MEDIA LINKS CO.,LTD.

In the fiscal year under review, the Company recorded an operating loss of ¥877 million, an ordinary loss of ¥894 million, and a net loss attributable to owners of the parent of ¥1,454 million, marking the seventh consecutive year of losses. Financial institutions with which the Company transacts have indicated that new financing would be difficult until earnings stabilize, giving rise to material doubt about the going concern assumption. As countermeasures, the Company is expanding sales of the new product "Xscend®," reducing SG&A and R&D expenses, and raising funds through the 18th series of stock acquisition rights, but these measures are still in progress and material uncertainty remains.

The Group's sales continue to be highly dependent on specific major customers, and if such customers change their capital expenditure or procurement policies, or if their competitiveness declines, there is a risk that sales could decline significantly. The Group is seeking to expand transactions by concentrating internal resources on major customer projects, but this creates a structural issue of further increasing dependence as a result. Diversifying the customer base is an urgent priority, but progress to date has been limited.

The communication and broadcasting infrastructure equipment offered by the Group has a replacement cycle of once every four to five years for telecommunications carriers and once every eight to ten years for broadcasters, meaning continuous large-scale orders from the same customer cannot be expected. The Group is working to expand maintenance fee revenue, but this remains a limited proportion of total sales, with the majority of sales dependent on new equipment and system sales. If the Group is unable to continuously secure new demand, there is a risk that sales could decline significantly.

Sales are highly dependent on the IP transmission device MD8000 series, and the series' competitive advantage has gradually declined due to increased competitive entry. Sales of its successor model, "Xscend®," began in April 2023, and it has achieved adoption at the Paris 2024 Olympic and Paralympic Games, but sales could be affected if competitors develop innovative technologies or introduce new products. If the transition to the new product does not proceed smoothly, there is a risk that the revenue base could become further weakened.

In the IP transmission field of broadcasting network infrastructure, global standardization of video IP transmission specifications has lowered entry barriers, increasing the number of competitors. The Group states that it maintains technological advantages and a track record of adoption among major customers worldwide in this field, but its performance would be affected if it were to lose its advantage in technology or other respects. The Group is expanding deployment of the new product "Xscend®" in response to the intensifying competitive environment, but maintaining competitive advantage remains an ongoing challenge.

Rapid technological innovation is progressing in the product fields the Group operates in, creating a risk that products could become obsolete due to delayed responses to changes in specifications and standards or delays in bringing new products to market. There is no guarantee that new products and technologies developed by the Group will be supported by the market, nor is there any guarantee that the funds and resources necessary for development can be continuously secured. Continued recording of losses has constrained the Group's capacity for R&D investment, raising the risk that maintaining technological competitiveness will become difficult.

The Group adopts a fabless business model, outsourcing manufacturing to three or more contract manufacturers, but if a deterioration in a contractor's business condition, quality issues, fire, or other accidents occur, this could disrupt product production. There is also a risk that the Group may be unable to meet customer requirements due to difficulty in obtaining certain semiconductors and electronic components or extended lead times. The Group addresses this through regular factory audits and securing multiple contractors, but risks arising from changes in the external environment cannot be entirely eliminated.

The proportion of overseas business is high, and transactions denominated in foreign currencies such as US dollars, Australian dollars, and euros occur, meaning exchange rate fluctuations could affect performance. Since products are manufactured in Japan and most of the manufacturing cost is denominated in yen, there is also a risk that price competitiveness in overseas markets could decline during periods of yen appreciation. The Group properly manages the amount of foreign currency-denominated settlements, but there is no guarantee that foreign exchange risk can be completely avoided.

Securing and developing personnel with sufficient knowledge, technical skills, and language ability to handle product development and overseas expansion is essential, but if excellent engineers resign or recruitment becomes difficult, this could disrupt operations. The Group is working to build the necessary personnel systems and enhance its training framework, but there is a risk that financial constraints from continued loss recording could hinder investment in human resources. In particular, in a business model centered on fabless operations and R&D, human resource risk is a critical issue directly linked to business continuity.

The Group is actively expanding overseas into the Americas, EMEA, and other regions, but this exposes it to unforeseen changes in laws and regulations, geopolitical risks such as terrorism and war, and economic, social, and political risks specific to each country and region. In particular, the securities report explicitly states that US trade policy trends could affect raw material prices and the business environment, and it is unclear when such effects will be resolved. These risks are factors that introduce uncertainty into sales and operating cash flow.