ACSL Ltd.

If a drone crash or similar incident causes damage to persons or property, there is a risk of significant product liability claims, recall-related costs, and loss of social credibility. In addition, cyberattacks or unauthorized access that render an aircraft uncontrollable or lead to information leakage carry similar liability risks. The Company addresses these risks through safety-oriented design and development based on risk analysis, development of dedicated insurance products, and enhancement of security technologies such as communication encryption.

There is a risk that unexpected enactment, amendment, abolition, or stricter enforcement of relevant laws and regulations—such as the Civil Aeronautics Act, Radio Act, Product Liability Act, and Foreign Exchange and Foreign Trade Act—or delays in regulatory easing, could impose additional compliance burdens or restrict necessary permits and licenses. In particular, tightening of export control regulations may restrict overseas transactions and lead to additional costs and delivery delays. The Company addresses this risk by utilizing external experts, continuously monitoring relevant laws and regulations, and obtaining Type 1 Certification for its aircraft.

Third-party intellectual property rights not currently recognized by the Group may already exist or may newly arise, and in the event of an infringement dispute, there is a risk of incurring costs, damages, injunctions against manufacturing and sales, or license fee obligations. In addition, with respect to the Group's own intellectual property rights, delays in securing rights, limitations on the scope of rights, or claims of invalidity may prevent the Group from securing the expected competitive advantage. The Company continues to develop and utilize its intellectual property in line with business expansion and technological progress.

In addition to supply disruptions, shortages, rising material costs, and increased logistics costs, there is a risk of procurement constraints, delivery delays, and increased alternative procurement costs due to tariffs, sanctions, and tighter import/export regulations resulting from geopolitical risks and economic security requirements. As the Company expands its involvement in the defense sector, requirements related to traceability, information management, and cybersecurity are becoming more sophisticated, which may limit the number of available suppliers. The Company strives to maintain optimal inventory levels through regular audits and revisions of demand forecasts.

The Group recorded losses from the 1st through 7th fiscal years and from the 9th through 14th fiscal years, and securing revenue that exceeds upfront development investment costs remains a challenge. Achievement of the targets set forth in the Medium-Term Management Policy (announced in December 2025) depends on assumptions regarding the business environment, regulatory trends, competitive landscape, and development progress, and delays in implementing measures may extend the time required to achieve profitability at the operating income level. In addition, because the Company adopts an acceptance-based revenue recognition method, delays in acceptance near the end of the fiscal period pose a structural risk that could directly affect business performance.

Working capital tends to increase in line with business expansion, and because subsidy payments are received only after completion of audits by the relevant authorities, research and development expenses tend to be incurred in advance, creating a structural funding gap. If the Company is unable to raise necessary funds in a timely manner due to rising market interest rates or changes in the financial environment, or if it breaches financial covenants on borrowings and loses the benefit of the term, this could have a material impact on its cash flow. The Company secures necessary funds through means such as share issuances and borrowings from financial institutions.

While the Company is promoting business expansion in overseas markets, primarily in North America, changes in local political and social conditions, changes in laws, regulations, or tax systems, currency fluctuations, and labor-related risks may adversely affect its business operations. There is also a risk that changes in the international situation or economic security requirements could lead to tariffs, sanctions, or tighter export controls, resulting in transaction restrictions, additional costs, and delivery delays. In joint ventures, changes in the management policies or governance structures of partner companies may also impede operations.

As of December 31, 2025, the Group's consolidated number of employees was 58, a relatively small scale, and if personnel strengthening does not proceed as planned, or if unforeseen circumstances affect personnel who are central to the business, this could seriously disrupt business operations. In addition, if the operation and embedding of recurrence-prevention measures related to past inappropriate incidents prove insufficient, or if similar incidents recur, this could result in investigation costs, additional expenses, and loss of social credibility. The Company is actively engaged in recruitment activities targeting a global talent pool and in the continuous strengthening of governance and internal controls.

Due to stock options, convertible bonds with stock acquisition rights (issued to Murata Manufacturing and CVI Investments), and a stock acquisition rights issuance program (with Cantor Fitzgerald Europe), the number of potential shares outstanding as of the end of December 2025 was 3,415,966, equivalent to 18.9% of the 18,045,018 shares issued. If these stock acquisition rights are exercised, the value per share may be diluted. While these instruments are utilized as fundraising tools, they pose a significant risk to existing shareholders.

As part of its growth strategy, the Company is considering corporate acquisitions, business alliances, and strategic investments, and if changes in the business environment or underlying assumptions cause the financial condition or business performance of an investee to deteriorate, this may affect the Group's financial condition and business performance. If assets recorded in connection with such investments fail to generate the expected cash flows, the Company may record impairment losses. The Company makes investment decisions after fully considering investment risks and regularly reviews the recoverability of investment value.