{"url_path":"/sec/kwmww/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 D. Risk Factors**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/2000756/0001829126-26-005357-index.html","accession_number":"0001829126-26-005357","cik":"0002000756","ticker":"KWM","issuer_name":"Nexus Advanced Technologies Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/2000756/0001829126-26-005357-index.html","primary_entity_key":"0002000756","primary_entity_name":"K Wave Media Ltd."},"word_count":26482,"has_tables":true,"body_markdown":"**ITEM 3.D. Risk Factors**\n\n \n\n*An investment in K Wave Media Ltd.’s (“we,” “us,” “our,” or “K Wave”) securities involves risks. You should carefully consider the risks described below, together with all of the other information included in this report, in evaluating us and our securities, before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not known to us or that we consider immaterial as of the date of this report. The trading price of our securities could decline due to any of these risks, and, you may lose all or part of your investment. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this report.*\n\n \n\n*Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.*\n\n \n\n**Risks Relating to K Wave Status as a Foreign Private Issuer and Emerging Growth Company**\n\n \n\n**K Wave may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses.**\n\n \n\nAs a foreign private issuer, K Wave is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and its officers, directors and principal shareholders are exempt from the short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and are not required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose.\n\n \n\nIn the future, K Wave could lose its foreign private issuer status if, as of the last business day of its most recently completed second fiscal quarter, a majority of its outstanding voting securities are directly or indirectly held of record by U.S. residents and K Wave fails to satisfy any one of the additional “business contacts” tests under the U.S. securities laws. Although K Wave follows certain practices that are consistent with U.S. regulatory provisions applicable to U.S. companies, K Wave’s loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to K Wave under U.S. securities laws if it is deemed a U.S. domestic issuer may be significantly higher. If K Wave is not a foreign private issuer, K Wave will be required to file periodic reports and prospectuses on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, K Wave would become subject to Regulation FD, aimed at preventing issuers from making selective disclosures of material information. K Wave also may be required to modify certain of its policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, K Wave may lose its ability to rely upon exemptions from certain corporate governance requirements of Nasdaq that are available to foreign private issuers. For example, Nasdaq’s corporate governance rules require listed companies to have, among other things, a majority of independent board members and independent director oversight of executive compensation, nomination of directors, and corporate governance matters. Nasdaq rules also require shareholder approval of certain share issuances, including approval of equity compensation plans. As a foreign private issuer, K Wave would be permitted to follow home country practice in lieu of the above requirements. As long as K Wave relies on the foreign private issuer exemption to certain of Nasdaq’s corporate governance standards, a majority of the directors on its board of directors are not required to be independent directors, its remuneration committee is not required to be comprised entirely of independent directors and it will not be required to have a nominating and corporate governance committee.\n\n \n\nIn addition, K Wave could be required to report its financial statements in accordance with U.S. GAAP if it ceases to be a foreign private issuer, which could result in significant additional expenses and impact K Wave’s financial results due to the change in accounting framework. If it ceases to qualify as a foreign private issuer in the future, it would incur significant additional expenses that could have a material adverse effect on its results of operations.\n\n \n\n2\n\n \n\n \n\n**Because K Wave is a foreign private issuer and is exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if it were a domestic issuer.**\n\n \n\nK Wave’s status as a foreign private issuer exempts it from compliance with certain Nasdaq corporate governance requirements if it instead complies with the statutory requirements applicable to a Cayman Islands exempted company. The statutory requirements of K Wave’s home country of Cayman Islands, do not strictly require a majority of its board to consist of independent directors. Thus, although a director must act in the best interests of K Wave, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of K Wave may decrease as a result. In addition, the Nasdaq Listing Rules also require U.S. domestic issuers to have an independent compensation committee with a minimum of two members, a nominating committee, and an independent audit committee with a minimum of three members. K Wave, as a foreign private issuer, with the exception of needing an independent audit committee composed of at least three members, is not subject to these requirements. The Nasdaq Listing Rules may also require shareholder approval for certain corporate matters that K Wave’s home country’s rules do not. Following Cayman Islands governance practices, as opposed to complying with the requirements applicable to a U.S. company listed on Nasdaq, may provide less protection to you than would otherwise be the case.\n\n \n\n**As a foreign private issuer, K Wave will be exempt from a number of U.S. securities laws and rules promulgated thereunder and will be permitted to publicly disclose less information than U.S. public companies must. This may limit the information available to holders of the K Wave Ordinary Shares.**\n\n \n\nK Wave’s status as a foreign private issuer means that K Wave is not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, K Wave is exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, K Wave’s officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of K Wave’s securities. For example, some of K Wave’s key executives may sell a significant amount of K Wave Ordinary Shares and such sales are not required to be disclosed as promptly as public companies organized within the United States would have to disclose. Accordingly, once such sales are eventually disclosed, the price of K Wave Ordinary Shares may decline significantly. Moreover, K Wave is not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. K Wave is not subject to Regulation FD under the Exchange Act, which would prohibit K Wave from selectively disclosing material non-public information to certain persons without concurrently making a widespread public disclosure of such information. Accordingly, there may be less publicly available information concerning K Wave than there is for U.S. public companies.\n\n \n\nAs a foreign private issuer, K Wave has filed and will continue to file an annual report on Form 20-F within four months of the close of each fiscal year ended December 31 and furnish reports on Form 6-K relating to certain material events promptly after K Wave publicly announces these events. However, because of the above exemptions for foreign private issuers, which K Wave intends to rely on, K Wave shareholders will not be afforded the same information generally available to investors holding shares in public companies that are not foreign private issuers.\n\n \n\n**The JOBS Act permits “emerging growth companies” like K Wave to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.**\n\n \n\nK Wave is and expects that it will continue to qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company generally is a company with total annual gross revenues of less than $1.235 billion during its most recently completed fiscal year. A company that is an emerging growth company may remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of its first sale of common equity securities pursuant to an effective registration statement under the Securities Act, (ii) the last day of the fiscal year in which it has total annual gross revenues of $1.235 billion or more, (iii) the date on which it has issued more than $1.0 billion in non-convertible debt in the previous three-year period, or (iv) the date on which it is deemed to be a “large accelerated filer” under the Exchange Act. SEC Rule 12b-2 provides that a large accelerated filer is a company that has a public float of greater than $700 million, has been filing periodic reports for at least 12 months, has previously filed at least one annual report, and is not a smaller reporting company. As such, K Wave will take advantage of certain exemptions from various reporting requirements applicable to other public companies based on its status as an emerging growth company. Pursuant to Section 404 of the Sarbanes-Oxley Act, once K Wave is no longer an emerging growth company, K Wave may be required to furnish an attestation report on internal control over financial reporting issued by K Wave’s independent registered public accounting firm. When K Wave’s independent registered public accounting firm is required to undertake an assessment of its internal control over financial reporting, the cost of complying with Section 404 of the Sarbanes-Oxley Act will significantly increase, and management’s attention may be diverted from other business concerns, which could adversely affect K Wave’s business and results of operations.\n\n \n\n3\n\n \n\n \n\n**Risks Relating to the SEPA and SPA**\n\n \n\n**It is not possible to predict the Securities we will sell under the SPA to the Anson Funds, whether the Anson Funds will exercise any of the SPA Warrants for cash, or the actual gross proceeds we will receive in connection with the SPA.**\n\n \n\nOn July 3, 2025, we entered into the Securities Purchase Agreement, by and among the Company, Anson Investments Master Fund, LP and Anson East Master Fund LP (together, the “Anson Funds”), and Anson Investments Master Fund L.P., as collateral agent for the Anson Funds (the “SPA”). We cannot be certain that the closing conditions with respect to the Second Closing and any Additional Closing may be met and that such closings will occur. Additionally, we cannot be certain whether the Anson Funds will exercise any of the SPA Warrants which they have purchased or will purchase for cash or at all. Accordingly, it is not possible for us to predict the additional Securities that we will sell to the Anson Funds under the SPA, if any, or the actual aggregate gross proceeds that we will receive under the SPA.\n\n \n\n**Our obligations under the SPA could have important consequences to you.**\n\n \n\nPursuant to the Security Agreement entered into in connection with the SPA, the Company granted to Anson Investments Master Fund, LP (the “Secured Party”) a security interest in certain of the Company’s deposit accounts and digital asset accounts (including all assets therein and proceeds therefrom, whenever held by the Company) to secure all payment and other obligations of the Company under the SPA, the SPA Notes, the SPA Warrants and all other transaction documents entered into in connection with the SPA (the “SPA Obligations”). If we were to default on our SPA Obligations, the Secured Party would have the right to foreclose on our assets held these deposit and digital asset accounts (including the 88 bitcoin held in these accounts as of the date of this report). Additionally, if we are unable to raise additional capital or generate sufficient cash from operating activities, we may not have sufficient cash on hand or available liquidity that can be utilized to meet our SPA Obligations when they become due. Any such foreclosure on the part of the Secured Party or our inability to meet our SPA Obligations could have a materially adverse impact on our business, financial condition and results of operations.\n\n \n\n**Our redemption obligations under the SPA Notes upon the occurrence of a Change of Control Transaction may discourage a transaction that could be beneficial to our shareholders.**\n\n \n\nPursuant to each SPA Note, if at any time after such SPA Note is issued, a Change of Control Transaction occurs, the holder of such SPA Note will have the right to cause the Company to redeem all or any portion of the SPA Notes then outstanding, plus all accrued and unpaid interest thereon. Our redemption obligations under the SPA Notes upon the occurrence of a Change of Control Transaction may discourage a transaction that could be beneficial to the holders of our shareholders. Further, if a Change of Control Transaction occurs, there are no assurances that we will have sufficient funds to redeem the SPA Notes.\n\n \n\n**We may not be able to generate sufficient cash to service the SPA Notes, and may be forced to take other actions to satisfy our obligations under the SPA Notes, which may not be successful.**\n\n \n\nOur ability to make scheduled payments on SPA Notes depends on our financial condition and results of operations, which in turn are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, interest and other amounts payable, if any, under the SPA Notes.\n\n \n\nIf our cash flows and capital resources are insufficient to fund our obligations under the SPA Notes, we could face substantial liquidity problems and may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or debt or restructure the SPA Notes. Our ability to restructure the SPA Notes or seek additional capital or debt will depend on, among other things, the condition of the capital markets and our financial condition at such time. Additional capital or debt may require us to comply with onerous covenants, which could further restrict our business operations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.\n\n \n\n4\n\n \n\n \n\n**Additional issuances of our Ordinary Shares as a result of the conversion of the SPA Notes or the exercising of the SPA Warrants could result in significant dilution to our shareholders.**\n\n \n\nEach SPA Note provides that, at any time after the issuance date of such SPA Note, the holder may convert all the outstanding principal and accrued and unpaid interest under such SPA Note into Ordinary Shares at a conversion price equal to 92% of the lowest daily volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted in the ten trading days prior to the applicable Alternate Conversion date. Such a conversion may result in a downward adjustment in the exercise price of the SPA Notes.\n\n \n\nAdditionally, each SPA Warrant provides that, if the Company, at any time while such SPA Warrant is outstanding, issues or sells any Ordinary Shares or any securities of the Company or its subsidiaries which would entitle the holder thereof to acquire at any time Ordinary Shares, at an effective price per share less than the exercise price of such SPA Warrant then in effect (such lower price, the “Base Share Price”), then the exercise price of such SPA Warrant will be reduced to equal the Base Share Price. Further, the SPA Warrants provide that the Company may at any time during the term of such SPA Warrant reduce the then current exercise price to any amount and for any period of time deemed appropriate by the board of directors of the Company.\n\n \n\nIf the exercise price of the SPA Notes or the exercise price of the SPA Warrants are reduced as provided therein, then the SPA Notes and SPA Warrants will be convertible or exercisable (as applicable) into a larger number of our Ordinary Shares.\n\n \n\nIssuances of our Ordinary Shares as a result of the conversion of the SPA Notes and/or the exercising of the SPA Warrants will result in dilution to existing shareholders. The amount of dilution could be substantial depending upon the size of the conversion or exercise and depending on the exercise and conversion price then in effect. Further, sales by the Anson Funds of substantial numbers of such shares in the public market could adversely affect the market price of our shares. In addition, the perceived risk of dilution as a result of the SPA Notes and SPA Warrants may cause our shareholders to be more inclined to sell their shares, which would contribute to a downward movement in the price of our Ordinary Shares. Moreover, the perceived risk of dilution and the resulting downward pressure on our Ordinary Share price could encourage investors to engage in short sales of our Ordinary Shares, which could further contribute to price declines in our Ordinary Shares. The fact that the Anson Funds may sell substantial amounts of our Ordinary Shares in the public market could make it more difficult for us to raise additional funds through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate, or at all.\n\n \n\n**It is not possible to predict the actual number of shares we will sell under the SEPA to Bitcoin Strategic, or the actual gross proceeds resulting from those sales.**\n\n \n\nOn June 3, 2025, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with Bitcoin Strategic Reserve KWM LLC (“Bitcoin Strategic”). Upon the terms and subject to the satisfaction of the conditions contained in the SEPA, we will have the right, in our sole discretion, to sell to Bitcoin Strategic up to $500 million of our Ordinary Shares, subject to certain limitations set forth in the SEPA, from time to time. The Ordinary Shares that may be issued under the SEPA may be sold by us to Bitcoin Strategic at our discretion from time to time for a period of up to 36 months, unless the SEPA is earlier terminated.\n\n \n\nWe generally have the right to control the timing and amount of any sales of our Ordinary Shares to Bitcoin Strategic under the SEPA. Sales of our Ordinary Shares, if any, to Bitcoin Strategic under the SEPA will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Bitcoin Strategic all, some or none of the Ordinary Shares that may be available for us to sell to Bitcoin Strategic pursuant to the SEPA.\n\n \n\nBecause the per share purchase price that Bitcoin Strategic will pay for the Ordinary Shares in any transaction that we may elect to effect pursuant to the SEPA will be determined by reference to the price of Ordinary Shares during the applicable period as of the applicable purchase date, as of the date of this report, it is not possible for us to predict the Ordinary Shares that we will sell to Bitcoin Strategic under the SEPA, the purchase price per share that Bitcoin Strategic will pay for shares purchased from us under the SEPA, or the actual aggregate gross proceeds that we will receive from those purchases by Bitcoin Strategic under the SEPA.\n\n \n\n5\n\n \n\n \n\n**Investors who buy shares at different times will likely pay different prices.**\n\n \n\nPursuant to the SEPA, we will have discretion, subject to market demand, to vary the timing, prices and numbers of shares sold to Bitcoin Strategic. If and when we do elect to sell Ordinary Shares to Bitcoin Strategic pursuant to the SEPA, after Bitcoin Strategic has acquired such shares, Bitcoin Strategic may resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a result, investors who purchase shares from Bitcoin Strategic at different times will likely pay different prices for those shares and so may experience different levels of dilution, and in some cases substantial dilution, and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from Bitcoin Strategic as a result of future sales made by us to Bitcoin Strategic at prices lower than the prices such investors paid for their shares. In addition, if we sell a substantial number of shares to Bitcoin Strategic under the SEPA, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Bitcoin Strategic may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.\n\n \n\n**We may use proceeds from sales of Ordinary Shares made pursuant to the SEPA in ways with which you may not agree or in ways which may not yield a significant return.**\n\n \n\nWe have broad discretion over the use of proceeds from sales of Ordinary Shares made pursuant to the SEPA, and shareholders will not have the opportunity to assess whether the proceeds are being used appropriately. In addition, the ultimate use of the net proceeds may vary from the currently intended uses. The net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of our Ordinary Shares.\n\n \n\n**Our financing arrangements, including securities purchase agreements and equity line-type facilities, could result in substantial dilution, downward pressure on our Ordinary Share price, and other adverse consequences.**\n\n \n\nWe have entered into, and may in the future enter into, securities purchase agreements, standby equity purchase agreements and other financing arrangements that may provide for the issuance of Ordinary Shares, warrants, notes or other securities. These arrangements may create significant dilution for existing shareholders, and the resale of a substantial number of Ordinary Shares by investors in these financings, or the perception that such resales may occur, could cause the market price of our Ordinary Shares to decline. In addition, certain financing arrangements may include terms that increase the number of Ordinary Shares issuable upon conversion or exercise (including through price resets or anti-dilution adjustments), may require us to maintain resale registration statements, and may restrict our ability to pursue other strategic or financing transactions.\n\n \n\nIf we fail to comply with the covenants or other obligations under any such financing arrangements, we could be required to repay amounts earlier than expected, incur penalties or default interest, provide additional collateral, or face litigation or enforcement actions, any of which could adversely affect our business, financial condition and results of operations.\n\n \n\n6\n\n \n\n \n\n**Risks Relating to K Wave’s Business**\n\n \n\n**K Wave is a recently formed company with limited business operations of its own and has not generated any revenues to date. Further, as K Wave has limited business operations of its own, it will depend primarily on the revenue and profits generated by the businesses of its subsidiaries in which it has acquired controlling interests.**\n\n \n\nK Wave was incorporated on June 22, 2023, and is a holding company which was formed to be an intellectual property (“IP”) entertainment company primarily through the acquisition, management, and development of companies in the entertainment business focusing on IP development and production, merchandising and IP ownership and investing and then moving into other areas in the future such as virtualization and music. To complement our existing portfolio and expand our influence, K Wave actively pursues strategic partnerships, licensing agreements, and joint ventures within the entertainment industry. This allows us to access content development resources, studio facilities, and distribution channels. The objective of K Wave is to curate a portfolio of the best content. There are no assurances, however, that K Wave will be able to generate the revenue necessary to support its cost structure or that it will be successful in obtaining the level of financing necessary for its operations.\n\n \n\nThere is a risk that K Wave will not be able to manage its subsidiaries or the regulatory compliance activities for each of its subsidiaries. K Wave cannot guarantee that it will be able to keep abreast of the changing legal and regulatory landscapes for each of the jurisdictions in which K Wave and its subsidiaries are expected to operate. If K Wave fails to manage its subsidiaries or the applicable regulatory compliance matters for each of its subsidiaries, then K Wave’s business and financial results may be adversely affected.\n\n \n\nAdditionally, as a holding company, K Wave will rely on earnings generated by the businesses of its subsidiaries for distributions or payments for cash flow. Therefore, K Wave’s ability to fund and conduct K Wave’s business, service any debt, and pay dividends, if any, in the future may depend on the ability of K Wave and its subsidiaries to make upstream cash distributions or payments to us, which may be impacted, for example, by their ability to generate sufficient cash flow or limitations on the ability to repatriate funds, whether as a result of currency liquidity restrictions, monetary or exchange controls, regulatory restrictions, or otherwise. Further, K Wave’s subsidiaries’ ability to make payments to K Wave will depend on:\n\n \n\n \n●\ntheir earnings;\n\n \n\n \n●\ncovenants contained in any debt agreements to which K Wave may then be subject, including any debt agreements of K Wave’s planned subsidiaries;\n\n \n\n \n●\ncovenants contained in other agreements to which K Wave or K Wave’s subsidiaries are or may become subject;\n\n \n \n \n\n \n●\nbusiness and tax considerations; and\n\n \n \n \n\n \n●\napplicable law, including any restrictions under South Korean law that may be imposed on K Wave’s subsidiaries and their affiliates, that would restrict its ability to make payments to K Wave.\n\n \n\nWe cannot assure you that the operating results of our subsidiaries at any given time will be sufficient to make distributions or other payments to us.\n\n \n\n7\n\n \n\n \n\n**Our business may be materially adversely affected by the terms, performance, termination, or non-renewal of our distribution and merchandising arrangements with key counterparties and other major entertainment agencies.**\n\n \n\nWe may enter into agreements with entertainment agencies, distributors and platforms for the production, supply, distribution and sale of merchandise and related products. These arrangements may be limited in duration, may require renewal or renegotiation on short notice, may cover only specified products or artists, and may contain performance, purchase, delivery, quality, marketing, minimum commitment, or other obligations. Such agreements may also be terminable upon the occurrence of certain events (including insolvency or uncured material breach) or may not be renewed. In addition, our revenues may be concentrated in a limited number of agencies, artists, tours, or product lines, and demand for such merchandise can be volatile and influenced by factors outside of our control, including changes in consumer preferences, tour schedules, reputational issues, regulatory developments, and the availability of competing products. If any key counterparty were to terminate an agreement, decline to renew or expand an arrangement, reduce the scope of products covered, impose less favorable commercial terms, or experience operational, reputational or financial difficulties, our revenues and profitability could decline and we could incur additional costs to replace the arrangement, fund inventory and working capital needs, or develop alternative distribution channels.\n\n \n\n**K Wave’s inability to pay scheduled cash payments to the current owner of Play Company Co. Ltd. (“Play Company”) that became due following the closing of the Business Combination (as described below) could negatively affect the business of K Wave.**\n\n \n\nPursuant to the share purchase agreement between K Enter Holdings, Inc. and the current owner of Play Company, K Wave is required to make the following payments to the current owner of Play Company (i) 18.1 billion won (approximately $13.7 million by August 15, 2025, (ii) 9.05 billion won (approximately $6.87 million) by January 31, 2025 and (iii) 9.05 billion won (approximately $6.87 million) by January 31, 2026. The payment dates and other key terms of the foregoing obligations remain subject to further negotiation and may be amended pursuant to mutual agreement among the parties. If K Wave does not have the available cash to make the required payment to the current owner of Play Company, K Wave may be subject to certain risks under the share purchase agreement such as the possibility of litigation. Specifically, Section 7.5(8) of the Share Purchase Agreement provides following the Closing of the Share Purchase Agreement the right of the non-breaching party to claim damages against the breaching party shall be the sole and exclusive remedy available to the non-breaching party for any monetary claims arising out of the breaching parties’ actions. Additionally, Section 2.3 of the Share Purchase Agreement between the owner of Play Company and K Enter provides that, in the event K Enter fails to pay the Purchase Price when due, the Purchaser shall pay to the Seller a default interest on such unpaid amount as calculated at the rate of fifteen percent (15%) per annum for the period from the relevant due date until the day immediately preceding the date of actual payment. Accordingly, in the event K Wave fails to make the payments that are due to the current owner of Play Company following the Closing of the Share Purchase Agreement, K Wave may be subject to a lawsuit commenced by the current owner of Play Company for monetary damages, including default interest at the rate of fifteen percent (15%) per annum until such obligations are paid. Such a lawsuit and the damages that may be potentially awarded to the current owner of Play Company could have a material adverse impact on the financial condition and/or results of operations of K Wave. As of December 31, 2025, we have not made any payments to the current owner of Play Company. In the event that the potential disposition of Play Company is consummated, the share purchase agreement and all payment obligations to the current owner of Play Company thereunder will be cancelled. See *Proposed Disposition of Play Company* commencing on page 55.\n\n \n\n**Competition within the broader entertainment industry may be intense and we expect that K Wave’s and its subsidiaries’ existing and potential customers may be attracted to competing forms of entertainment, such as television, gaming and sporting events, as well as other entertainment options on the internet. If K Wave and its subsidiaries’ offerings are not popular, K Wave’s business may be harmed.**\n\n \n\nK Wave operates in the global motion pictures industry within the broader entertainment industry with K Wave’s mostly Korean offerings. K Wave’s customers face a vast array of entertainment choices. Other forms of entertainment, such as television, gaming, and sporting events, may be more well-established and may be perceived by K Wave’s customers to offer greater variety, affordability, interactivity and enjoyment. K Wave competes with these other forms of entertainment for the discretionary time and income of K Wave’s customers. If we are unable to sustain sufficient interest in our subsidiaries’ Korean entertainment offerings in comparison to other forms of entertainment, including new forms of entertainment, K Wave’s business model may not be viable.\n\n \n\n8\n\n \n\n \n\nThe specific industries in which K Wave’s subsidiaries operate may be characterized by dynamic customer demand and technological advances, and there may be intense competition among entertainment providers. A number of established, well-financed companies producing motion pictures, episodic content, or other relevant IPs and services may compete with the offerings of K Wave’s subsidiaries, and other well-capitalized companies may introduce competitive IPs. Such competitors may spend more money and time on developing and testing content and services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies or otherwise develop more commercially successful content or services than K Wave’s subsidiaries, which may negatively impact the businesses of K Wave’s subsidiaries. The competitors of K Wave’s subsidiaries may also develop content, features, or services that may be similar to theirs or that achieve greater market acceptance. Such competitors may also undertake more far-reaching and successful content development efforts or marketing campaigns or may adopt more aggressive pricing policies. Furthermore, new competitors offering Korean motion pictures and episodic content may compete directly against K Wave’s subsidiaries. There has also been considerable consolidation among competitors in the Korean entertainment industries and such consolidation and future consolidation may result in the formation of larger competitors with increased financial resources and altered cost structures, which may enable them to offer more competitive content, gain a larger market share, acquire key partners of K Wave’s subsidiaries, decrease cost per user acquisition, expand offerings and broaden their geographic scope of operations. If we are not able to maintain or improve the market share of K Wave’s subsidiaries, or if their offerings may not be accepted by the markets in which we operate, we expect that K Wave’s business may suffer.\n\n \n\n**The international operations of K Wave and its subsidiaries in content production, content merchandising and content investment exposes us to a number of risks.**\n\n \n\nThe operations of K Wave and its subsidiaries (content production, content merchandising and content investment) currently involve some level of international activities and efforts that we believe will be significant to K Wave’s revenues and profits, and we plan to further expand our international reach of those operations. However, while expanding into new international market segments, K Wave’s subsidiaries may have relatively little operating experience in newly expanded segments and may not benefit from any first-to-market advantages or otherwise succeed in these segments. It may be costly to establish, develop, and maintain more committed international operations, and promote K Wave’s brand internationally. K Wave’s international operations may not be profitable on a sustained basis due to our subsidiaries’ limited experience and knowledge in newly expanded segments.\n\n \n\nIn addition to risks described elsewhere in this section, we expect that K Wave’s international sales and operations may be subject to a number of risks, including:\n\n \n\n \n●\nlocal economic and political conditions;\n\n \n\n \n●\ngovernment regulation and compliance requirements (such as regulation of K Wave’s IP content and service offerings and of competition), restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership;\n\n \n\n \n●\nrestrictions on sales or distribution of certain content or services and uncertainty regarding liability for certain IP content, including uncertainty as a result of less internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media content and enforcement of intellectual property rights;\n\n \n\n \n●\nbusiness licensing or certification requirements, such as for imports, exports, web services, and electronic devices;\n\n \n\n \n●\nlimitations on the repatriation and investment of funds and foreign currency exchange restrictions;\n\n \n\n \n●\nlimited technology infrastructure;\n\n \n\n9\n\n \n\n \n\n \n●\nshorter payable and longer receivable cycles and the resultant negative impact on cash flow;\n\n \n\n \n●\nlaws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts;\n\n \n\n \n●\nlower levels of consumer spending and fewer opportunities for growth compared to the U.S.;\n\n \n\n \n●\nlower levels of credit card usage and increased payment risk;\n\n \n\n \n●\ndifficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences;\n\n \n\n \n●\ndifferent employee/employer relationships and the existence of works councils and labor unions;\n\n \n\n \n●\ncompliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties;\n\n \n\n \n●\nlaws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and\n\n \n\n \n●\ngeopolitical events, including war and terrorism.\n\n \n\nAs international physical, e-commerce, and other services grow, competition may intensify, including through adoption of evolving business models. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may limit K Wave’s international growth.\n\n \n\n**K Wave and its subsidiaries’ technology, content and brands are subject to the threat of piracy, unauthorized copying and other forms of intellectual property infringement.**\n\n \n\nWe regard the technology, content and brands of our subsidiaries as proprietary and take measures to protect their technology, content and brands and other confidential information from infringement. Piracy and other forms of unauthorized copying and use of our subsidiaries’ technology, content and brands may become persistent, and policing is difficult. Further, the laws of some countries in which our subsidiaries’ products are or may be distributed either do not protect our subsidiaries’ intellectual property rights to the same extent as the laws of the United States, or are poorly enforced. Legal protection of our subsidiaries’ rights may be ineffective in such countries. In addition, although we take steps to enforce and police our subsidiaries’ rights, factors such as the proliferation of technology designed to circumvent the protection measures used by our subsidiaries’ business partners or by us, the availability of broadband access to the internet, the refusal of internet service providers or platform holders to remove infringing content in certain instances, and the proliferation of online channels through which infringing product is distributed all have contributed to a general expansion in unauthorized copying of technology, content and brands.\n\n \n\n**We may be unable to maintain or acquire licenses or approvals to incorporate intellectual property owned by others in our subsidiaries’ IP content offerings.**\n\n \n\nOur subsidiaries’ IP content offerings may incorporate intellectual property owned by others. Relatedly, content that we distribute across various platforms may incorporate motions pictures of K Wave’s associated parties and other third parties.\n\n \n\n10\n\n \n\n \n\nAdditionally, our subsidiaries’ content offerings may incorporate motion pictures intellectual property owned by third parties. Exhibition of such content on different platforms, such as movie theatre or traditional media television or subscription video on demand platforms, may require additional licensing that may be difficult or costly to obtain. If the platforms on which content is distributed, redistributed and/or embedded change their policies relating to how content exhibited or published on the platform may be used, it may impact our subsidiaries’ ability to develop, distribute and exhibit engaging content and negatively impact their operations. If our subsidiaries are unable to maintain their licenses, rights and approvals or obtain additional licenses, rights and approvals with significant commercial value, their ability to develop successful and engaging IP content may be adversely affected and their operations may be negatively impacted.\n\n \n\n**We may experience fluctuations in our operating results, which make our future results difficult to predict and may cause our operating results to fall below expectations.**\n\n \n\nThe businesses of our subsidiaries may be subject to seasonal variations based on the timing of their IP content releases. Release dates may be determined by several factors, including the timing of holiday periods, geographical release dates and competition in the market, and more recently, the timing of release dates has been affected by the pandemic.\n\n \n\nThis seasonal pattern of business requires significant use of working capital, mainly to prepare inventory during the months prior to the holiday season and requires accurate forecasting of demand for specific IP offerings during the holiday season in order to avoid losing potential sales of popular IP content offerings or producing excess inventory that may be less popular with consumers. The failure of any of our subsidiaries to accurately predict and respond to consumer demand, resulting in under producing popular IP offerings and/or overproducing less popular IP offerings, could reduce our total sales and harm our results of operations.\n\n \n\nAs a result of the seasonal nature of the businesses of our subsidiaries, we would be significantly and adversely affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events such as a natural disaster, a terrorist attack, economic shock or pandemic that harms the retail environment or consumer buying patterns during our subsidiaries’ key selling season, or by events such as strikes or port delays or other supply chain challenges that interfere with the shipment of goods, particularly from the Far East, during the important months leading up to the holiday shopping season.\n\n \n\nAdditionally, we expect K Wave’s financial results to fluctuate in the future due to the nature of our subsidiaries’ businesses. These fluctuations may be due to a variety of factors, some of which may be outside of our subsidiaries’ control and may not fully reflect the underlying performance of their business. For example, consumer engagement in our subsidiaries’ entertainment offerings may decline or fluctuate as a result of a number of factors, including the popularity of Korean culture, the customer’s taste in Asian movies, our subsidiaries’ ability to improve and innovate, outages and disruptions of online services, the services offered by our subsidiaries’ competitors, our subsidiaries’ marketing and advertising efforts or declines in consumer activity generally as a result of economic downturns, among others. Any decline or fluctuation in the recurring portion of our subsidiaries’ business may have a negative impact on our business, financial condition, results of operations or prospects.\n\n \n\n**As a producer, investor, and distributor of IP content, our subsidiaries may face liability and expenses for legal claims based on the nature and content of the materials that they create or distribute, including materials provided by third parties. If they are required to pay damages or expenses in connection with these legal claims, we expect that K Wave’s business and results of operations may be harmed.**\n\n \n\nWe expect to display our subsidiaries’ and its original IP content and third-party IP content on K Wave’s websites and in its marketing materials. As a result, K Wave may face potential liabilities including, but not limited to, copyright or trademark infringements and content misuse. K Wave will generally rely on the “fair use” exception for K Wave’s use of third-party brand names and marks, but these third parties may disagree, and the laws governing the fair use of these third-party materials are imprecise and adjudicated on a case-by-case basis in Korea. Our subsidiaries also produce IP content we believe to be original. While we do not believe that such IP content infringes on any third-party copyrights or other intellectual property rights, companies that adopt business models similar to us may take the position that some of our IP content infringes on their intellectual property rights. These claims could divert management time and attention away from K Wave’s business and result in significant costs to investigate and defend, regardless of the merit of these claims. The general liability insurance K Wave plans to maintain may not cover potential claims of this type or may not be adequate to indemnify K Wave for all liability that may be imposed. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely affect K Wave’s business, financial condition and results of operations and the price of K Wave’s securities.\n\n \n\n11\n\n \n\n \n\n**Our subsidiaries’ dependence on third-party relationships with IP content producers and distribution channels to develop and distribute IP content is critical to the success of K Wave’s business.**\n\n \n\nK Wave plans to rely on our subsidiaries’ third-party relationships with Korean IP content producers and distribution channels to develop and distribute IP content. K Wave’s financial performance may be adversely affected by our subsidiaries’ relationships with content producers and distribution channels. Some of our subsidiaries’ content producers may have their own or other distribution capabilities in the markets in which they operate. These third-party content producers and distribution channels may decide, or be required by their respective parent companies, to use their intracompany distribution or content production capabilities rather than publishing such content with our subsidiaries. K Wave’s business may be harmed if the content producers and distribution channels with which our subsidiaries work stop or reduce the amount of content they produce for our subsidiaries or otherwise demand less favorable terms to them.\n\n \n\n**If our subsidiaries fail to respond to or capitalize on the rapid technological development in the video, music, gaming, and entertainment industry, including changes in entertainment delivery formats, K Wave’s business may be harmed.**\n\n \n\nThe video, music, gaming, and entertainment industry continues to experience frequent changes driven by technological development, including developments with respect to the formats through which music, films, television programming, games, and other content may be delivered to consumers. With rapid technological changes and expanded digital content offerings, the scale and scope of these changes have accelerated in recent years. For example, consumers may be increasingly accessing television, film and other episodic content on streaming and digital content networks, such as Netflix, Amazon Prime Video, Hulu, Disney+ and Apple TV+.\n\n \n\nMany motion pictures and episodic content offerings have gone direct to streaming channels and not produced a physical content format. Direct release to streaming channels may be likely to continue. Technological as well as other changes caused by the pandemic may have caused significant disruption to the retail distribution of film and episodic content offerings and have caused and may in the future cause a negative impact on sales of K Wave’s content and other forms of monetization of content. K Wave may lose opportunities to capitalize on changing market dynamics, technological innovations or consumer tastes if our subsidiaries do not adapt their content offerings or distribution capabilities in a timely manner. The overall effect that technological development and new digital distribution platforms have on the revenue and profits our subsidiaries derive from their movie content, including from merchandise sales derived from such content, and the additional costs associated with changing markets, media platforms and technologies, may be unpredictable. If our subsidiaries fail to accurately assess and effectively respond to changes in technology and consumer behavior in the entertainment industry, K Wave’s business may be harmed.\n\n \n\n**Failure to protect or enforce our subsidiaries’ intellectual property rights or the costs involved in such enforcement may harm K Wave’s business, financial condition and results of operations.**\n\n \n\nWe expect K Wave to rely on trademark, copyright, patent, trade secret, and domain-name-protection laws to protect our subsidiaries’ proprietary rights. In Korea and internationally, our subsidiaries may have filed various applications to protect aspects of their intellectual property, and they may hold a number of issued IPs in multiple jurisdictions. K Wave may acquire additional companies or their portfolios, which may require significant cash expenditures. However, third parties may knowingly or unknowingly infringe the proprietary rights of K Wave’s subsidiaries, third parties may challenge proprietary rights held by K Wave’s subsidiaries, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which our subsidiaries operate or intend to operate its businesses. In any of these cases, our subsidiaries may be required to expend significant time and expense to prevent infringement or to enforce their rights. There may be no assurance that others may not offer content or services that are substantially similar to our subsidiaries’ and compete with their business.\n\n \n\n12\n\n \n\n \n\nCircumstances outside our subsidiaries’ control may pose a threat to their intellectual property rights. For example, effective intellectual property protection may not be available in the United States or other countries from which our subsidiaries’ content offerings may be accessible. Also, the efforts our subsidiaries have taken to protect their proprietary rights may not be sufficient or effective. Any significant impairment of our subsidiaries’ intellectual property rights may harm their business or its ability to compete. Also, protecting our subsidiaries’ intellectual property rights may be costly and time-consuming. Any unauthorized disclosure or use of our subsidiaries’ intellectual property may make it more expensive to do business, thereby harming their operating results. Furthermore, if our subsidiaries are unable to protect their proprietary rights or prevent unauthorized use or appropriation by third parties, the value of our subsidiaries’ brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our subsidiaries’ offerings and services. The occurrence of any of these events may seriously harm K Wave’s business of our subsidiaries.\n\n \n\n**K Wave’s subsidiaries rely on information technology and other systems and platforms, and any failures, errors, defects or disruptions in their systems or platforms may diminish K Wave’s brand and reputation, subject K Wave to liability, disrupt its business, affect its ability to scale technical infrastructure and adversely affect its operating results and growth prospects. K Wave’s IP content and other software applications and systems, and the third-party platforms upon which they may be made available may contain undetected errors.**\n\n \n\nThe technological infrastructure of our subsidiaries may be important to the performance of their offerings and to customer satisfaction. K Wave will devote resources to network and data security to protect the systems and data of our subsidiaries. However, K Wave’s systems may not be designed with the necessary reliability and redundancy to avoid performance delays or outages that may be harmful to our subsidiaries’ businesses. We may not assure you that the measures K Wave will take to prevent or hinder cyber-attacks and protect K Wave’s systems, data and customer information and to prevent outages, data or information loss, fraud and to prevent or detect security breaches, including a disaster recovery strategy for server and equipment failure and back-office systems and the use of third parties for certain cybersecurity services, may provide absolute security. We may in the future experience website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. To date, none of our subsidiaries have had a material impact from such disruptions; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with their computer systems and technological infrastructure, or those of third parties, may result in a wide range of negative outcomes, each of which may materially adversely affect their business, financial condition, results of operations and prospects. Additionally, the content from any of our subsidiaries may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after their launch. If a particular content offering may be unavailable when customers attempt to access it or navigation through platforms may be slower than they expect, customers may be less likely to return to the content of our subsidiaries as often, if at all. Furthermore, programming errors, defects and data corruption may disrupt the operations of our subsidiaries, may adversely affect the experience of our customers, harm the reputation of K Wave and/or its subsidiaries, cause our subsidiaries’ customers to stop utilizing their platforms, divert our subsidiaries’ resources and delay market acceptance of their offerings, any of which may result in legal liability to the respective subsidiary, harm their business, financial condition, results of operations and prospects.\n\n \n\n**Despite our subsidiaries’ security measures, their information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach may compromise our subsidiaries’ networks and the information stored there may be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information may result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disruption of our subsidiaries’ operations and the services they provide to customers, damage to K Wave’s reputation, and a loss of confidence in K Wave’s content and services, which may adversely affect K Wave’s business.**\n\n \n\nThe secure maintenance and transmission of customer information will be an important element of K Wave’s operations. our subsidiaries’ information technology and other systems that maintain and transmit customer information, or those of service providers, business partners or employee information may be compromised by a malicious third-party penetration of K Wave’s network security, or that of a third-party service provider or business partner, or impacted by intentional or unintentional actions or inactions by their employees, or those of a third-party service provider or business partner. As a result, our subsidiaries’ customers’ information may be lost, disclosed, accessed or taken without their customers’ consent. K Wave and its subsidiaries may not provide assurance that they may not experience any cyber-attacks in the future and such cyber-attacks may have a material impact on K Wave’s operations or financial results.\n\n \n\n13\n\n \n\n \n\nOur subsidiaries rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached or compromised. In addition, websites may be often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our subsidiaries’ security measures, and those of their third-party service providers, may not detect or prevent all attempts to breach our subsidiaries’ systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by their websites, networks and systems or that they or such third parties otherwise maintain, including payment card systems, which may subject our subsidiaries or K Wave to fines or higher transaction fees or limit or terminate their access to certain payment methods. K Wave, its subsidiaries and such third parties may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against them or their third-party service providers.\n\n \n\nIn addition, security breaches may also occur as a result of non-technical issues, including intentional or inadvertent breaches by K Wave’s employees or by third parties. These risks may increase over time as the complexity and number of technical systems and applications K Wave uses also increases. Breaches of K Wave’s security measures or those of K Wave’s third-party service providers or cybersecurity incidents may result in unauthorized access to K Wave’s sites, networks and systems; unauthorized access to and misappropriation of customer information, including customers’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from K Wave’s sites, networks or systems; deletion or modification of content or the display of unauthorized content on K Wave’s sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory action and other potential liabilities. If any of these breaches of security should occur and be material, K Wave’s reputation and brand may be damaged, K Wave’s business may suffer, K Wave may be required to expend significant capital and other resources to alleviate problems caused by such breaches, and K Wave may be exposed to a risk of loss, litigation or regulatory action and possible liability. K Wave may not guarantee that recovery protocols and backup systems may be sufficient to prevent data loss. Actual or anticipated attacks may cause K Wave to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.\n\n \n\nIn addition, any party who may be able to illicitly obtain a customer’s password may access the customer’s transaction data or personal information, resulting in the perception that K Wave’s systems may be insecure. Any compromise or breach of K Wave’s security measures, or those of K Wave’s third-party service providers, may violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant legal and financial exposure, adverse publicity and a loss of confidence in K Wave’s security measures, which may have a material adverse effect on K Wave’s business, financial condition, results of operations and prospects.\n\n \n\nK Wave addresses cyber security risks and plans to strengthen K Wave’s security by working with an IT consulting firm to mitigate potential security breaches of customer information, business partners and employee information. Breaches at third-party providers can also directly impact us. K Wave is bolstering in-house capabilities and risk management measures including data backup and recovery, investment in advanced technologies but also recognize the need to leverage the expertise of cybersecurity professionals. K Wave plans to evaluate K Wave’s consultant’s recommendations regarding assessing, identifying, and mitigating these risks to develop a comprehensive plan to manage cybersecurity risks. K Wave plans to keep the board informed of these discussions, the implementation plan and proactively engage with them on K Wave’s cybersecurity efforts.\n\n \n\nK Wave’s data is stored both in the U.S. and in Korea and K Wave will maintain security to ensure the continued integrity of K Wave’s business operation while weighing costs and the need to minimize potential impacts to K Wave’s business.\n\n \n\n14\n\n \n\n \n\n**Our subsidiaries rely on third-party service providers with respect to their platforms and to deliver their offerings to customers on their platforms, and any disruption of or interference with their use of such services may adversely affect K Wave’s business, financial condition, results of operations and prospects.**\n\n \n\nOur subsidiaries currently maintain and support their operations using private cloud infrastructure, which may be built using third-party platform and data center providers. In addition, as we expect K Wave to enter new jurisdictions, K Wave may rely on third-party providers of cloud infrastructure services. K Wave may not have control over the operations of the facilities or infrastructure of any third-party service providers, including third-party platform providers, that K Wave expect to use. Such third parties’ facilities may be vulnerable to damage or interruption from natural disasters, cybersecurity attacks, terrorist attacks, power outages and similar events or acts of misconduct. K Wave’s platform’s continuing and uninterrupted performance may be important to K Wave’s success. K Wave or its subsidiaries may experience interruptions, delays and outages in service and availability from these third-party service providers from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. In addition, any changes in these third parties’ service levels may adversely affect K Wave’s ability to meet the requirements of K Wave’s customers. As K Wave’s platform’s continuing and uninterrupted performance may be important to its success, sustained or repeated system failures would reduce the attractiveness of K Wave’s offerings. It may become increasingly difficult to maintain and improve K Wave’s performance, especially during peak usage times, as K Wave expands and the usage of K Wave’s offerings increases.\n\n \n\nIn the event that any of our subsidiaries’ agreements with these third-party service providers may be terminated, K Wave may experience significant costs or downtime in connection with the transfer to, or the addition of, new platform providers, data site providers or cloud infrastructure service providers. Although alternative providers may host K Wave’s platform on a substantially similar basis, such transition may potentially be disruptive and K Wave may incur significant one-time costs.\n\n \n\nAny of the above circumstances or events may harm K Wave’s reputation and brand, reduce the availability or usage of K Wave’s platform, lead to a significant loss of revenue, increase K Wave’s costs and impair K Wave’s ability to attract new customers, any of which may adversely affect K Wave’s business, financial condition and results of operations.\n\n \n\n**Our subsidiaries’ growth may depend, in part, on the success of their current and future strategic relationships with third parties. Overreliance on certain third parties, or their inability to extend existing relationships of their predecessor entities or agree to new relationships may cause unanticipated costs for our subsidiaries and impact their financial performance in the future.**\n\n \n\nOur subsidiaries may, in the future, rely on relationships with movie directors, IP investment and development firms, advertisers, marketing firms and other third parties in order to attract customers to their contents. These relationships may, along with providers of online services, search engines, social media, directories and other websites and ecommerce businesses, direct consumers to their platforms. In addition, many of the parties with whom our subsidiaries may have advertising arrangements through relationships of their predecessor entities provide advertising services to other companies, including other gaming platforms with whom our subsidiaries may compete. While our subsidiaries believe there may be other third parties that may drive customers to their platforms, adding or transitioning to them may disrupt their business and increase their costs. In the event that any of our subsidiaries’ future relationships fails to provide services to them in accordance with the terms of their arrangement, or at all, and our subsidiaries may not be able to find suitable alternatives, this may impact their ability to attract consumers cost effectively and harm our business, financial condition, results of operations and prospects.\n\n \n\n15\n\n \n\n \n\n**There are special risks involved with investments in companies with significant Korean operations, including the possibility of restrictions being imposed by the Korean government in emergency circumstances, accounting and corporate disclosure standards that differ from those in other jurisdictions, and the risk of direct or vicarious criminal liability for executive officers of K Wave and its subsidiaries.**\n\n \n\nK Wave’s Korean subsidiaries and their affiliates operate in a business and cultural environment that is different from that of other countries. For example, under the Foreign Exchange Transaction Act of Korea, if the Korean government determines that in certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Minister of Economy and Finance of Korea prior to entering into a capital markets transaction, repatriating interest, dividends or sales proceeds arising from Korean securities or from the disposition of such securities or other transactions involving foreign exchange. Although investors will hold shares of K Wave’s Ordinary Shares, K Wave’s subsidiaries may experience adverse risks and in turn could adversely impact K Wave’s business, prospects, financial condition, and results of operations and could lead to a decline in the price per share of K Wave’s Ordinary Shares.\n\n \n\nIn addition, under Korean law, there are circumstances in which certain executive officers of a company may be investigated or held criminally liable either directly or vicariously for the actions of our subsidiaries and its executives and employees. For example, complaints alleging infringement of intellectual property rights, breaches of certain Korean laws (e.g., labor standards laws and fair trade laws), and product-related claims may be investigated and prosecuted as criminal offenses with both our subsidiaries’ and their respective executive officers being named as defendants in such proceedings.\n\n \n\nAs a result of these current and changing risks, K Wave’s Korean subsidiaries and their affiliates’ executive officers may be named in the future in criminal investigations or proceedings stemming from K Wave’s operations. In Korea, company executive officers being named in such investigations or proceedings is a common occurrence, even though in practice many such cases result in no liability to the individual. If K Wave’s Korean subsidiaries and their affiliates’ executive officers were to be named in such criminal proceedings or held either directly or vicariously criminally liable for the actions of our subsidiaries and its executives and employees, K Wave’s business, financial condition, and results of operations may be harmed.\n\n \n\n**If K Wave cannot satisfy or continue to satisfy the listing requirements and other rules of Nasdaq, K Wave’s securities may be delisted, which could negatively impact the price of its securities and your ability to sell them.**\n\n \n\nK Wave cannot assure you that it will be able to continue to meet the listing requirements of Nasdaq or continue to be listed on Nasdaq.\n\n \n\nIn addition, in order to maintain the Company’s listing on Nasdaq, K Wave is required to comply with certain rules of Nasdaq, including those regarding minimum shareholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. K Wave may not be able to continue to satisfy these requirements and applicable rules. If K Wave is unable to satisfy Nasdaq criteria for maintaining its listing, its securities could be subject to delisting.\n\n \n\nIf Nasdaq delists K Wave’s securities from trading, K Wave could face significant consequences, including:\n\n \n\n \n●\na limited availability for market quotations for its securities;\n\n \n \n \n\n \n●\nreduced liquidity with respect to K Wave’s securities;\n\n \n \n \n\n \n●\na determination that its Ordinary Shares is a “penny stock,” which will require brokers trading in K Wave’s Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for K Wave’s Ordinary Shares;\n\n \n\n16\n\n \n\n \n\n \n●\nlimited amount of news and analyst coverage; and\n\n \n \n \n\n \n●\na decreased ability to issue additional securities or obtain additional financing in the future.\n\n \n\n**A potential failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on K Wave’s business, financial condition, and results of operations.**\n\n \n\nK Wave is subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the “SEC,” as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. K Wave’s management may conclude that K Wave’s internal controls over K Wave’s financial reporting are not effective, and K Wave’s reporting obligations as a public company will place a significant strain on K Wave’s management, operational and financial resources, and systems for the foreseeable future, which will increase K Wave’s operating expenses.\n\n \n\nThe establishment of effective internal controls over financial reporting is necessary for K Wave to produce reliable financial reports and are important to help prevent fraud. K Wave’s failure to achieve and maintain effective internal controls over financial reporting could consequently result in the loss of investor confidence in the reliability of K Wave’s financial statements, which in turn could harm K Wave’s business and negatively impact the trading price of K Wave’s stock. K Wave anticipates that it will incur considerable costs and devote significant management time and efforts and other resources to comply with Section 404 of the Sarbanes-Oxley Act.\n\n \n\n**You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because K Wave is incorporated under Cayman Islands law.**\n\n \n\nK Wave is an exempted company incorporated under the laws of the Cayman Islands. K Wave’s corporate affairs are governed by its memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against K Wave’s directors, actions by K Wave’s minority shareholders and the fiduciary duties of K Wave’s directors to K Wave under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of K Wave’s shareholders and the fiduciary duties of K Wave’s directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a different body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standings to initiate a shareholder derivative action in a federal court of the United States.\n\n \n\nShareholders of Cayman Islands exempted companies like K Wave have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of the register of members (shareholder lists) of these companies. K Wave’s directors have discretion under its articles of association to determine whether or not, and under what conditions, its corporate records may be inspected by its shareholders, but are not obliged to make them available to its shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.\n\n \n\n17\n\n \n\n \n\nCourts of the Cayman Islands may not (i) recognize or enforce judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state against K Wave; and (ii) in original actions brought in the Cayman Islands, impose liabilities against K Wave predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.\n\n \n\nAs a result of all of the above, K Wave’s public shareholders may have more difficulty in protecting their interests in the face of actions taken by K Wave’s management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.\n\n \n\n**Our Bitcoin-centric treasury strategy exposes us to significant market, regulatory, cybersecurity, and liquidity risks, which could materially and adversely affect our financial condition and results of operations.**\n\n \n\nWe have adopted a digital asset treasury strategy centered on holding Bitcoin as a reserve asset. While we believe this strategy may enhance our financial flexibility and long-term value preservation, it also exposes us to numerous risks.\n\n \n\nBitcoin and other digital assets are highly volatile and have experienced extreme fluctuations in value. The market price of Bitcoin may decline for a variety of reasons, including changes in investor sentiment, technological developments, regulatory developments, macroeconomic factors, and other events. Significant volatility could have a material adverse effect on the value of our Bitcoin holdings and, as a result, our financial condition.\n\n \n\nMoreover, Bitcoin is not legal tender in any jurisdiction, and regulatory frameworks governing digital assets remain uncertain and subject to rapid change. Governmental authorities may restrict or prohibit the use or possession of Bitcoin or impose new taxes or regulations that could adversely affect our ability to hold, transfer, or use Bitcoin.\n\n \n\nThere are also substantial risks related to cybersecurity and the safekeeping of digital assets. Any failure to safeguard our private keys or digital wallets, including through a third-party custodian, could result in the loss of all or a portion of our Bitcoin holdings. Additionally, Bitcoin is relatively illiquid compared to traditional fiat currencies. If we are unable to liquidate our holdings at favorable prices or within a desired timeframe, our liquidity and ability to meet capital needs or operational expenses could be negatively impacted.\n\n \n\nGiven the novelty and evolving nature of Bitcoin, we may be unable to accurately assess or manage the risks associated with our treasury strategy, which could lead to material adverse effects on our business, financial performance, and investor confidence.\n\n \n\nFurthermore, by acquiring and holding Bitcoin, K Wave Media’s financial results will likely become highly sensitive to fluctuations in Bitcoin’s market price. A prolonged decline in Bitcoin prices could result in substantial impairment losses or erosion of capital. Bitcoin is also relatively less liquid compared to cash and may not serve as a source of immediate liquidity. Furthermore, our Bitcoin strategy may subject us to increased regulatory scrutiny. If future regulatory developments were to classify Bitcoin as a security, it could trigger our classification as an “investment company” under the Investment Company Act of 1940 — a designation that could adversely affect both our business operations and the market value of our securities.\n\n \n\n18\n\n \n\n \n\n**Changes in tax laws or regulations that are applied adversely to K Wave or its customers may have a material adverse effect on K Wave’s business, cash flow, financial condition or results of operations.**\n\n \n\nThe U.S. Congress and other government agencies in jurisdictions where K Wave and its affiliates will do business have had an extended focus on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” including situations where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the countries in which K Wave and its affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect K Wave and its affiliates.\n\n \n\nNew income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of K Wave’s earnings and adversely affect K Wave’s operations, and K Wave’s business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. There may be material adverse effects resulting from the legislation that K Wave has not yet identified. No estimated tax provision has been recorded in the financial statements included herein for tax attributes that are incomplete or subject to change.\n\n \n\nThe foregoing items could have a material adverse effect on K Wave’s business, cash flow, financial condition or results of operations. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. The impact of this tax legislation on holders of K Wave’s Ordinary Shares is also uncertain and could be adverse. K Wave urges its shareholders and investors to consult with K Wave’s legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding K Wave’s Ordinary Shares.\n\n \n\n**K Wave’s business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data use and data protection, content, competition, consumer protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to K Wave’s business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm K Wave’s business.**\n\n \n\nK Wave is subject to a variety of laws and regulations that involve matters central to its business, including privacy, data use, data protection and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, data localization and storage, data disclosure, artificial intelligence, electronic contracts and other communications, competition, protection of minors, consumer protection, telecommunications, product liability, e-commerce, taxation, economic or other trade prohibitions or sanctions, anti-corruption and political law compliance, securities law compliance, and online payment services. The introduction of new products, expansion of K Wave’s activities in certain jurisdictions, or other actions that K Wave may take may subject K Wave to additional laws, regulations, or other government scrutiny. In addition, foreign data protection, privacy, content, competition, and other laws and regulations can impose different obligations or be more restrictive than those in the United States.\n\n \n\n19\n\n \n\n \n\nSince the operations of K Wave’s subsidiaries are based in Korea, where most of their users are domiciled, K Wave and its subsidiaries are expected to be subject to, among others, the Personal Information Protection Act and related legislation, regulations and orders (the “PIPA”), the Act on the Promotion of Information and Communications Network Utilization and Protection of Information Act (Korea), and the Credit Information Act in Korea that specifically regulates certain sensitive personal information. PIPA requires consent by the consumer with respect to the use of his or her data and requires the persons responsible for management of personal data to take the necessary technological and managerial measures to prevent data breaches and, among other duties, to notify the Personal Information Protection Commission of any data breach incidents within 24 hours. Failure to comply with PIPA in any manner may subject these persons responsible to personal liability for not obtaining such consent in an appropriate manner or for such breaches, including even negligent breaches, and violators face varying penalties ranging from monetary penalties to imprisonment. K Wave strives to take the necessary technological and managerial measures to comply with PIPA, including the implementation of privacy policies concerning the collection, use, and disclosure of subscriber data on K Wave’s apps and websites, and K Wave regularly reviews and updates K Wave’s policies and practices. Despite these efforts to comply with PIPA, these rules are complex and evolving, subject to interpretation by government regulators which may change over time and therefore K Wave is subject to the risk of claims by regulators of failure to comply with PIPA. Any failure, or perceived failure, by K Wave and its subsidiaries to comply with such policies, laws, regulations, and other legal obligations and regulatory guidance could adversely affect K Wave’s reputation, brand, and business, and may result in claims, proceedings, or actions, including criminal proceedings, against K Wave and certain of K Wave’s executive officers by governmental entities or others or other liabilities. Any such claim, proceeding, or action, could hurt K Wave’s reputation, brand, and business, force K Wave to incur significant expenses in defense of such proceedings, distract K Wave’s management, increase K Wave’s costs of doing business, result in a loss of customers and merchants, and could have an adverse effect on K Wave’s business, financial condition, and results of operations.\n\n \n\nThese U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which K Wave operates and may be interpreted and applied inconsistently from country to country and inconsistently with K Wave’s current policies and practices. For example, regulatory or legislative actions affecting the manner in which K Wave displays content to K Wave’s users or obtains consent to various practices could adversely affect user growth and engagement. Such actions could affect the manner in which K Wave provides its services or adversely affect K Wave’s financial results.\n\n \n\nWe also expect that K Wave will be subject to evolving laws and regulations that dictate whether, how, and under what circumstances K Wave and its subsidiaries can transfer, process and/or receive certain data that is critical to our future operations, including data shared between countries or regions in which we operate and data shared among our subsidiaries’ products and services. If K Wave is unable to transfer data between and among countries and regions in which K Wave operates, or if K Wave is restricted from sharing data among K Wave’s products and services, it could affect K Wave’s ability to provide services, the manner in which K Wave provides its services or K Wave’s ability to target ads, which could adversely affect K Wave’s financial results.\n\n \n\nProposed or new legislation and regulations could also significantly affect K Wave’s business. Laws and regulations are evolving and subject to interpretation, and resulting limitations on K Wave’s advertising services, or reductions of advertising by marketers, have to some extent adversely affected, and will continue to adversely affect, K Wave’s advertising business. Changes to our subsidiaries’ products or business practices as a result of these developments may adversely affect K Wave’s advertising business. Similarly, there are a number of legislative proposals in the European Union, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting K Wave’s business. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering K Wave’s services.\n\n \n\n20\n\n \n\n \n\nFor example, the European Union traditionally has imposed stricter obligations under its laws and regulations relating to privacy, data protection and consumer protection than the United States. In May 2018, the European Union’s new regulation governing data practices and privacy called the General Data Protection Regulation, or GDPR, became effective and substantially replaced the data protection laws of the individual European Union member states. The law requires companies to meet more stringent requirements regarding the handling of personal data of individuals in the EU than were required under predecessor EU requirements. In the United Kingdom, a Data Protection Bill that substantially implements the GDPR also became law in May 2018. The law also increases the penalties for non-compliance, which may result in monetary penalties of up to €20.0 million or 4% of a company’s worldwide turnover, whichever is higher. The GDPR and other similar regulations require companies to give specific types of notice and in some cases seek consent from consumers and other data subjects before collecting or using their data for certain purposes, including some marketing activities. Outside of the European Union, many countries have laws, regulations, or other requirements relating to privacy, data protection, information security, and consumer protection, and new countries are adopting such legislation or other obligations with increasing frequency. Many of these laws may require consent from consumers for the use of data for various purposes, including marketing, which may reduce K Wave’s ability to market K Wave’s products. There is no harmonized approach to these laws and regulations globally. Consequently, K Wave increases its risk of non-compliance with applicable foreign data protection laws by operating internationally. K Wave may need to change and limit the way K Wave uses personal information in operating K Wave’s business and may have difficulty maintaining a single operating model that is compliant. In addition, various federal, state and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection, information security and consumer protection. For example, California adopted the California Consumer Privacy Act of 2018 (“CCPA”), which provides new data privacy rights for consumers and new operational requirements for businesses. The CCPA includes a statutory damages framework and private rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices to prevent data breaches. The CCPA went into effect in January 2020. The effects of the CCPA potentially are significant, however, and may require K Wave to modify K Wave’s data processing practices and policies and to incur substantial costs and expenses in an effort to comply. As a general matter, compliance with laws, regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection, information security and consumer protection, may result in substantial costs and may necessitate changes to K Wave’s business practices, which may compromise K Wave’s growth strategy, adversely affect K Wave’s ability to acquire customers, and otherwise adversely affect K Wave’s business, financial condition and operating results.\n\n \n\nThese laws and regulations, as well as any associated claims, inquiries, or investigations or any other government actions, have in the past led to, and may in the future lead to, unfavorable outcomes including increased compliance costs, delays or impediments in the development of new products, negative publicity and reputational harm, increased operating costs, diversion of management time and attention, and remedies that harm K Wave’s business, including fines or demands or orders that K Wave modifies or ceases existing business practices.\n\n \n\n**K Wave may be subject to risks related to online payment methods, including third-party payment processing-related risks.**\n\n \n\nWe expect that K Wave will accept payments using a variety of methods, including ACH, bitcoin, wire transfers, credit card and debit cards. As a result, it is subject to additional regulations, compliance requirements, fraud, and other risks. K Wave may also rely on third parties to provide payment processing services, and for certain payment methods, K Wave will pay interchange and other fees, which may increase over time and raise K Wave’s operating costs and affect ability to achieve or maintain profitability. K Wave may be also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard, or PCI-DSS, and rules governing electronic funds transfers, which may change or be reinterpreted to make it difficult or impossible for K Wave to comply. If K Wave (or a third-party processing payment card transactions on K Wave’s behalf) suffers a security breach affecting payment card information, it may have to pay significant fines, penalties and assessments arising out of the major card brands’ rules and regulations, contractual indemnifications or liability contained in merchant agreements and similar contracts, and K Wave may lose its ability to accept payment cards for payment for its goods and services, which may materially impact K Wave’s operations and financial performance.\n\n \n\n21\n\n \n\n \n\nAs K Wave’s business changes in the future, it may be subject to different rules under existing standards, which may require new assessments that involve costs above what the Company currently pays for compliance. As K Wave offers new payment options to consumers, including by way of integrating emerging mobile and other payment methods, K Wave may be subject to additional regulations, compliance requirements and fraud. If K Wave fails to comply with the rules or requirements of any provider of a payment method it accepts, if the volume of fraud in K Wave’s transactions limits or terminates its rights to use payment methods we currently accept, or if a data breach occurs relating to K Wave’s payment systems, K Wave may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, K Wave ability to accept credit card payments from consumers or facilitate other types of online payments.\n\n \n\nOur subsidiaries may occasionally receive orders placed with fraudulent data, and K Wave may be held liable for the unauthorized use of a cardholder’s card number in an illegal activity and be required by card issuers to pay charge-back fees. Charge-backs may result not only in K Wave’s loss of fees earned with respect to the payment but also may leave us liable for the underlying money transfer amount. If K Wave’s charge-back rate becomes excessive, card associations also may require us to pay fines or refuse to process K Wave’s transactions. In addition, we may be subject to additional fraud risk if third-party service providers or K Wave’s employees fraudulently use consumer information for their own gain or facilitate the fraudulent use of such information.\n\n \n\n**Inflation may cause K Wave’s investment and development costs as well as operating and administrative expenses to grow more rapidly than net sales, which may result in lower gross margins and lower net earnings.**\n\n \n\nMarket variables, such as inflation of labor rates and fuel, freight and energy costs, across multiple geographic regions, have and may continue to increase potentially causing K Wave to be unable to efficiently manage its development costs and operating and administrative expenses in a way that would enable K Wave to leverage its revenue growth into higher net earnings. In addition, K Wave’s inability to pass on such increases in development costs to the consumers in a timely manner, or at all, may cause K Wave’s operating and administrative expenses to grow, which may result in lower gross profit margins and lower net earnings.\n\n \n\nThe current inflation levels have not materially impacted K Wave’s day-to-day operations. However, inflation affects the cost of production and demand for K Wave’s merchandise products, film and drama and food and beverage segment (the smallest segment). K Wave competes with limited consumer and teenager’s budgets for entertainment and K Pop merchandise goods.\n\n \n\nK Pop video merchandise customers are the least price sensitive among K Wave’s clientele. K Wave’s merchandise is purchased by fans who are very loyal to their artists, and this results in a lower price elasticity. K Wave believes that product sales volume is driven by product quality that meets the needs of fans and the timely release of these goods.\n\n \n\nIn the case of film production, inflation impacts K Wave’s break-even point. Higher movie ticket prices and lower consumer disposable income also lowers demand. The main customers of dramas are broadcasting companies and Over-the-Top or OTT companies, and although production costs are increasing due to inflation, K Wave believes these firms have been willing to invest in high-quality content.\n\n \n\nThe food and beverage segment is particularly sensitive to inflation with rising material costs and wages directly impacting K Wave’s costs. Consumers with lower disposable income and intense competition in the market makes it more difficult to pass on the increased costs to K Wave’s customers.\n\n \n\n**Weaknesses in the economy, market trends and other conditions affecting our financial stability may negatively impact K Wave’s expected sales growth and results of operations.**\n\n \n\nEconomic, political and industry trends may affect K Wave’s business environments. We operate in markets that may be subject to cyclical fluctuations resulting from market uncertainty, trade and tariff policies, costs of goods sold, currency exchange rates, central bank interest rate fluctuations, economic downturns, recessions, foreign competition, offshoring of production, oil and natural gas prices, geopolitical developments or tensions, labor shortages, inflation, natural or human induced disasters, extreme weather, outbreaks of pandemic disease such as the COVID-19 pandemic, inflation, deflation, and a variety of other factors beyond our control. Any of these factors may cause reductions in wholesale purchasing levels or reductions in the demand for our content and services.\n\n \n\n22\n\n \n\n \n\n**K Wave’s expansions may place a strain on its management, operational, financial, and other resources.**\n\n \n\nK Wave’s business may plan on operations of expansions, including increasing K Wave’s IP acquisitions, service offerings and scaling K Wave’s infrastructure to support its IP merchandizing businesses. This expansion may increase the complexity of K Wave’s business and may place strain on K Wave’s management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. K Wave may not be able to manage growth effectively, which may damage K Wave’s reputation, limit its growth, and negatively affect K Wave’s operating results.\n\n \n\n**Consumer interests change rapidly and acceptance of K Wave and its subsidiaries’ IP content and entertainment offerings may be influenced by factors beyond K Wave’s control.**\n\n \n\nThe interests of families, individuals, fans and audiences evolve extremely quickly and may change from year to year and by geography. To be successful, K Wave plans to correctly anticipate the types of IP content patterns which may capture consumers’ interests and imagination and quickly develop and introduce innovative IP offerings which may compete successfully for consumers’ limited time, attention and spending. This challenge may be more difficult with the ever-increasing utilization of technology, social media and digital media in entertainment offerings, and the increasing breadth of entertainment available to consumers. Evolving consumer tastes and shifting interests, coupled with an ever-changing and expanding pipeline of entertainment and consumer properties and content which compete for consumer interest and acceptance, create an environment in which some content offerings may fail to achieve consumer acceptance, and other IP content offerings may be popular during a certain period of time but then be rapidly replaced. As a result, K Wave’s IP content offerings may have short consumer life cycles.\n\n \n\nConsumer acceptance of K Wave’s or its partners’ entertainment offerings may be also affected by outside factors, such as reviews, promotions, the quality and acceptance of films and television programs, music, video games, and content released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and public tastes generally, all of which may change rapidly and most of which may be beyond K Wave’s control. There may be no assurance that television programs and films, video games, video movies K Wave distributes may obtain favorable reviews or ratings, that films, video games, video movies K Wave distributes may be popular with consumers and perform well in K Wave’s distribution channels.\n\n \n\nIf K Wave devotes time and resources to distributing and marketing content that consumers do not accept or do not find interesting enough to buy in sufficient quantities to be profitable to K Wave, K Wave’s revenues and profits may decline, and K Wave’s business performance may be harmed.\n\n \n\n**Failure to successfully operate K Wave’s information systems and implement new technology effectively may disrupt K Wave’s business or reduce K Wave’s sales or profitability.**\n\n \n\nK Wave relies on various information technology systems and software applications to manage many aspects of its businesses, including content development, communications with K Wave’s affiliates and partners, sale and delivery of K Wave’s content, royalty and financial reporting and various other processes and transactions. K Wave may be dependent on the integrity, security and consistent operations of these systems and related back-up systems. These systems may be subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malware and other cybersecurity breaches, catastrophic events such as hurricanes, fires, floods, earthquakes, tornadoes, acts of war or terrorism and usage errors by K Wave’s employees or partners. The efficient operation and successful growth of K Wave’s business may depend on these information systems, including K Wave’s ability to operate them effectively and to select and implement appropriate upgrades or new technologies and systems and adequate disaster recovery systems successfully. The failure of K Wave’s information systems or third-party hosted technology to perform as designed or K Wave’s failure to implement and operate them effectively may disrupt K Wave’s business, require significant capital investments to remediate a problem or subject K Wave to liability.\n\n \n\n23\n\n \n\n \n\n**K Wave’s failure to raise additional capital or generate cash flows necessary to expand its operations and invest in the future may reduce K Wave’s ability to compete successfully and adversely affect K Wave’s results of operations.**\n\n \n\nK Wave may need to raise additional funds, and K Wave may not be able to obtain additional debt or equity financing on favorable terms or at all. If K Wave raises additional equity financing, you may experience significant dilution of your ownership interests. If K Wave raises additional debt financing, K Wave may be required to accept terms that restrict K Wave’s ability to incur additional indebtedness, may force K Wave to maintain specified liquidity or other ratios or may restrict K Wave’s ability to pay dividends or make acquisitions. If K Wave needs additional capital and cannot raise it on acceptable terms, or at all, K Wave may not be able to, among other things:\n\n \n\n \n●\ninvest in K Wave’s business and continue to grow K Wave’s brand and expand K Wave’s fan base;\n\n \n\n \n●\nhire and retain employees, including celebrities, influences, and content creators as well as other employees and staff, including engineers, operations personnel, financial and accounting staff, and sales and marketing staff;\n\n \n\n \n●\nrespond to competitive pressures or unanticipated working capital requirements; or\n\n \n\n \n●\npursue opportunities for acquisitions of, investments in, or strategic alliances and joint ventures with complementary businesses.\n\n \n\n**Reductions in discretionary consumer spending may have an adverse effect on K Wave’s business, financial condition, results of operations and prospects.**\n\n \n\nK Wave’s expected business may be particularly sensitive to reductions from time to time in discretionary consumer spending. Demand for entertainment and leisure activities, including movies and TV series, may be affected by changes in the economy or geopolitical conditions, both of which may be difficult to predict and are beyond K Wave’s control. Unfavorable changes in general economic conditions, including recessions, economic slowdowns, sustained high levels of unemployment, and rising prices or the perception by consumers of weak or weakening economic conditions, may reduce K Wave’s customers’ disposable income or result in fewer individuals engaging in entertainment and leisure activities, such as movie going or online streaming. As a result, K Wave may not ensure that demand for future content and services may remain constant. Adverse developments affecting economies throughout the world, including a general tightening of availability of credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases may lead to a further reduction in discretionary spending on leisure activities. Any significant or prolonged decrease in consumer spending on entertainment or leisure activities may adversely affect the demand for K Wave’s expected offerings, reducing K Wave’s expected cash flows and revenues, and thereby materially harming K Wave’s expected business, financial condition, results of operations and prospects.\n\n \n\n**Changes in foreign currency exchange rates may significantly impact K Wave’s expected reported financial performance.**\n\n \n\nK Wave transacts business in many international jurisdictions with different currencies. As a result, if the exchange rate between the U.S. dollar and a local currency for an international market in which K Wave has significant sales or operations changes, K Wave’s financial results, as reported in U.S. dollars, may be meaningfully impacted even if K Wave’s business in the local currency is not significantly affected. Similarly, K Wave’s expenses may be significantly impacted, in U.S. dollar terms, by exchange rates, meaning the profitability of K Wave’s business in U.S. dollar terms may be negatively impacted by exchange rate movements which K Wave does not control. Depreciation in key currencies may have a significant negative impact on K Wave’s revenues and earnings as they may be reported in U.S. dollars.\n\n \n\n24\n\n \n\n \n\nThe value of the Korean Won and other currencies against the U.S. dollar has fluctuated, and may continue to fluctuate and is affected by, among other things, changes in political and economic conditions. It is difficult to predict how market forces or Korean or U.S. government policy, including any interest rate increases by the Federal Reserve, may impact the exchange rate between the Korean Won and the U.S. dollar in the future.\n\n \n\nA substantial percentage of K Wave’s revenue and costs are denominated in Korean Won, and a significant portion of K Wave’s financial assets are also denominated in Korean Won. While K Wave anticipates that a substantial portion of any debt incurred will be denominated in U.S. dollars. K Wave is a holding company and K Wave may receive dividends, loans and other distributions on equity paid by K Wave’s operating subsidiaries in Korea. Any significant fluctuations in the value of the Korean Won may materially and adversely affect K Wave’s liquidity and cash flows. For example, the depreciation of the Korean Won and other foreign currencies against the U.S. dollar typically results in a material increase in the cost of hosting services and equipment purchased from outside of Korea and the cost of servicing debt denominated in currencies other than the Korean Won. As a result, any significant depreciation of the Korean Won or other major foreign currencies against the U.S. dollar may have a material adverse effect on K Wave’s results of operations. If K Wave decides to convert K Wave’s Korean Won into U.S. dollars for the purpose of repaying principal or interest expense on any future U.S. dollar-denominated debt, making payments for dividends on K Wave’s Ordinary Shares, or other business purposes, depreciation of the Korean Won or other foreign currencies against the U.S. dollar would have a negative effect on the U.S. dollar amount K Wave would receive. Conversely, to the extent that K Wave needs to convert U.S. dollars into Korean Won for K Wave’s operations, appreciation of the Korean Won against the U.S. dollar would have an adverse effect on the Korean Won amount K Wave would receive.\n\n \n\n**If we fail to attract and retain customers, fail to attract new customers in a cost-effective manner, or fail to effectively manage K Wave’s growth, K Wave’s business, financial condition, results of operations and prospects could adversely be affected.**\n\n \n\nK Wave’s ability to achieve growth in revenue in the future may depend, in large part, upon K Wave’s ability to attract new customers to K Wave’s content offerings, retain existing customers of K Wave’s content offerings and reactivate customers in a cost-effective manner. Achieving growth in K Wave’s community of customers may require K Wave to increasingly engage in sophisticated and costly sales and marketing efforts, which may not make sense in terms of return on investment. K Wave expects to use a variety of free and paid marketing channels, in combination with compelling offers and exciting games to achieve K Wave’s objectives. If the search engines on which K Wave relies modify their algorithms, change their terms, or if the prices at which K Wave may purchase listings increase, then K Wave’s costs may increase, and fewer customers may click through to K Wave’s website. If links to K Wave’s website may not be displayed prominently in online search results, if fewer customers click through to K Wave’s website, if K Wave’s other digital marketing campaigns may not be effective, of it the costs of attracting customers using any of K Wave’s current methods significantly increase, then K Wave’s ability to efficiently attract new customers may be reduced, K Wave’s revenue may decline and K Wave’s business, financial condition and results of operations may be harmed.\n\n \n\n**K Wave may invest in or acquire other businesses, and its business may suffer if K Wave is unable to successfully integrate acquired businesses into K Wave or otherwise manage the growth associated with multiple acquisitions.**\n\n \n\nAs part of K Wave’s business strategy, K Wave may make acquisitions as opportunities arise to add new or complementary businesses, content, or entertainment offerings. In some cases, the costs of such acquisitions may be substantial, including as a result of professional fees and due diligence efforts. There may be no assurance that the time and resources expended on pursuing a particular acquisition may result in a completed transaction, or that any completed transaction may ultimately be successful. In addition, K Wave may be unable to identify suitable acquisition or strategic investment opportunities or may be unable to obtain any required financing or regulatory approvals, and therefore may be unable to complete such acquisitions or strategic investments on favorable terms, if at all. K Wave may decide to pursue acquisitions with which K Wave’s investors may not agree and K Wave may not assure investors that any acquisition or investment may be successful or otherwise provide a favorable return on investment. In addition, acquisitions and the integration thereof require significant time and resources and place significant demands on K Wave’s management, as well as on K Wave’s operational and financial infrastructure. In addition, if K Wave fails to successfully close transactions or integrate new teams, or integrate the content and technologies associated with these acquisitions into K Wave’s company, K Wave’s business may be seriously harmed. Acquisitions may expose K Wave to operational challenges and risks, including:\n\n \n\n \n●\nthe ability to profitably manage acquired businesses or successfully integrate the acquired businesses’ operations, personnel, financial reporting, accounting and internal controls, technologies and content into K Wave’s business;\n\n \n\n25\n\n \n\n \n\n \n●\nincurrence of indebtedness and the expense of integrating acquired businesses, including significant administrative, operational, economic, geographic or cultural challenges in managing and integrating the expanded or combined operations;\n\n \n\n \n●\nentry into jurisdictions or acquisition of content or technologies with which K Wave has limited or no prior experience, and the potential of increased competition with new or existing competitors as a result of such acquisitions;\n\n \n\n \n●\ndiversion of management’s attention and the over-extension of K Wave’s operating infrastructure and K Wave’s management systems, information technology systems, and internal controls and procedures, which may be inadequate to support growth;\n\n \n\n \n●\nthe ability to fund K Wave’s capital needs and any cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; and\n\n \n\n \n●\nthe ability to retain or hire qualified personnel required for expanded operations.\n\n \n\nK Wave’s acquisition strategy may not succeed if K Wave is unable to remain attractive to target companies or expeditiously close transactions. Issuing common shares to fund an acquisition would cause economic dilution to existing shareholders. If K Wave develops a reputation for being a difficult acquirer or having an unfavorable work environment, or target companies view K Wave’s common shares unfavorably, K Wave may be unable to consummate key acquisition transactions essential to K Wave’s corporate strategy and K Wave’s business may be seriously harmed.\n\n \n\n**K Wave’s success may depend on the performance of its current and future employees, including certain key employees. Recruitment and retention of these individuals may be vital to growing K Wave’s business and meeting its business plans. The loss of any of K Wave’s key executives or other key employees may harm its business.**\n\n \n\nThe leadership of K Wave’s current executive officers may have been a useful element in building K Wave’s operations, and the departure, death or disability of any one of K Wave’s executive officers or other extended or permanent loss of any of their services, or any negative market or industry perception with respect to any of them or their loss, may have a material adverse effect on K Wave’s business.\n\n \n\nIn addition, certain of K Wave’s other employees may have made significant contributions to their growth and success. K Wave believes its success and K Wave’s ability to compete and grow may depend in large part on the efforts and talents of K Wave’s employees and on K Wave’s ability to retain highly skilled personnel. The competition for these types of personnel may be intense, and K Wave may compete with other potential employers for the services of K Wave’s employees. As a result, K Wave may not succeed in retaining the executives and other key employees that K Wave needs. Employees, particularly analysts and engineers, may be in high demand, and K Wave may devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. K Wave may not provide assurance that K Wave may be able to attract or retain such highly qualified personnel in the future. In addition, the loss of employees or the inability to hire additional skilled employees as necessary may result in significant disruptions to K Wave’s business, and the integration of replacement personnel may be time-consuming and expensive and cause additional disruptions to K Wave’s business.\n\n \n\nThe unexpected loss of services of one or more of these key employees may have a material adverse effect on K Wave’s business, financial condition, results of operations and prospects. Additionally, as K Wave grows and develops the infrastructure of a public company, K Wave may find it difficult to maintain K Wave’s entrepreneurial, innovative and team-based culture. K Wave’s retention and recruiting may require significant increases in compensation expense as K Wave transitions to a public company, which would adversely affect K Wave’s results of operation. If K Wave does not succeed in attracting, hiring, and integrating excellent personnel, or retaining and motivating existing personnel, K Wave may be unable to grow effectively, and K Wave’s business may be harmed.\n\n \n\n26\n\n \n\n \n\n**Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties and an adverse effect on K Wave’s business.**\n\n \n\nK Wave operates in a number of countries throughout the world. K Wave is committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. Any violation of the FCPA could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect K Wave’s business, results of operations or financial condition. In addition, actual or alleged violations could damage K Wave’s reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of K Wave’s senior management.\n\n \n\n**The preparation of K Wave’s financial statements involves the use of good faith estimates, judgments and assumptions, and K Wave’s financial statements may be materially affected if such good faith estimates, judgments or good faith assumptions prove to be inaccurate**.\n\n \n\nFinancial statements prepared in accordance with IFRS, as issued by the International Accounting Standard Board, typically require the use of good faith estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to, determining the fair value of assets, share-based compensation and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if K Wave’s estimates prove to be wrong, K Wave would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes would require a restatement of our financial statements and could harm K Wave’s business, including K Wave’s financial condition and results of operations and the price of K Wave’s securities. See “*Management*’*s Discussion and Analysis of Financial Condition and Results of Operations*” for a discussion of the accounting estimates, judgments and assumptions that K Wave believes are the most critical to an understanding of K Wave’s financial statements and its business.\n\n \n\n**Provisions in K Wave’s governance documents may inhibit a takeover of K Wave, which could limit the price investors might be willing to pay in the future for K Wave’s Ordinary Shares and could entrench management.**\n\n \n\nK Wave’s governance documents contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions include that K Wave’s board of directors will be classified into three classes of directors. As a result, in most circumstances, a person can gain control of the board only by successfully engaging in a proxy contest at two or more annual general meetings. K Wave may issue additional shares without shareholder approval, and such additional shares could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The ability for K Wave to issue additional shares could be more difficult or discourage an attempt to obtain control of K Wave by means of a proxy contest, tender offer, merger or otherwise that could involve the payment of a premium over prevailing market prices for K Wave Ordinary Shares.\n\n \n\n**K Wave’s management has identified material weaknesses in K Wave’s internal control over financial reporting and K Wave may not be able to remediate these weaknesses. Additionally, K Wave’s management may identify material weaknesses in the future that could adversely affect investor confidence, impair the value of K Wave’s securities, and increase K Wave’s cost of raising capital.**\n\n \n\nK Wave has identified material weaknesses in its internal control over financial reporting as of December 31, 2025 which relate to: (a) our lack of sufficient skilled personnel with requisite IFRS reporting knowledge and experience and (b) our lack of sufficient entity level controls and sufficiently designed internal controls and financial reporting policies and procedures including segregation of duties that are commensurate with IFRS reporting requirements.\n\n \n\n27\n\n \n\n \n\nA material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of K Wave’s respective financial statements will not be prevented or detected on a timely basis. These deficiencies could result in additional misstatements to K Wave’s financial statements that would be material and would not be prevented or detected on a timely basis.\n\n \n\nK Wave’s management has concluded that these material weaknesses in K Wave’s respective internal control over financial reporting are due to the fact that, prior to the consummation of our Business Combination (as defined in Item 4), K Wave was a private company with limited resources and did not have the necessary business processes and related internal control formally designed and implemented coupled with the appropriate resources with the appropriate level of experience and technical expertise to oversee K Wave’s business processes and controls surrounding information technology general controls and K Wave’s closing and financial reporting processes.\n\n \n\nTo remediate the material weaknesses described above, K Wave’s management plans to (a) continue to establish a comprehensive and effective internal control system with the assistance from third-party consulting firm which shall provide relevant professional advisory services; (b) continue to assess K Wave’s standardized processes to further enhance the effectiveness of K Wave’s financial review, including the analysis and monitoring of financial information in a consistent and thorough manner; and (c) hire internal personnel and external advisors with relevant public reporting experience and conduct training for K Wave’s personnel in IFRS reporting requirements.\n\n \n\nIf not remediated, these material weaknesses could result in further material misstatements to K Wave’s annual or interim financial statements that would not be prevented or detected on a timely basis, or in delayed filing of required periodic reports. If K Wave is unable to assert that its internal control over financial reporting is effective, or when required in the future, if K Wave’s independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of the internal control over financial reporting, investors may lose confidence in the accuracy and completeness of K Wave’s financial reports, the market price of K Wave Ordinary Shares could be adversely affected and K Wave could become subject to litigation or investigations by the Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources.\n\n \n\nThere can be no assurance as to how quickly or effectively K Wave can remediate the material weaknesses in its internal control over financial reporting or that additional material weaknesses will not be identified in the future. Any failure to remedy additional weaknesses or deficiencies in K Wave’s internal control over financial reporting that may be discovered in the future or to implement new or improved controls, or difficulties encountered in the implementation of such controls, could harm K Wave’s operating results, cause K Wave to fail to meet K Wave’s reporting obligations or result in material misstatements in K Wave’s financial statements. Any such failure could, in turn, affect the future ability of K Wave’s management to certify that K Wave’s internal control over financial reporting is effective. Ineffective internal control over financial reporting could also subject K Wave to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in K Wave’s reported financial information and subject K Wave to civil or criminal penalties or shareholder litigation, which could have an adverse effect on the trading price of K Wave’s securities. In addition, if we identify additional deficiencies in K Wave’s internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in K Wave’s financial statements and harm K Wave’s share price. Furthermore, additional deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act. Such non-compliance could subject K Wave to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.\n\n \n\n28\n\n \n\n \n\n**Risks Associated with being Incorporated in the Cayman Islands**\n\n \n\n**Because K Wave is incorporated under the laws of the Cayman Islands and its Amended and Restated Memorandum and Articles of Association designates the courts of the Cayman Islands to have exclusive jurisdiction over certain matters, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. Federal courts may be limited.**\n\n \n\nK Wave is an exempted company incorporated under the laws of the Cayman Islands. K Wave’s Amended and Restated Memorandum and Articles of Association designates the courts of the Cayman Islands to have exclusive jurisdiction over any claim or dispute arising out of or in connection with the Memorandum, the Articles or otherwise related in any way to each Member’s shareholding in the Company, including but not limited to: (a) any derivative action or proceeding brought on behalf of the Company; (b) any action asserting a claim of breach of any fiduciary or other duty owed by any current or former Director, Officer or other employee of the Company to the Company or the Members; (c) any action asserting a claim arising pursuant to any provision of the Companies Act (as revised) of the Cayman Islands, K Wave’s Amended and Restated Memorandum and Articles of Association and (d) any action asserting a claim against the Company governed by the “Internal Affairs Doctrine” (as such concept is recognized under the laws of the United States of America); provided, however, that this exclusive forum provision shall not apply to any action or suits brought to enforce any liability or duty created by the United States Securities Act of 1933, as amended, the Exchange Act, or any claim for which the federal district courts of the United States of America are, as a matter of the laws of the United States, the sole and exclusive forum for determination of such a claim. As a result, it may be difficult for investors to effect service of process within the United States upon K Wave’s directors or officers, or enforce judgments obtained in the United States courts against K Wave’s directors or officers.\n\n \n\nK Wave’s corporate affairs are governed by its amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. K Wave will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of K Wave’s directors to K Wave under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of K Wave’s shareholders and the fiduciary responsibilities of K Wave’s directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States.\n\n \n\nK Wave has been advised by Maples and Calder (Cayman) LLP, its Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against it judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against it predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.\n\n \n\nAs a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a corporation incorporated in the United States.\n\n \n\n29\n\n \n\n \n\n**It may be difficult to enforce a U.S. judgment against K Wave or its directors and officers outside the United States, or to assert U.S. securities law claims outside of the United States.**\n\n \n\nA number of K Wave directors and executive officers are not residents of the United States, and the majority of its assets and the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for investors to effect service of process upon K Wave within the United States or other jurisdictions, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forum in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides.\n\n \n\n**As a company incorporated in the Cayman Islands, K Wave is permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if K Wave complied fully with Nasdaq corporate governance listing standards.**\n\n \n\nK Wave is a company incorporated in the Cayman Islands, and has applied for listing of the K Wave Ordinary Shares on Nasdaq. Nasdaq market rules permit a foreign private issuer like K Wave to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is K Wave’s home country, may differ significantly from Nasdaq corporate governance listing standards.\n\n \n\nAmong others, K Wave will not be required to: (i) have a majority of the board be independent; (ii) have a compensation committee consisting entirely of independent directors; (iii) have a minimum of three members on the audit committee; (iv) obtain shareholders’ approval for issuance of securities in certain situations; or (v) have regularly scheduled executive sessions with only independent directors each year.\n\n \n\n30\n\n \n\n \n\n**Risks Associated with Operating in Korea**\n\n \n\n**K Wave’s transactions with its subsidiaries or with their affiliates may be restricted under Korean fair trade regulations.**\n\n \n\nK Wave’s Korean subsidiaries may enter into business relationships and transactions with their affiliates, which are subject to scrutiny by the Korean Fair Trade Commission (“KFTC”) as to, among other things, whether such relationships and transactions constitute undue financial support among companies in the same business group. If, in the future, the KFTC determines that K Wave’s Korean subsidiaries have engaged in transactions that violate the fair trade laws and regulations, it may be subject to an administrative and/or criminal fine, surcharge or other actions, which may have an adverse effect on K Wave’s business, financial condition, and results of operations.\n\n \n\n**The operations of K Wave’s Korean subsidiaries and its affiliates may be designated an affiliated group under Korean law, which would require that group of companies to make certain disclosures and implement additional corporate governance requirements.**\n\n \n\nK Wave’s Korean subsidiaries and a group of companies affiliated with it may be designated as a business group subject to disclosure under the Korean Monopoly Regulation and Fair Trade Act. As described in greater detail in the section titled “Government Regulation-The Monopoly Regulation and Fair Trade Act”, such a designation would impose additional corporate governance and public disclosure requirements on this group of affiliated companies. These requirements would create additional costs of compliance and could subject this group of affiliated companies to greater regulatory scrutiny and risk of penalties for any failure to comply with the additional obligations imposed.\n\n \n\n**The operations of K Wave’s Korean subsidiaries are subject to certain requirements and restrictions under Korean law that may, in certain circumstances, require it to act in a manner that may not be in K Wave’s or its shareholders**’ **best interest.**\n\n \n\nUnder applicable Korean law, directors of a Korean company owe a fiduciary duty to their respective Korean company rather than to its shareholders. This fiduciary duty obligates directors of a Korean company to perform their duties faithfully for the good of the Korean company as a whole. As a result, if circumstances arise in which the good of K Wave’s Korean subsidiaries conflicts with the good of K Wave or its shareholders, K Wave’s Korean subsidiaries may not be permitted under applicable Korean law to act in a manner that is in the best interest of K Wave, as its parent, or K Wave’s shareholders.\n\n \n\nApproval by the board of directors of a Korean company is required for, among other things, all transactions between a director or major shareholder (including a 10% or more shareholder) and K Wave for the director’s or the major shareholder’s account. As a result, intercompany transactions between K Wave and its Korean subsidiaries (or any other Korean entity K Wave may own, from time to time), could arise in the future in which the directors of the Korean subsidiary are not able to act in K Wave’s or its shareholders’ best interest as a result of competing interests of the subsidiary. Any such occurrence with respect to our Korean subsidiaries could adversely affect K Wave’s business, financial condition, and results of operations.\n\n \n\n**The operations of K Wave’s Korean subsidiaries and any potential transactions with related parties are subject to close scrutiny by the Korean tax authorities, which may result in adverse tax consequences.**\n\n \n\nUnder Korean tax law, there is an inherent risk that K Wave’s transactions with its subsidiaries, affiliates or any other person or company that is related to K Wave may be challenged by the Korean tax authorities if such transactions are viewed as having been made on terms that were not on an arm’s-length basis. If the Korean tax authorities determine that any of its transactions with related parties were on other than arm’s-length terms, it may not be permitted to deduct as expenses, or may be required to include as taxable income, any amount which is found to be undue financial support between related parties in such transaction, which may have adverse tax consequences for K Wave and, in turn, may adversely affect K Wave’s business, financial condition, and results of operations.\n\n \n\n31\n\n \n\n \n\n**If K Wave is deemed to have a** “**place of effective management**” **in Korea, K Wave will be treated as a Korean company for the purpose of Korean corporate income tax with regards to K Wave’s worldwide income.**\n\n \n\nUnder the Corporate Tax Act (“CTA”), as amended on December 31, 2022, a corporation having a “place of effective management” in Korea will be treated as a Korean company for the purposes of Korean corporate income tax. The CTA does not clearly define what constitutes “place of effective management.” However, there are court precedents which establish certain factors to consider for determining whether a foreign corporation can be considered as having a “place of effective management” in Korea. Such factors include, without limitation, considerations such as the location of Board of Directors’ meetings, etc. If K Wave is deemed to have a “place of effective management” in Korea, K Wave will be required to file annual corporate income tax returns with the Korean tax authorities and be subject to Korean corporate income tax. Currently, the applicable rates are 9.9% (inclusive of local corporate taxes) for taxable income up to 200 million Korean Won, 20.9% (inclusive of local corporate taxes) for taxable income exceeding 200 million Korean Won and less than 20 billion Korean Won, 23.1% (inclusive of local corporate taxes) for taxable income greater than 20 billion won and less than 300 billion Korean Won, and 26.4% (inclusive of local corporate tax) for taxable income greater than 300 billion Korean Won. Taxable income would include any worldwide income, such as dividends K Wave receives from K Wave’s Korean operating company and any interest income earned outside of Korea. If K Wave is required to pay Korean corporate income tax, it may reduce K Wave’s cash flow and negatively impact the returns to investors.\n\n \n\n**A focus on regulating copyright and patent infringement by the Korean government subjects K Wave to extra scrutiny in K Wave’s operations and could subject K Wave to sanctions, fines, or other penalties, which could adversely affect K Wave’s business and operations in Korea.**\n\n \n\nThe Korean government has recently focused on addressing copyright and patent infringement in Korea, particularly with respect to luxury and brand name merchandise. Despite measures K Wave has taken to address copyright and patent infringement, the Korean government may subject K Wave to sanctions, fines, or other penalties, which could adversely affect K Wave’s business and operations in Korea.\n\n \n\n**New Korean legislative proposals may expose K Wave’s business to additional risks from litigation, regulation, and government investigations.**\n\n \n\nK Wave expects to be subject to changing laws and regulations everywhere we do business, including in Korea. For example, on September 28, 2020, the Korean Ministry of Justice announced (i) a proposed amendment to the Korean Commercial Code to adopt a punitive damages system that would apply generally to all areas of business, and (ii) a proposed bill to introduce a class action litigation system in Korea.\n\n \n\nPreviously, punitive or exemplary damages have been available in Korea only in specific business fields. The proposed legislation would broaden the potential availability of such damages. Similarly, the proposal relating to class actions would make such litigation applicable to a broader scope of cases, would allow for a Korean style discovery process, jury trials in many cases, and would apply to claims whose cause arose before the bill’s enactment.\n\n \n\nAdditionally, on January 8, 2021, the main session of the Korean National Assembly passed a draft Bill on Punishment for Serious Accidents, etc. (the “*Serious Accidents Act*”), which came into effect January 27, 2022. The Serious Accidents Act imposes enhanced liability (including criminal liability) on businesses, managers, and individuals who are responsible for causing loss of life by failing to fulfill duties relating to workplace safety and health or risk prevention. The Serious Accidents Act provides the potential for criminal punishment, public disclosure of punishment, and monetary damages, including punitive damages up to five times the actual damages suffered. The Serious Accidents Act extends potential liability to a wider group of persons than under existing law, including those who oversee safety and health matters for the business concerned and also general managers of the business.\n\n \n\nThese are just some examples of how K Wave’s business could be affected by changing regulations. If these proposals are enacted and implemented, our subsidiaries could face substantial costs and management could be required to spend significant time and attention on these matters, which would divert K Wave’s focus from K Wave’s core business. This could adversely affect K Wave’s business, financial condition, and results of operations.\n\n \n\n32\n\n \n\n \n\n**For K Wave’s subsidiaries that are incorporated in Korea, it may be more difficult to enforce judgments obtained in courts outside Korea.**\n\n \n\nK Wave’s operations are primarily conducted outside of the United States. In addition, all but one of K Wave’s directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. K Wave is a Cayman corporation. As a result, while U.S. investors should be able to serve process within the United States on K Wave, it may be difficult or impossible for U.S. investors to serve process within the United States upon K Wave’s subsidiaries and their respective directors and officers or to enforce a judgment against K Wave’s subsidiaries for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which K Wave’s subsidiaries are incorporated or where the assets of K Wave’s subsidiaries are located (1) would enforce judgments of U.S. courts obtained in actions against K Wave’s subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against K Wave’s subsidiaries based on those laws.\n\n \n\n**We have no prior operating history in AI infrastructure, and our ability to execute this new line of business is unproven.**\n\n \n\nWe have a limited operating history in the data center and AI infrastructure industries, which makes it difficult to evaluate our prospects and forecast our results. Our business plan contemplates identifying, acquiring, co-developing, and co-investing in data center and AI infrastructure projects in the United States and overseas, including both smaller projects that are already operating and, in some cases, participation in multi-billion-dollar projects alongside third parties such as IGIS Global. The successful execution of this plan will depend on, among other things, our ability to source attractive opportunities, perform effective technical, financial, and regulatory diligence, secure development rights and permits, access sufficient power and connectivity, raise or allocate substantial capital at acceptable cost, and negotiate commercial contracts on competitive terms. New market entrants frequently encounter unanticipated costs, delays, and regulatory constraints, and our projections may not prove accurate. FPI data center operators with longer operating histories have disclosed material risks associated with rapid growth, customer concentration, and large capital outlays; similar dynamics could adversely impact us.\n\n \n\n**Rapid technological change could render our investments obsolete or require unanticipated reinvestment.**\n\n \n\nThe AI hardware and software ecosystem evolves quickly, including frequent accelerator refresh cycles, network-fabric advances, and changing model architectures and frameworks. Our deployed configurations may underperform market expectations or become less attractive as industry standards shift, new products are introduced, or software stacks require different hardware characteristics. We may incur stranded or accelerated depreciation, retrofit costs, or write-downs if we must replace or upgrade equipment earlier than planned to remain competitive.\n\n \n\n33\n\n \n\n \n\n**Risks Relating to an Investment in K Wave Ordinary Shares**\n\n \n\n**We have engaged in, and may continue to engage in, transactions and offerings of our securities. Future resales and/or issuances of Ordinary Shares may cause the market price of our shares to drop significantly and may dilute shareholders.**\n\n \n\nSales of a substantial number of our Ordinary Shares in the public market or the perception that those sales might occur could depress the market price of our Ordinary Shares which could impair our ability to raise capital through the sale of additional equity securities.\n\n \n\nThe market price of Ordinary Shares could drop significantly if the holders of the Ordinary Shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of Ordinary Shares or other securities. The issuance of additional Ordinary Shares will significantly dilute the equity interests of existing holders of the Company securities and such dilution may also reduce the influence that you may have on the management of the Company through the matters that are presented for voting to the Company’s shareholders.\n\n \n\n**Certain judgments obtained against K Wave by K Wave’s shareholders may not be enforceable.**\n\n \n\nK Wave is a company incorporated under the laws of the Cayman Islands. K Wave conducts most of its operations in the Republic of Korea and substantially all of its operations outside of the United States. Most of K Wave’s assets are located in the Republic of Korea, and substantially all of K Wave’s assets are located outside of the United States. In addition, most of K Wave’s senior executive officers reside within the Republic of Korea for a significant portion of the time and most are Korean nationals. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against K Wave or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the Republic of Korea may render you unable to enforce a judgment against K Wave’s assets or the assets of K Wave’s directors and officers.\n\n \n\n**The Ordinary Shares of K Wave are newly-issued and there can be no assurance that an active trading market will develop or be sustained.**\n\n \n\nPrior to our Business Combination (as defined in Item 4), K Wave had not issued any securities in the U.S. markets or elsewhere nor has there been extensive information about it, its businesses, or its operations publicly available. The Ordinary Shares are listed for trading on Nasdaq under the symbol “KWM”. However, the listing of shares on the Nasdaq does not ensure that a market for the Ordinary Shares of K Wave will develop or the price at which the shares will trade. No assurance can be provided as to the demand for or the trading price of the Ordinary Shares of K Wave.\n\n \n\nEven if K Wave is successful in developing a public market, there may not be enough liquidity in such market to enable shareholders to sell their Ordinary Shares. If a public market for the combined K Wave’s Ordinary Shares does not develop, investors may not be able to re-sell their Ordinary Shares, rendering their shares illiquid and possibly resulting in a complete loss of their investment. K Wave cannot predict the extent to which investor interest in K Wave will lead to the development of an active, liquid trading market. The trading price of and demand for the Ordinary Shares of K Wave and the development and continued existence of a market and favorable price for the Ordinary Shares of K Wave will depend on a number of conditions, including the development of a market following, including by analysts and other investment professionals, the businesses, operations, results and prospects of K Wave, general market and economic conditions, governmental actions, regulatory considerations, legal proceedings and developments or other factors. These and other factors may impair the development of a liquid market and the ability of investors to sell shares at an attractive price. These factors also could cause the market price and demand for the Ordinary Shares of K Wave to fluctuate substantially, which may limit or prevent investors from readily selling their shares and may otherwise affect negatively the price and liquidity of the Ordinary Shares of K Wave. Many of these factors and conditions are beyond the control of K Wave.\n\n \n\n34\n\n \n\n \n\n**K Wave’s share price may be volatile and could decline substantially.**\n\n \n\nThe market price of K Wave’s Ordinary Shares may be volatile, both because of actual and perceived changes in K Wave’s financial results and prospects, and because of general volatility in the stock market. The factors that could cause fluctuations in K Wave’s share price may include, among other factors discussed in this section, the following:\n\n \n\n \n●\nactual or anticipated variations in the financial results and prospects of K Wave or other companies in the entertainment business;\n\n \n\n \n●\nchanges in financial estimates by research analysts;\n\n \n\n \n●\nchanges in the market valuations of other entertainment content companies;\n\n \n\n \n●\nannouncements by K Wave or its competitors of new education services, expansions, investments, acquisitions, strategic partnerships or joint ventures;\n\n \n\n \n●\nmergers or other business combinations involving K Wave;\n\n \n\n \n●\nadditions and departures of key personnel and senior management;\n\n \n\n \n●\nchanges in accounting principles;\n\n \n\n \n●\nthe passage of legislation or other developments affecting K Wave or its industry;\n\n \n\n \n●\nthe trading volume of K Wave’s Ordinary Shares in the public market;\n\n \n\n \n●\nthe release of lockup, escrow or other transfer restrictions on K Wave’s outstanding equity securities or sales of additional equity securities;\n\n \n\n \n●\npotential litigation or regulatory investigations;\n\n \n\n \n●\nchanges in economic conditions, including fluctuations in global and the Republic of Korea’s economies;\n\n \n\n \n●\nfinancial market conditions;\n\n \n\n \n●\nnatural disasters, terrorist acts, acts of war or periods of civil unrest; and\n\n \n\n \n●\nthe realization of some or all of the risks described in this section.\n\n \n\nIn addition, the stock markets have experienced significant price and trading volume fluctuations from time to time, and the market prices of the equity securities of retailers have been extremely volatile and are sometimes subject to sharp price and trading volume changes. These broad market fluctuations may materially and adversely affect the market price of K Wave’s Ordinary Shares.\n\n \n\n**If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about K Wave or its business, its Ordinary Shares price and trading volume could decline.**\n\n \n\nThe trading market for K Wave’s Ordinary Shares will depend in part on the research and reports that securities or industry analysts publish about K Wave or its business. Securities and industry analysts do not currently, and may never, publish research on K Wave. If no securities or industry analysts commence coverage of K Wave, the trading price for its Ordinary Shares would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover K Wave downgrade its securities or publish inaccurate or unfavorable research about its business, its stock price would likely decline. If one or more of these analysts cease coverage of K Wave or fail to publish reports on K Wave, demand for its Ordinary Shares could decrease, which might cause its Ordinary Share price and trading volume to decline.\n\n \n\n35\n\n \n\n \n\n**K Wave’s amended and restated memorandum and articles of association contains anti-takeover provisions that could have a material adverse effect on the rights of holders of the Ordinary Shares of K Wave.**\n\n \n\nK Wave has adopted an amended and restated memorandum and articles of association which contains provisions to limit the ability of others to acquire control of K Wave or cause K Wave to engage in change-of-control transactions. These provisions could have the effect of depriving K Wave shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of K Wave in a tender offer or similar transaction. For example, K Wave’s board of directors will have the authority, subject to any resolution of the shareholders to the contrary, to issue preference shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with K Wave’s Ordinary Shares. Preference shares could be issued quickly with terms calculated to delay or prevent a change in control of K Wave or make removal of management more difficult. If K Wave’s board of directors decides to issue preference shares, the price of the Ordinary Shares of K Wave may fall and the voting and other rights of the holders of the Ordinary Shares of K Wave may be materially and adversely affected.\n\n \n\n**If we fail to regain compliance with the continued listing requirements of the Nasdaq Capital Market, our Ordinary Shares may be delisted and the price of our Ordinary Shares and our ability to access the capital markets could be negatively impacted. Moreover, there can be no assurance that we will be able to regain compliance with such Nasdaq continued listing standards in the future.**\n\n \n\nOn January 7, 2026, K Wave received a letter from the Listing Qualifications staff of Nasdaq notifying K Wave that, based on the closing bid price of K Wave for the period from November 20, 2025 to January 6, 2026, K Wave no longer meets the continued listing requirement of Nasdaq, under Nasdaq Listing Rules 5550(a)(2), to maintain a minimum bid price of $1 per share.\n\n \n\nPursuant to Nasdaq Listing Rule 5810(c)(3)(A), K Wave has a compliance period of 180 calendar days, or until July 6, 2026 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the Compliance Period, the closing bid price per share of K Wave’s ordinary shares is at least $1.00 for a minimum of ten consecutive business days, Nasdaq will provide K Wave a written confirmation of compliance and this matter will be closed.\n\n \n\nIn the event that K Wave does not regain compliance in the Compliance Period, K Wave may be eligible for an additional 180 calendar days to demonstrate compliance with the bid price requirement, provided that K Wave meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and is able to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.\n\n \n\nNo assurance can be given that we will regain compliance with the Nasdaq continued listing standards. Failure to regain compliance with all Nasdaq continued listing standards could result in a delisting of our Ordinary Shares, which could cause Nasdaq to delist our Ordinary Shares from trading on its exchange. If our Ordinary Shares were delisted from Nasdaq, we and our shareholders could face significant material adverse consequences including:\n\n \n\n \n●\na limited availability of market quotations for our securities;\n\n \n\n \n●\nreduced liquidity for our securities;\n\n \n\n \n●\na determination that our Ordinary Shares is a “penny stock” which will require brokers trading in our Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;\n\n \n\n36\n\n \n\n \n\n \n●\na limited amount of news and analyst coverage; and\n\n \n\n \n●\na decreased ability to issue additional securities or obtain additional financing in the future.\n\n \n\n**Our Board of Directors may authorize a reverse stock split, which may not result in the desired benefits and could negatively impact the liquidity and market price of our Ordinary Shares.**\n\n \n\nWe may consider a reverse stock split in the future, including as one potential method to regain compliance with Nasdaq’s continued listing standards if our Ordinary Share price were to fall below applicable thresholds. There can be no assurance that a reverse stock split would increase our Ordinary Share price in proportion to the reduction in the number of shares outstanding, that the post-split price would be sustained, or that the reverse stock split would improve the liquidity of our Ordinary Shares. A reverse stock split may also result in increased volatility or negative market perceptions, and if our Ordinary Share price were to subsequently decline, we could again be subject to Nasdaq deficiency notices and potential delisting procedures.\n\n \n\n37\n\n \n\n \n\n**Risks Related to our Bitcoin Strategy**\n\n \n\n**If we decide to continue pursuing our bitcoin acquisition strategy, it may expose us to various risks associated with bitcoin.**\n\n \n\nAs of the date of this report, we no longer own any bitcoin. However, if we decide to acquire bitcoin in the future, our bitcoin acquisition strategy may expose us to various risks associated with bitcoin, including the following:\n\n \n\n*Bitcoin is a highly volatile asset.* Bitcoin is a highly volatile asset and the price of Bitcoin may continue to decline in value in the future. If we decide to pursue our bitcoin acquisition strategy and it proves unsuccessful, our financial condition, results of operations, and the market price of our Ordinary Shares could be materially adversely impacted.\n\n \n\n*Bitcoin does not pay interest or dividends.* Bitcoin does not pay interest or other returns and we can only generate cash from any bitcoin holdings upon a sale of bitcoin or if we decide to implement strategies to create income streams using bitcoin. Even if we pursue any such strategies, the Company may not be able to create income streams or otherwise generate cash from our bitcoin holdings, and any such strategies may subject us to additional risks.\n\n \n\n**Bitcoin and other digital assets are novel assets, and are subject to significant legal, commercial, regulatory and technical uncertainty.**\n\n \n\nBitcoin and other digital assets are relatively novel and subject to significant uncertainty, which could adversely impact their price. The application of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin.\n\n \n\nThe U.S. federal government, states, regulatory agencies, and foreign countries may also enact new laws and regulations, or pursue regulatory, legislative, enforcement or judicial actions, that could materially impact the price of bitcoin or the ability of individuals or institutions such as us to own or transfer bitcoin. For example, the U.S. Congress has introduced bills to address the digital asset regulatory landscape. The GENIUS Act introduces the first comprehensive federal framework for stablecoins, requiring full 1:1 backing, reserve, and anti-money-laundering compliance. Although the Act focuses on stablecoins, our regulatory framework and enforcement mechanisms could influence broader digital asset oversight, indirectly affecting Bitcoin custody, trading infrastructure, and compliance costs. In addition, several legislative efforts to address the regulation of cryptocurrency, including Bitcoin, have been introduced and are currently pending congressional consideration. Emerging laws and proposals in the U.S. federal government may materially affect our operations, Bitcoin holdings, and investment outcomes. The CLARITY Act, specifically would clarify which digital assets are commodities versus securities. Additionally, the CLARITY Act would subject certain spot-market digital commodities to a comprehensive regulatory regime for the first time in the United States. While this legislation could have a positive impact on the price of Bitcoin if market participants believe that regulatory clarity and market structure is an advantage, it could also have a negative impact on the industry and the value of Bitcoin if legal and regulatory requirements arising from such legislation are deemed to be too onerous, or for several other reasons.\n\n \n\nSeparately, it is not currently possible to know what changes will be made to the CLARITY Act as it proceeds through the legislative phases, in the event that it is signed into law. Currently, the legislation only requires registration of entities acting as brokers, dealers, exchanges and custodians, rather than entities like ours. However, such entities may bear costs associated with registration that may be passed on to us and other entities transacting in Bitcoin. Additionally, the current legislation would amend the definition of “commodity interests” to include certain digital commodities, which would likely include Bitcoin. Such an amendment could cause certain collective investment vehicles that invest in Bitcoin or advise others as to investing in Bitcoin to be required to register with the CFTC as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”). While we do not currently anticipate that we would be required to register as a CPO or CTA even under the current version of the CLARITY Act, if it were required to do so, we could face increased compliance costs and regulatory scrutiny, which could have a material and adverse impact on our business and performance.\n\n \n\n38\n\n \n\n \n\nThe European Union’s Markets in Crypto Assets Regulation, among others have been active in recent years, and in the U.K., the Financial Services and Markets Act 2023, or FSMA 2023 became law. It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. Further, it is also not possible to predict the nature of any such additional authorities, how additional legislation or regulatory oversight might impact the ability of digital asset markets to function or the willingness of financial and other institutions to continue to provide services to the digital assets industry, or how any new regulations or changes to existing regulations might impact the value of digital assets generally and bitcoin specifically. The consequences of increased regulation of digital assets and digital asset activities could adversely affect the market price of bitcoin and in turn adversely affect the market price of our Ordinary Shares.\n\n \n\nIn addition, the risks of engaging in a bitcoin treasury strategy are relatively novel and have created, and could continue to create, complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as increased costs of director and officer liability insurance or the potential inability to obtain such coverage on acceptable terms in the future.\n\n \n\nThe growth of the digital assets industry in general, and the use and acceptance of bitcoin in particular, may also impact the price of bitcoin and is subject to a high degree of uncertainty. Growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to bitcoin, institutional demand for bitcoin as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for bitcoin as a means of payment, and the availability and popularity of alternatives to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage will continue to grow over the long-term.\n\n \n\nBecause bitcoin has no physical existence beyond the record of transactions on the bitcoin blockchain, a variety of technical factors related to the bitcoin blockchain could also impact the price of bitcoin. Malicious attacks by miners, inadequate mining fees to incentivize validating of bitcoin transactions, hard “forks” of the bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could undercut the integrity of the bitcoin blockchain and negatively affect the price of bitcoin. The liquidity of bitcoin may also be reduced and damage to the public perception of bitcoin may occur, if financial institutions, for example, were to deny or limit banking services to businesses that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin. The open-source nature of the bitcoin blockchain also means the contributors and developers of the bitcoin blockchain are generally not directly compensated for their contributions in maintaining and developing the blockchain, and any failure to properly monitor and upgrade the bitcoin blockchain could adversely affect the bitcoin blockchain and negatively affect the price of bitcoin.\n\n \n\nRecent actions by U.S. banking regulators have reduced the ability of bitcoin-related services providers to gain access to banking services and liquidity of bitcoin may also be impacted to the extent that changes in applicable laws and regulatory requirements negatively impact the ability of exchanges and trading venues to provide services for bitcoin and other digital assets.\n\n \n\n39"}