ispace, inc.

Both Mission 1 and Mission 2 failed to achieve a soft lunar landing, and as of the filing date of this document the Company's landers have no track record of successfully landing on the Moon. Mission 1's failure was analyzed as being caused by an altitude measurement error due to a software anomaly, and Mission 2's by a hardware anomaly in the laser rangefinder. Unforeseen technical problems may also occur in future missions. If mission failures continue, there is a risk of decline in technical credibility, customer attrition, loss of government subsidies, and adverse effects on the Company's ability to raise funds.

Additional fundraising is highly likely to be necessary in the near future to continue development for Mission 3 onward and to comply with financial covenants. In addition to dilution risk from share issuance, the 14th through 17th series of stock acquisition rights (representing a potential dilution ratio of 7.52%) are structured such that the exercise price is adjusted if the payment amount of a future equity financing falls below the exercise price, which may accelerate dilution. If fundraising cannot be achieved on desirable terms, there is a risk that missions may be delayed or cancelled.

Many of the Company's existing and prospective customers are government agencies, and orders may decrease, change, or be cancelled due to each country's space policy, national budget, or geopolitical risk. The Ministry of Economy, Trade and Industry's SBIR subsidy is premised on a 2028 launch for Mission 3 (formerly Mission 4), which has changed from the originally agreed 2027 launch, and there is a risk that the subsidy may not be received if final agreement with the Ministry of Economy, Trade and Industry is not reached. Contracts with government agencies also go through bidding processes, so unit prices at the Company's desired level may not be achieved.

The Company is highly dependent on specific external partners, including Ariane Group for propulsion systems, Draper Laboratory for landing control, and SpaceX for launch services, and if relationships with these partners are lost, it may not be possible to secure comparable alternative partners. Under the launch contract with SpaceX, mutual indemnification after launch is standard industry practice, meaning that even if a mission is disrupted due to reasons not attributable to the Company, it cannot seek a refund of launch fees. Delays or defects in parts procurement and limitations in supplier production capacity may also cause delays in development and missions or result in additional costs.

The Group has recorded continuing operating losses and negative operating cash flow due to substantial upfront R&D investment, giving rise to conditions that raise material doubt about the going concern assumption. As of the end of March 2026, net assets stood at ¥15,173 million and cash and deposits stood at ¥29,690 million, and there is also a risk of breaching financial covenants (maintaining positive net assets and cash and deposits of ¥3.0 billion or more). While the Company is considering agile fundraising measures as a countermeasure, material uncertainty has not been resolved.

The Payload Service, Data Service, and communication/positioning services from which the Company expects to generate revenue are all in an early, nascent stage globally, and there is no guarantee that these markets will develop and grow as the Company anticipates. These markets are highly susceptible to policy changes such as delays or budget cuts to NASA's Artemis program, and sufficient demand may not materialize due to budget cuts by government agency customers or reductions in R&D budgets by private companies. Immaturity of the market may cause revenue recognition timing to be pushed back, which could adversely affect business performance.

For Mission 3 onward, the Company changed its policy to adopt a new "ULTRA Lander" that integrates the previously parallel Japan-U.S. development models; however, this involves design integration, restructuring of the development organization, and revision of the supply chain, which may newly manifest technical and operational risks as well as risk of development schedule delays. For the former Mission 3, delays in demonstrating the fuel efficiency of a new engine forced a change to an alternative engine and a reset of the launch timing to 2030. Because the ULTRA Lander is planned to have significantly greater saleable payload weight and revenue than previous landers, any problems that arise would have a greater adverse impact on revenue.

The Company has consolidated subsidiaries in Luxembourg and the United States, and conducts a significant volume of foreign-currency-denominated transactions with overseas suppliers, meaning that foreign exchange fluctuations affect the consolidated financial statements. The Company decided to implement hedging transactions such as forward exchange contracts in FY2026 (ending March 2026), but depending on the availability of foreign currency liquidity on hand, such hedges may not be implemented, and even if implemented, they may not fully hedge against foreign exchange fluctuation risk. While U.S. dollar-denominated receipts from the main business mitigate USD/JPY risk to a certain extent, significant foreign exchange fluctuations could affect business performance and financial condition.

For Mission 2, the scope of insurance coverage was limited to the period from launch through completion of orbital control confirmation up to a circular lunar orbit at an altitude of 100km, and as a result, no insurance proceeds were received for the failure to achieve a lunar landing. As of the filing date of this document, no insurance contract has been concluded for Mission 3 onward, and because lunar insurance products are not yet well-established and involve high uncertainty, the Company may not be able to obtain coverage on economically desirable terms or sufficient coverage for losses. If insurance premiums rise sharply or the amount of coverage decreases, this could result in a decrease in net income and have a material adverse effect on financial condition.

The Group handles technical information subject to Japan's Space Activities Act, Space Resources Act, and Radio Act, as well as export control laws of various countries including the U.S. ITAR and EAR, and violations could result in legal sanctions and loss of social credibility. The space business is in an early, nascent stage globally, and future legislation may constrain the business; furthermore, depending on developments in international frameworks, restrictions on the acquisition of ownership of space resources cannot be ruled out. While the Company has established a dedicated department overseeing export controls and implements strict processes, country risk associated with multinational expansion also exists.