GENDA’s earnings rely on consolidated subsidiaries operating business in the entertainment industry. While the domestic entertainment market currently enjoys strong tailwinds from the popularity of Japanese anime, the financial performance of said subsidiaries could be adversely affected by a diversifying leisure market, the growth of console and mobile/social gaming, and the ongoing demographic decline in the youth population.

Furthermore, especially in the amusement arcade sector – where GENDA GiGO Entertainment Inc., a major contributor to GENDA’s sales and earnings, operates – market concentration among major arcade machine manufacturers is advancing, likely restricting new entrants going forward. Consequently, diminished opportunities for introducing innovative gaming equipment could lead to a broader slowdown across the entire amusement arcade industry.

As our founder, Nao Kataoka, Representative Director, President and CEO of the Company, has played an important role in advancing GENDA’s business operations since the establishment. Kataoka possesses extensive experience and knowledge in the operation of amusement arcades. Focusing on operations such as the optimal management of individual businesses related to the operation of amusement arcades, he has played a central role in determining and executing management policies and business strategies since the establishment of the Company. To mitigate over-reliance on Kataoka, the Company is bolstering its organizational structure by delegating authority and enhancing information sharing among executives and employees via the Board of Directors, the Investment Committee, and the Group Management Committee. Nevertheless, should Kataoka be unable to fulfill his management responsibilities for any reason, GENDA’s financial position and operating results could be adversely affected.

The largest shareholder of the Company “Hideki Yoshimura and Midas B Investment Limited Partnership” and major shareholder “Midas Capital G Fund Limited Liability Partnership” are financed by Midas Capital Co., Ltd. Midas Capital Co., Ltd. operates as a management company for private equity funds led by Mr. Hideki Yoshimura. Unlike conventional private equity funds, however, it operates primarily on a model centered around Mr. Yoshimura, who gathers domestic and international entrepreneurs or business executives seeking future growth and stronger collaboration with other entrepreneurs as participating members. As a general rule, the company does not accept external capital contributions; instead, only these participating members invest in the funds established by the company as unlimited liability partners or limited liability partners. With respect to “Midas Capital G Fund Limited Liability Partnership,” which is a major shareholder of the Company, Nao Kataoka, Representative Director, President and CEO of the Company, holds an 8.33% equity interest, and Mai Shin, Director of the Company, holds a 1.67% equity interest. Note that Kataoka and Shin have waived their voting rights in said fund pursuant to individual memorandums of understanding. For more information about Midas Capital Co., Ltd., including its overview, management principle, and investment portfolios, please visit its website at https://midascapital.jp/.

Currently, as of the filing date of this report, GENDA maintains a positive relationship with Midas Capital Co., Ltd. and Midas Group (comprising Midas Capital Co., Ltd., the funds established by Midas Capital Co., Ltd., and its affiliated companies (hereinafter referred to as “Midas Funds”), and the companies invested in through the Midas Funds). However, in the event of a change in the management principles of Midas Capital Co., Ltd., it may have a significant impact on the Company's resolutions made by General Meeting of Shareholders, such as the selection and dismissal of the Board of Directors, organizational restructuring through mergers with other companies, capital reduction, and changes to Articles of Incorporation.

Midas Capital Co., Ltd. has established multiple funds. In principle, the management of each portfolio company acts as a substantive investor in these funds. However, if Midas Capital Co., Ltd., a portfolio company of such other funds, or an investor in those funds were to lose public trust due to regulatory violations or other causes, it could lead to reputational damage arising from the commonality of having a fund bearing the name “Midas” as a shareholder, even though there is no direct relationship between the Company and those respective entities. Consequently, this could adversely affect the financial position and operating results of GENDA.

• Contents of Governance principles of Midas Capital Co., Ltd. and the relationship between GENDA and the Midas Group

GENDA operates its business under a pure holding company structure and aims to achieve overall group growth through the expansion of each subsidiary’s business. Consequently, the financial position and operating results of individual subsidiaries could significantly impact the financial position and operating results of GENDA as a whole. Currently, the Company is responsible for formulating business strategies for all group companies and each subsidiary, as well as overseeing overall management. However, if the business operations of any subsidiary cannot be executed smoothly, or if unexpected fluctuations occur within GENDA, it could affect the financial position and operating results of GENDA.

GENDA aims to strengthen existing businesses and streamline entry into new businesses through M&A and business alliances targeted primarily at domestic and overseas companies operating in the entertainment industry. While GENDA leverages its proprietary management expertise to create operational synergies with acquired companies and alliance partners, the following factors could impact the financial position and operating results of GENDA.

Related to the nature of GENDA’s business, our operations may be subject to regulations under the Act on Control and Improvement of Amusement Business, Fire Service Act, Act on Specified Commercial Transactions, Payment Services Act, Act against Unjustifiable Premiums and Misleading Representations, Act on the Protection of Personal Information, Act on Regulation of Transmission of Specified Electronic Mail, Food Sanitation Act, Food Labeling Act and Food labeling Standards, Act on Prevention of Transfer of Criminal Proceeds, Secondhand Goods Business Act, California Consumer Privacy Act, Children's Online Privacy Protection Act, Consumer Contract Act, Civil Code, Act on Prohibition of Private Monopolization and Maintenance of Fair Trade, Copyright Act, Design Act, Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors, Telecommunications Business Act, Product Liability Act, Small and Medium-sized Retail Business Promotion Act, Entertainment Places Act, acts related to Running a Gambling Place for the Purpose of Gain, Financial Instruments and Exchange Act, Limited Partnership Act for Investment, Ordinance on the Healthy Development of Youths, Liquor Tax Act and Act on the Maintenance of the Liquor Tax and on Liquor Business Associations, Tobacco Business Act, Health Promotion Act, Cosmetologists Act, Customs Act and Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators. Furthermore, similar legal regulations exist in other countries as well. While we closely collaborate with industry associations, experts, and relevant entities to respond immediately whenever amendments or revisions are made to applicable laws and regulations, any failure to execute those responses as planned could adversely affect the financial condition and operating results of GENDA.

In the event of a consumption tax rate increase, we will implement cost-cutting measures and enhance operational efficiency to protect customers from additional financial burdens. However, if such countermeasures significantly impair profitability, we will consider pass-through pricing strategies to reflect the tax increase. At GENDA's amusement arcades, we are advancing the deployment of equipment equipped with cashless payment capabilities, which offers relatively higher pricing flexibility compared to non-cashless equipment. Nevertheless, if we are unable to pass the tax increase on to our prices, it could adversely affect the financial position and operating results of GENDA.

GENDA has established and is operating a system to ensure the appropriateness and reliability of its financial reporting and is making continuous improvements. However, even in situations where an effective internal control system has been established, the internal control system may fail to function due to various factors, such as malicious or grossly negligent actions by employees or others. Failure to properly address such events could result in future violations of laws and regulations or other problems, and in the loss of GENDA's social credibility, which could adversely affect its business, or in the payment of administrative penalties, fines due to criminal lawsuits, or damages due to civil lawsuits, which may potentially affect the financial position and operating results of GENDA.

Furthermore, GENDA has established and is operating a system to ensure the effectiveness and efficiency of its operations and is making continuous improvements. However, the system may fail to function due to various factors, such as changes in the business or social environment that were not anticipated at the time the internal control system was established, or the inability of internal organizations and functions to properly respond to the invalidation of the system due to such changes. Failure to properly address such events may potentially affect the financial position and operating results of GENDA.

GENDA operates subsidiaries and stores throughout Japan and internationally. Therefore, in the event of natural disasters such as major earthquakes, torrential rains, pandemic of infectious diseases like COVID-19, or other catastrophes, social or political incidents, or civil unrest in the regions where GENDA operates, GENDA may be adversely affected, such as disruption of headquarters operations, damage to stores, or suspension of business. These outcomes could adversely affect the financial condition and operating results of GENDA.

In addition, in the event of an outbreak of a novel infectious disease like COVID-19, requests for voluntary travel restrictions from local governments may result in a decrease in store visitors, reduced operating hours, or temporary closures. Such measures could impact the business activities of the stores operated by GENDA.

In order to continue and expand each business of GENDA, it is necessary to secure experienced and talented human resources that match the characteristics of the businesses. GENDA allocates budgets based on recruitment plans to carry out human resource hiring and educational training. However, if we are unable to secure target talent as planned, it could affect our business performance. In addition, Japan’s declining birthrate and aging population are expected to lead to an aging workforce and a reduction in the available labor force.

The occurrence and spread of reputational damage due to various postings on the Internet, including the misuse of trademarks owned by GENDA and complaints from customers, could affect the business, financial position, operating results, brand image, and social credibility of GENDA, regardless of the accuracy of the content of such postings. Brand image and public trust may also be damaged by inappropriate actions or other incidents involving employees or third parties.

Reputational damage could occur due to allegations of illegal, unfair, or inconsistent employee conduct, employee dissatisfaction, media reports or inappropriate postings on the Internet or social networking sites, criminal acts, data privacy violations, internal control deficiencies, or scandals involving employees of GENDA or other companies in the same or similar industries. Regardless of whether the allegations or complaints are upheld, any unfavorable publicity regarding the businesses and stores of GENDA, competitors' businesses and stores, or the business environment surrounding the Company could adversely affect the credibility of the businesses and stores of GENDA. GENDA has established a customer service center to directly address customer complaints and pays close attention to its compliance with laws and regulations and corrective action instructions. In addition, we have been educating our employees, led by our Chief Branding Officer (CBO), about the Company brand and are working to create a brand image of safe and enjoyable stores. However, if some customer complaints or other actions by employees of GENDA or similar companies develop into a situation that damages the credibility and image of GENDA as a whole, the financial position and operating results of GENDA may be affected.

GENDA is striving to establish a compliance system and works with its legal advisors for any concerns that may become an issue in the future and conduct its business with the utmost care against the risk of litigation. However, in the event that a lawsuit is filed by the business partners or customers of GENDA for some reason, the financial position and operating results of GENDA may be affected depending on the nature and outcome of the lawsuit or other action.

The SEGA Corporate Pension Fund, of which GENDA’s consolidated subsidiary GENDA GiGO Entertainment Inc. is a member, is an integrated multi-employer plan. As GENDA applies the simplified method to calculate retirement benefit obligations, retirement benefit expenses may fluctuate due to changes in actuarial assumptions in the calculation of retirement benefit obligations, revisions to the pension plan, investment gains or losses on pension assets, or changes in the contribution policy of the pension fund. In addition, in the event of dissolution or freezing of the fund, the company’s withdrawal from the fund, or a transition to a defined contribution pension fund, losses equivalent to the retirement assets resulting from the termination of the retirement benefit system may occur, which could affect the financial position and operating results of GENDA.

Regarding profit distribution, GENDA’s basic policy is to implement optimal capital allocation at any given time by comparing business investments against dividends, while keeping the enhancement of equity value constantly in mind. This is balanced alongside maintaining the internal reserves required for future business expansion - centered on M&A as a key growth strategy - and strengthening our financial base. As of the filing date of this report, numerous effective business investments that contribute to enhancing equity value exist. Therefore, our policy prioritizes growth investments for business expansion over dividends. However, we plan to return a portion of the cash-flow generation capability - which has expanded through consecutive M&A since our founding - in the form of dividends starting from the fiscal year ending January 31, 2027, with plans to disciplinedly increase the dividend amount each year. Furthermore, we intend to flexibly execute share repurchases while taking into account stock market conditions and trends in our share price. Nevertheless, if GENDA’s financial position and operating results deteriorate due to changes in the business environment or cash flow conditions, we may be unable to pay dividends continuously.

As of the filing date of this report, GENDA operates business in seven countries and regions. Our overseas business activities may be affected not only by economic growth trends and foreign exchange rate fluctuations, but also by changes in legal regulations concerning investment, trade, foreign exchange, taxation, and business permits, as well as differences in local customs, labor-management relations, and other political and social factors. During new store openings, the launch of new services, and post-merger integration (PMI) following M&A, we will work to comply with local laws and regulations and secure human resources. However, if we are unable to adequately manage these risks, it could adversely affect the financial position and operating results of GENDA.

If a product purchase or gameplay is made using a fraudulently used credit card, the e-commerce site operator may be challenged by the original owner of the credit card. If the credit card company cancels a series of payments, the e-commerce site operator will lose the sales it would have received, and must pay the price of the merchandise, shipping costs, and credit card transaction fees.

Since GENDA operates online claw machines and an online shopping site, there is a risk of profit loss due to the unauthorized use of credit cards. To address this risk, the online claw machines and online shopping sites of GENDA have security measures in place, such as introducing identity authentication of credit cards. However, in the unlikely event of unauthorized use of credit cards bypassing security measures, the financial position and operating results of GENDA may be affected.

Amusement machines and prizes for amusement arcades and online claw machines are procured from suppliers since GENDA does not have a manufacturer function. Although we manage delivery dates of prizes, delivery delays may occur in the event of unpredictable or unmanageable events in the supply chain of manufacturers, such as the recent tightening of demand for semiconductors. In addition, since these products are mainly manufactured in China, changes in political and economic conditions, exchange rates, laws and regulations, and other factors unique to China, as well as the occurrence of defective products and delays in delivery, may prevent stocking products as initially planned or may cause a steep rise in purchase prices. While we are working to mitigate these risks by diversifying suppliers and preparing to move the production of amusement machines and prizes in-house, failure to successfully address these risks could adversely affect the financial position and operating results of GENDA.

As of the end of the current consolidated fiscal year, GENDA has tax loss carryforwards. If GENDA's business performance progresses favorably relative to its business plan and these tax loss carryforwards are fully utilized, corporate, inhabitant, and enterprise taxes will be recorded based on statutory effective tax rates, which could affect the financial position and operating results of GENDA.

GENDA grants stock acquisition rights (hereinafter referred to as “Stock Options”) as an incentive scheme for officers and employees. Furthermore, we may continue to grant Stock Options as incentives to officers and employees in the future. As of the end of January 2026, the ratio of potential shares to the total number of issued shares (excluding treasury stock) stands at 3.57%. If these Stock Options are exercised, new common shares will be issued, which could dilute the per-share value and voting rights percentage of existing shareholders.

In the course of its business, GENDA maintains personal information necessary for its operations, including member data. Regarding the management of personal information, we have established internal regulations in accordance with the Act on the Protection of Personal Information, and we strictly enforce company-wide awareness and training for all employees. Despite these measures, if an incident such as a leak or unauthorized use of such information were to occur, it could lead to compensation claims and a loss of public trust, which may adversely affect the financial position and operating results of GENDA.

To maintain and enhance service levels in response to advancements and improvements in telecommunications and related technologies, GENDA may experience an increased frequency of system updates, modifications, and retirements. The resulting increase in capital expenditures could adversely affect the financial position and operating results of GENDA.

The operational services used in GENDA's business are delivered via servers. Therefore, if systems experience downtime due to unpredictable events - such as computer viruses, power outages, or telecommunications failures - we may become unable to provide our services. Although we routinely implement system maintenance and security measures, any such disruption could adversely affect the financial position and operating results of GENDA.

The prizes for prize games and other attractions provided by GENDA are procured by us and held as in-house inventory, with a lead time of approximately three months from procurement to delivery. When procuring prizes, we strive to maintain appropriate inventory management by considering customer preferences and social conditions expected at the time of delivery. However, if customer preferences shift, the rate of prize dispensations may slow down, leading to an accumulation of inventory. If this necessitates disposals or write-downs of inventory, it could adversely affect the financial position and operating results of GENDA.

It is necessary to provide attractive game machines and prizes for prize games that match customer preferences in the operation of amusement arcades. GENDA strives to understand customer preferences through market research to offer attractive services. However, if there is a significant change in customer preferences in the future, or if GENDA is unable to accurately respond to such a change, the number of customers visiting amusement arcades could decrease, which may affect the financial position and operating results of GENDA.

Under its mid-term management plan, GENDA aims to achieve growth through a steady stream of new store openings. We are striving to enhance our store development capabilities by improving sales forecasting as well as simulations related to store leases and site selection. In addition to continuing store rollouts in suburban roadside locations, shopping centers, and urban areas near train stations, similar to our existing stores, our policy is to advance flexible store rollouts and launch new business formats including prize-specialty stores, the Oshi-Katsu specialty shop “fanfancy+ with GiGO,” and amusement poker rooms.

Since the initial costs required to open a new store vary depending on the location, we give due consideration when proceeding with store development, but there is a possibility that sales at such stores will not grow as expected and we cannot recover our investment. In addition, although flexible store development is possible, the financial position and operating results of GENDA may be affected if it is unable to open new stores as planned due to a decline in available store opening opportunities.

GENDA’s stores are located on leased land or in leased buildings. Therefore, our ability to continue our business is affected by whether GENDA can continue to lease on favorable terms.

If there is a significant increase in rent at new or existing stores, the operating costs of GENDA will increase. In addition, its ability to enter into, maintain, or renew leases in more favorable locations is subject to risks associated with the lessor, such as whether the lessor agrees to renew the lease at the end of the lease term. If such risks materialize, we may not be able to maintain the lease contract in the relevant location and may be forced to relocate. Furthermore, when considering new locations for opening new stores, competition with other amusement arcades or potential tenants may drive rental and other costs higher than initially anticipated. If GENDA is unable to bear such costs, it could result in the loss of attractive store opening opportunities. In general, such cost increases could be more expensive in urban areas. In addition, GENDA may also incur losses from the disposal of assets or other related losses if it is forced to close a store for reasons such as lease termination or profitability standpoint. Furthermore, in the event of bankruptcy or insolvency of a lessor, we may not be able to collect the security deposit and guarantee money. We strive to prevent the sudden occurrence of such events by maintaining close communication and building strong relationships with lessors on an ongoing basis. However, if any of the above losses were to occur, it could adversely affect the financial position and operating results of GENDA.

As described in “4) Risks related to lease agreements,” many of the amusement arcades and karaoke venues that serve as GENDA's platforms utilize leased land or rented buildings. Consequently, depending on the contract structure and expense classification for each store, there is an inherent risk of being susceptible to changes in the business environment. In addition, security deposits are paid to counterparties under certain lease contracts, and depending on the circumstances at contract termination, these deposits may not be recoverable. Although we strive to ensure stable operations by building positive relationships with store owners, GENDA's financial position and operating results could be adversely affected if contract terms are altered or suspended due to unforeseen circumstances, or if the financial condition of a counterparty deteriorates.

Food and beverages are provided within a portion of the facilities operated by GENDA. While we enforce management and guidance in accordance with the Food Sanitation Act and principles incorporating the HACCP system, should any accidents such as food poisoning or false labeling arise from these food and beverage products, the loss of public trust in GENDA's food safety could adversely affect the financial position and operating results of GENDA.

GENDA GiGO Entertainment Inc. operates amusement arcades in Japan and is licensed by the Prefectural Public Safety Commission in accordance with Article 2, Paragraph 1, Item 5 of the Act on Control and Improvement of Amusement Business (hereinafter “Amusement Business Act”). The contents of the license include an application system for permits for the establishment and operation of facilities, restrictions on operating hours, restrictions based on the age of visitors, restrictions on amusement fees, and other regulations concerning the structure, interior, lighting, noise, etc. of the facilities.

As of the end of January 2026, 275 of GENDA’s amusement arcades in Japan are operating based on permits under the Amusement Business Act. The stores that are not subject to licensing are “facilities zoned within large-scale retail stores” that fall under exempt facilities prescribed by Cabinet Order stipulated in Article 2, Paragraph 1, Item 5 of the Amusement Business Act, and are determined, in light of past precedents and by the relevant government authorities, that obtaining a permit is currently unnecessary based on following factors and others;

In September 2025, GENDA appointed Mr. Hiroshi Ochi, a former National Police Agency official with extensive knowledge of the Amusement Business Act, as an advisor, from whom we receive valuable advice to ensure compliance with said law. In addition, we share information with jurisdictional police departments, as well as attorneys and administrative scriveners well-versed in the Amusement Business Act, exercising utmost care to prevent any procedural deficiencies while mitigating risks through training provided to store managers. Although GENDA will follow the regulations of the Amusement Business Act to install and operate facilities, changes in laws and regulations, such as changes in operating hours or age restrictions on visitors, could affect the operating results of GENDA. In addition, the financial position and operating results of GENDA may be affected in the event that GENDA or licensed facilities are subject to revocation of their licenses or suspension of operations due to inadequate compliance with the Amusement Business Act.