GENDA Inc.

The Group is actively pursuing M&A both domestically and internationally, primarily centered on the entertainment business, and there are a wide range of risks, including goodwill impairment due to failure to achieve post-acquisition business plans, occurrence of contingent liabilities or unrecognized liabilities not identified during due diligence, recognition of extraordinary gains/losses associated with integration, dilution and increased interest expense related to fundraising, delays in the consolidated accounting system, and the bearing of M&A-related costs alone without realizing synergies if an M&A transaction is not completed. If these risks materialize, they could have a material impact on the Group's financial position and business results.

The Group's revenue depends on the entertainment business operated by its consolidated subsidiaries, and the performance of these subsidiaries could deteriorate due to the diversification of the leisure market, the expansion of home video games and social games, and the declining birthrate. In particular, in the amusement facility industry to which GENDA GiGO Entertainment—which accounts for a large portion of sales and profit—belongs, there is a risk that the industry as a whole could become inactive due to increasing oligopoly among amusement machine manufacturers and a decrease in opportunities to create innovative game machines.

GENDA GiGO Entertainment operates 241 of its 339 domestic stores under licenses granted based on the Act on Control and Improvement of Amusement Business, etc. (Entertainment Business Control Law). Changes to laws affecting business hours or age restrictions, or license revocation or business suspension orders due to inadequate compliance, could directly impact business performance. In addition to the Entertainment Business Control Law, the company is subject to numerous other laws and regulations, including the Consumer Contract Act, the Personal Information Protection Act, the Payment Services Act, and the Antimonopoly Act, and failure to respond as expected could affect the Group's financial position and business results. The Group addresses these risks by engaging advisors who are former National Police Agency officials and sharing information with local police departments and specialists.

If there is a change in the management policy of Midas Capital Co., Ltd., the investment entity behind the top shareholder, "Hideki Yoshimura / Midas B Investment Limited Partnership," and the major shareholder, "Midas Capital G Fund Limited Liability Partnership," this could significantly affect resolutions at shareholders' meetings, such as the appointment/dismissal of officers, organizational restructuring, and amendments to the articles of incorporation. Furthermore, if other companies within the Midas group or its investors lose social credibility due to legal violations or other issues, reputational damage could occur due to the shared association with funds bearing the "Midas" name among the shareholders, even without a direct relationship with the Company, potentially affecting the Group's financial position and business results.

Representative Director, President and CEO Hisashi Kataoka, as founder, plays a critical role in determining and executing management policy and business strategy, and possesses extensive experience and knowledge in amusement facility operations. If Mr. Kataoka becomes unable to continue in his management role for any reason, this could affect the Group's financial position and business results. The Group is working to establish a management structure that does not rely excessively on a specific individual, through information sharing and delegation of authority via the Board of Directors, the Investment Committee, and Group Management Meetings.

The Group holds personal information such as membership data, and while it has established internal regulations based on the Personal Information Protection Act and conducts employee training, if information leakage or unauthorized use occurs, this could affect the Group's financial position and business results through claims for damages or loss of credibility. In the operation of online crane game and e-commerce sites, there is also a risk of fraudulent credit card use; although security measures such as identity verification services have been implemented, if fraudulent use circumventing these measures occurs, this would result in lost sales and related expenses.

The Group does not have manufacturing capabilities and depends on suppliers for the procurement of amusement machines and prizes. Supply chain disruptions caused by tight semiconductor supply and demand, as well as political, economic, exchange rate, and legal changes in China—the Group's main manufacturing base—could result in delivery delays or increased procurement costs. The Group is working to mitigate this risk by diversifying suppliers and preparing for in-house production of amusement machines and prizes within the Group, but if these measures prove insufficient, the Group's financial position and business results could be affected.

As of the end of the current consolidated fiscal year, the Group has tax loss carryforwards. If business performance proceeds favorably relative to the business plan and the loss carryforwards are exhausted, corporate tax, resident tax, and business tax will be recorded based on normal tax rates, which could affect the Group's financial position and business results. There is also a risk of share dilution due to the exercise of stock acquisition rights; as of the end of January 2025, the ratio of potential shares was 4.86% of the total number of issued shares (excluding treasury shares).

The Sega Corporate Pension Fund, which consolidated subsidiary GENDA GiGO Entertainment participates in, is a multi-employer plan established through a merger, and retirement benefit expenses may fluctuate due to changes in actuarial assumptions, changes to the pension plan, gains or losses on pension asset management, or changes in contribution policy. Furthermore, if the fund is dissolved or frozen, if the company withdraws from the fund, or if there is a transition to a defined contribution pension plan, a loss due to termination of the retirement benefit plan could occur, potentially affecting the Group's financial position and business results.

Following its departure from the Sega Sammy Group, GENDA GiGO Entertainment faces the risk of changes to previously favorable transaction terms, which materialized in the form of ALL.Net service usage fees being changed from January 2024 to terms equivalent to those in arm's-length transactions between independent third parties. On the other hand, daily sales per amusement machine have been trending upward due to increased purchasing of amusement machines from sources other than the Sega Sammy Group, but similar risks of changes to transaction terms in the future could affect the Group's financial position and business results.