CellSeed Inc.

As of the end of the fiscal year under review, the Company itself has determined that a material uncertainty exists regarding the going concern assumption, as a concrete path toward early commercialization of the first Cell Sheet Regenerative Medicine product has not yet been demonstrated. Cash on hand (cash and deposits) stood at ¥1,318,909 thousand, and although the Company raised ¥402,805 thousand through the exercise of stock acquisition rights issued via third-party allotment in January 2026, operating cash flow has remained consistently negative, and the risk will persist unless fundamental profitability is achieved. The Company intends to resolve this situation through the early commercialization of the Allogeneic Chondrocyte Sheet and by pursuing business partnerships.

As a research-and-development-oriented company, substantial R&D expenses are incurred in advance, and operating cash flow has remained consistently negative. The Company has secured funds to date through equity financing such as third-party allotments and public offerings; however, if fundraising cannot be executed as planned, or if partnership upfront payments or public subsidies cannot be sufficiently secured, this could have a material impact on business activities and financial condition. There is also a risk that future equity financing could dilute the value of shares per unit.

As of the end of the fiscal year under review, the Company recorded retained earnings of negative ¥1,104,101 thousand, reflecting a structure in which substantial R&D expenses are incurred in advance of the full-scale commercial launch of Cell Sheet Regenerative Medicine Products. If the business does not progress as planned and the Company is unable to record continuous net income, there is a risk that a considerable amount of time will be required before retained earnings turn positive, delaying improvement in the Company's financial condition. The Company has not paid dividends since its founding and intends to prioritize securing R&D funding for the foreseeable future.

Both the Cell Sheet Regenerative Medicine Business and the Regenerative Medicine Support Business involve a high degree of novelty, requiring a long period of time to reach commercialization, and the regulatory approval process, including clinical trial and manufacturing/marketing approvals, entails uncertainty. There is no guarantee that R&D will progress as planned, and if the anticipated results are not achieved or the R&D period is extended beyond expectations, additional costs may be incurred, potentially having a material impact on business performance. R&D expenses account for a high proportion of the business budget, and the Company is advancing joint research and clinical trials with universities under industry-academia collaboration.

Regulations related to regenerative medicine products may be added to, revised, or reviewed in response to technological innovation and changes in societal needs, creating a risk that raw materials previously permitted for use may become restricted or prohibited. There is also a possibility that manufacturing and marketing approval may not be obtained in the content or timeframe anticipated by the Company, or that, amid the global trend toward healthcare cost containment, the drug price or insurance reimbursement price set may fall below the level anticipated by the Company. Should these risks materialize, they could have a material impact on the Company's business strategy and operating results.

The regenerative medicine field is characterized by rapid technological progress, and there is a possibility that later-developed products could surpass first-generation products in functionality, with competition expected to intensify further going forward. Some competitors may have advantages over the Company in terms of technological capability, financial strength, and sales capacity, creating a risk that the Company may be unable to secure revenue as planned. The Company aims for early commercialization and profitability based on cell sheet engineering as its core technology; while full-scale entrants into the regenerative medicine field are currently limited, the Company recognizes that a considerable number of potential competitors exist.

There is a possibility that pending patent applications may not be granted, or that patents necessary for the business may not be secured, and the possibility that third parties may independently develop or acquire similar or comparable know-how cannot be ruled out. Should such circumstances arise, they could have a material impact on the Company's business strategy, operating results, partnerships with external companies, and financial condition. As a countermeasure, the Company regularly monitors the status of related patent applications and works to strengthen its intellectual property foundation through the continuous filing of new patent applications.

On February 6, 2024, San Corporation Co., Ltd. (MetaTech(AP)Inc.) filed a lawsuit against the Company seeking confirmation of contractual status, among other claims (date of service of the complaint: March 7, 2024). The plaintiff asserts that the Company's notice of termination of all contractual relationships, dated December 18, 2023, was invalid, and seeks confirmation of its status as a contracting party. The Company holds a differing legal view and intends to respond appropriately; at present, the Company judges the impact on its financial condition and operating results to be minor, but depending on future developments and the outcome of the litigation, there is a possibility of an impact on financial condition and operating results.

Due to the nature of regenerative medicine products, which utilize human cells and tissues, risks such as infectious disease cannot be completely eliminated, and when animal-derived raw materials are used, there is a possibility of effects from unknown viruses or other pathogens. Should such events occur, they could have a material impact on the Company's business and financial condition; furthermore, even in cases where the Company is not found to be at fault, a decline in social reputation or damage to trust in the industry as a whole could affect product sales. Given the nature of these products, which involve transplantation into patients' bodies, safety risk is a critical issue fundamental to the business.

If key officers or employees become unable to continue their duties due to resignation, extended absence, or other reasons, this could hinder business execution and decision-making, potentially having a material impact on business development and operating results. In addition, the Company operates its business with a relatively small organizational structure, and if the development of an appropriate organizational framework in line with business expansion is delayed, this could result in decreased operational efficiency and internal control challenges. If increases in personnel expenses associated with staff expansion outpace revenue growth, management efficiency could decline, potentially affecting business performance.