3-D Matrix,Ltd.

The Group has continuously recorded operating losses and negative operating cash flow, with the consolidated fiscal year's operating loss reaching ¥1,156,167 thousand. The Group recognizes that circumstances exist that raise material doubt about the going concern assumption, and future fundraising may become more difficult. As countermeasures, the Group has implemented cost reductions through narrowing its business focus to the gastrointestinal endoscopy field, the issuance of stock acquisition rights to Heights Capital Management, Inc. (raising ¥2,628,560 thousand in the current fiscal year), and the conclusion of a commitment line agreement with Resona Bank; however, the material uncertainty has not been resolved.

Under a business structure in which pipeline development costs are incurred in advance, if progress does not proceed as planned in the business plan, a funding shortfall may occur, materially affecting business continuity. Fundraising agreements include financial covenants and early redemption clauses, and there is a risk of losing the benefit of the term upon breach of such clauses. In fact, from September to November 2024, the early redemption clauses of the 5th to 7th unsecured convertible bonds with stock acquisition rights were applied, resulting in a total redemption of ¥539,386 thousand.

The number of potential shares from stock options and the 6th and 9th unsecured convertible bonds with stock acquisition rights and the 36th stock acquisition rights issued to Heights Capital Management, Inc. totals 25,956,109 shares (as of the end of June 2025), representing 18.8% of the combined total of 138,233,385 shares when added to the 112,277,276 shares issued and outstanding. Exercise of these rights may dilute the per-share value of the Company's stock, and further dilution may occur going forward due to the granting of incentives to secure talented personnel.

The Group's medical products are developed, manufactured, and sold under pharmaceutical-related regulations in each country, and any regulatory changes may affect the development and sale of products including the Absorbable Local Hemostat (TDM-621/PuraStat), which has already received manufacturing and marketing approval. In addition, it cannot be denied that manufacturing and marketing approval could be revoked and sales rendered impossible due to circumstances such as the efficacy, effect, or performance stated in the approval application not being recognized. The Group strives to comply with pharmaceutical-related regulations and is working to develop internal systems in line with business progress.

The Absorbable Local Hemostat (TDM-621/PuraStat) is covered by insurance in multiple countries, but it cannot be denied that future changes to insurance systems, cancellation of insurance coverage, or changes to insurance reimbursement prices may occur. If such events occur, they would directly affect sales of the Absorbable Local Hemostat (TDM-621/PuraStat) and could have a material impact on the Group's financial position and operating results. No specific hedging measures by the Group have been disclosed.

Sales of the Absorbable Local Hemostat (TDM-621/PuraStat) in Europe are highly dependent on FUJIFILM, and if the contract with FUJIFILM is terminated due to cancellation or other reasons, it would have a material impact on the Group's financial position and operating results. Similar risks exist generally with respect to important contracts if cancellation, unfavorable amendment, or non-continuation upon expiration occurs. No specific measures by the Group regarding securing alternative sales channels have been disclosed.

In the medical products industry, many companies and research institutions, including major international corporations, are engaged in development, and technology is constantly advancing. Significant changes in technology in the surgical and gastrointestinal endoscopy fields, or the launch of competing products that surpass the performance of the Company's products, could reduce sales of the Absorbable Local Hemostat (TDM-621/PuraStat). The Group emphasizes the safety and differentiation of the Absorbable Local Hemostat (TDM-621/PuraStat) as a synthetic material, but this does not guarantee the sustained competitive advantage.

The Group has received a sublicense for exclusive rights to the basic patent portfolio of self-assembling peptide technology from MIT, but some patents remain unregistered and may ultimately fail to be registered. In addition, Arch has received an exclusive license from MIT for patents relating to the RADA sequence, and coordination with the Company's exclusive rights may be necessary. Since MIT has shown reluctance to provide a written commitment to coordinate, it cannot be denied that the Company itself may need to undertake such coordination.

The design, development, manufacture, and sale of medical products inherently involve risks of health damage from unexpected side effects and product liability risk, and it cannot be denied that side effects of products including the Absorbable Local Hemostat (TDM-621/PuraStat) may cause health damage to patients in the future. If health damage occurs, it could have a material impact on the Group's financial position and operating results due to suspension of sales, product recalls, or the burden of damages liability. The Company has taken out worldwide product liability insurance, but there is also a risk of negative image resulting merely from the fact that a damages claim has been made.

In the fiscal year ended April 2024, an incident of funds outflow due to wire transfer fraud actually occurred, and the Group is implementing recurrence prevention measures with advice from specialized institutions. In addition to external cyberattacks and unauthorized intrusions, malfunctions of information equipment or system failures could lead to information leakage, tampering with important data, or system shutdowns, potentially causing stagnation or delays in business activities. The fact that the Group is a small organization (142 employees group-wide) with internal control systems scaled accordingly is a factor that increases this risk.