S Science Company, Ltd.

The Company has recorded operating losses and negative operating cash flow in consecutive periods for FY2025 (ended March 2025) and FY2026 (ending March 2026), giving rise to material events relating to the going concern assumption. Progress in earnings improvement fell short of expectations due to the deterioration of the Middle East situation and soaring raw material prices, among other factors. The Company is securing funds and strengthening its financial base through the sale of owned real estate and a third-party allotment of new shares, and while it states there is no concern over cash flow in the near term, structural earnings improvement remains a challenge.

Since nickel, the Company's core product, is linked to international market conditions on the London Metal Exchange (LME), purchase prices and net sales may fluctuate significantly. In addition, the Company is affected by foreign exchange fluctuations, which poses a risk of undermining the stability of earnings. While the Company seeks to mitigate this risk by maintaining appropriate inventory levels, sudden changes in market conditions or foreign exchange rates could have a material impact on its business results and financial position.

The real estate held by the Company is susceptible to economic conditions such as the business cycle, interest rates, and land prices, and if market conditions deteriorate beyond expectations, a significant decline in asset value may occur. Personnel with specialized knowledge handle appraisal and sales activities, but there are limits to what can be done in the face of sudden changes in the external environment. A decline in asset value would directly affect business results and financial position.

The Company holds quality marketable securities, and valuation losses may arise due to fluctuations in the stock market. The occurrence of valuation losses affects the income statement and financial position. In a deteriorating market environment, there is a risk that unrealized losses on held shares could expand.

If impairment treatment becomes necessary for assets held by the Company due to a decline in their substantive value or other factors, this may affect its business results and financial position. In particular, for the Company, which holds substantial amounts of real estate and securities, the impact of impairment risk on its finances is significant in a deteriorating market environment. No specific impairment prevention measures are described, and the risk largely depends on the external environment.

If unforeseen bad debt risk materializes due to a deterioration in a business partner's performance or other factors, the Company may incur losses. At the time of commencing transactions, the Company conducts credit management using credit research firms and secures collateral or guarantees as needed to protect against risk. However, it may be difficult to respond to sudden changes in the economic environment or abrupt deterioration in a business partner's management condition.

In the metals business, overseas mines and factories may be affected by climate change, leading to insufficient production volumes or increased costs. In the real estate business, there is a risk that natural disasters such as wind and flood damage within Japan could cause direct physical damage to owned real estate. In addition, stricter greenhouse gas emission regulations during the construction and operation stages may result in additional costs.

Raw material prices have surged against the backdrop of geopolitical factors such as the deterioration of the Middle East situation, and this is one reason progress in earnings improvement fell short of expectations even in FY2026 (ending March 2026). Rising raw material costs put pressure on gross profit and pose a risk of continuing operating losses. As this stems from the external environment, there are limits to what the Company alone can address.