SAYLOR ADVERTISING.INC.

Advertisers tend to increase or decrease advertising expenditures in line with economic trends and their own business performance, and the Group's business results are significantly affected by domestic economic conditions. In particular, since the Shikoku, Chugoku, and Kyushu areas are the Group's main business areas, a downturn in the regional economy or economic deterioration caused by abnormal weather, large-scale earthquakes, or the spread of infectious diseases directly affects the Group's financial position and business results. Although the Group responds through monthly order forecast confirmation at management meetings and weekly progress management, the risk remains that a deviation from order forecasts may occur from the third quarter onward.

Business results tend to be weighted toward the second half of the year due to the concentration of the year-end sales season (October to December), New Year advertising demand, and revenue recognition from year-end advertising activities of companies with March fiscal year-ends and contracted projects for government and municipal offices. In the software development business as well, delivery and operation of systems for municipalities tend to be concentrated in the fourth quarter (particularly March), and delays in delivery and acceptance inspection can have a significant impact on business results. Although the Group is working to expand recurring revenue from cloud systems and similar offerings to level out sales, the structural risk of seasonal fluctuation continues.

Competition is expanding beyond leading local advertising companies and the regional offices of major advertising companies to include printing companies, event companies, and internet-focused firms, lowering the barriers to entry into the advertising business. There is a risk that demand for advertising in existing media will decline due to the development of new media centered on the internet, and advertisers are becoming more cautious about their advertising spending while diversifying their requirements. The Group is responding by evolving into a marketing design company that leverages next-generation digital technology and by building a structure to expand into western Japan, but if it continues to face difficulty securing orders, this could affect its financial position and business results.

Advertising sales from the four mass media account for approximately 30% of total sales, so any change in the trading relationship with media companies, which are suppliers, would have a significant impact. In addition, much of the work requiring advanced specialized technology, such as internet advertising effectiveness measurement, is outsourced to external partner companies, and inadequate response to changes in relationships with these partner companies could hinder business execution. The Group strives to maintain good business relationships and select excellent partner companies, but dependency risk remains.

There are numerous competing operators in the mail-order sales business and store sales business (Tokushima and Kagawa Tomoni Market), with particularly numerous competing stores in the Tokyo area. Intensifying competition with existing and new entrants, as well as changes in consumer preferences, could affect the Group's financial position and business results. Although the Group seeks to differentiate itself through distinctive product selection and innovative sales methods, since this is a new business area, continuous effort is required to establish a competitive advantage.

The software and hardware development and cloud systems businesses are closely related to information and communication technology, a field where technological innovation progresses extremely rapidly. If technological innovation advances faster than the Company anticipates and the Company's response is delayed, this could lead to a decline in the competitiveness of its products and services, affecting business results and future business development. Although the Company's policy is to respond to new technology trends through daily development activities, keeping pace with rapid technological change remains a challenge.

The automatic notification system for municipalities and the cloud-based reservation system operating 24 hours a day have the character of social infrastructure and require extremely high reliability. If an unexpected serious malfunction or system outage occurs, in addition to the costs of correction and recovery, the burden of damages compensation and a significant decline in social credibility could have a material impact on the Group's financial position and business results. Although the Company carries out careful internal quality checks before delivery and operation, given the nature of a 24-hour operating system, the risk in the event of a failure is high.

The communications business is centered on the creation of added value, and sustained growth and competitive advantage depend heavily on the acquisition of excellent personnel. With the spread of the internet and mobile devices, securing personnel with specialized knowledge has become an urgent task, and the loss of excellent personnel would lead to a decline in competitiveness. The Company implements human resource development measures such as promoting regular and mid-career hiring and conducting problem-solving sales skill improvement training and young employee skill-up training, but there is a risk that securing personnel will become difficult due to intensifying competition in the labor market.

The Group is subject to a wide range of legal regulations, including the Act against Unjustifiable Premiums and Misleading Representations, the Outdoor Advertisement Act, the Copyright Act, the Act on the Protection of Personal Information, the Specified Commercial Transactions Act, and the Product Liability Act, and inadequate response to the strengthening of various laws or changes in their interpretation could affect the Group's financial position and business results. In particular, in the field of internet advertising, regulation of the use of personal data is being strengthened from the standpoint of privacy protection, creating a risk of increased compliance costs and business constraints. Although the Group pays attention to developing privacy policies and to legal amendments, continuous response to changes in the regulatory environment is required.

If an unforeseen accident occurs during the installation of outdoor advertising or the planning, operation, and venue setup of events and ceremonies, this could affect the Group's financial position and business results. In addition, as a business practice in the advertising industry, written contracts are sometimes not customary, creating a risk that the Group bears payment obligations to media companies and production companies in the event advertising fees become uncollectible due to an advertiser's bankruptcy or similar event. Although no litigation or disputes related to business transactions have currently arisen, if such business practices are not recognized and litigation or disputes occur, this could lead to a decline in trust from advertisers and claims for damages.