will intensify.

In system development, even for projects deemed profitable at the time of order receipt, there is a risk that significant specification changes during development may cause work hours to exceed initial estimates, ultimately rendering the project unprofitable. In long-term projects, there is also a possibility that various requirements may change in response to shifts in the environment and technology. As a countermeasure, the Company implements phase segmentation and case-by-case adjustments with clients; however, if sudden, significant specification changes or quality issues occur, this may have a material adverse effect on operating results and financial condition.

In the IT industry, technological innovation and changes in customer needs occur very rapidly, and a delayed response poses a significant risk in the Digital Consulting Business, where technological capability is the source of competitiveness. In particular, while market expansion is expected in AI-related fields, technology trends and customer needs are changing rapidly, and there is a possibility that expected demand may not materialize as anticipated. If the Company is unable to secure the competitiveness and added value of its services due to the emergence of alternative technologies or generic competing products, this may lead to a decrease in new orders and the loss of existing customers.

The Company Group, which has business locations in Asia, Europe, North America, and the Middle East, is exposed to changes in laws, tax systems, and policies in each country, fluctuations in political and economic conditions, rising labor costs, significant exchange rate fluctuations, and accounts receivable collection risks arising from differences in business customs. As countermeasures, the Company implements regular monitoring of global conditions through coordination between subsidiaries and the head office, collaboration with local attorneys, and reduction of foreign exchange risk by adjusting foreign currency deposit balances. In addition, because revenue and cost-generating locations are dispersed across countries worldwide, the Company's revenue structure provides a natural hedge against the effects of exchange rate fluctuations.

In the DX market, if the Company is unable to secure a competitive advantage over competitors in terms of cost and technological capability, or if it is unable to retain existing customers or acquire new customers as anticipated, this may have a material adverse effect on operating results and financial condition. While the Company Group has established a unique positioning through the provision of globally scalable services and the strengthening of AI-driven corporate transformation solutions, the competitive environment in the market is intensifying. A reduction in corporate DX investment due to economic downturns, among other factors, could also be a factor in decreasing demand.

In the course of business operations, the Company has access to confidential information such as customers' corporate information and personal data, and in the event such information is leaked externally, this may have a material adverse effect on operating results and financial condition through loss of credibility and the burden of liability for damages, among other factors. As countermeasures, the Company implements confidentiality agreements, establishes personal information protection regulations and information system management regulations, obtains ISMS certification, establishes group security functions, and establishes a global security committee. The Company continuously strengthens risk management and security measures in response to evolving cyber threats.

In investments and financing such as M&A aimed at strengthening service lines, accelerating global expansion, and expanding into new business areas, there is a possibility that expected profit growth and synergy effects may not be realized as initially anticipated due to changes in the business environment or competitive landscape. As countermeasures, the Company conducts due diligence by external experts, sets quantitative KPIs and conducts regular monitoring, and utilizes long-term incentives and earnout schemes. If suitable investment targets cannot be identified, this may also adversely affect business growth.

As of the end of December 2025, the number of potential shares from stock acquisition rights was 1,511,250 shares (equivalent to 2.33% of the total number of issued common shares of 64,900,722 shares), and since the Company continues to consider utilizing stock option plans going forward, there is a possibility that the value of shares held by existing shareholders may be diluted. In addition, the Company has not paid dividends on common shares since its founding, and given its current growth stage, continues its policy of prioritizing the strengthening of its financial structure and the accumulation of internal reserves for business expansion. On the other hand, the Company plans to pay preferred dividends on Class A shares in accordance with the terms of issuance, creating an asymmetry in profit distribution relative to common shareholders.