SUNNY SIDE UP GROUP Inc.

Securing and developing human capital responsible for new business development and global business is essential to maintaining competitiveness, and is positioned as the highest-rated (A) key risk. If the company is unable to sufficiently secure personnel with the necessary capabilities, or if personnel turnover occurs, this may affect business performance. As countermeasures, the company is strengthening its own branding to secure recruiting advantages, promoting personnel exchange among group companies, and conducting regular training by external instructors.

In the Brand Communication business, sales promotion measures and product planning are centered on spot contracts rather than continuing retainer contracts, resulting in large fluctuations in orders and the risk that orders do not proceed as planned. This risk has been identified as a key risk (rated A), with a significant impact on business performance. Building a stable revenue base remains a challenge.

The company outsources the production of premium goods and other items to overseas factories, including in China, and import transactions are settled in principle in US dollars, so fluctuations in the dollar-yen exchange rate affect the consolidated financial statements. Although the company sets its own exchange rate and reflects it in sales prices, a rapid depreciation of the yen may result in only partial pass-through of costs to clients, which could pressure business performance. In addition, changes in the political and economic conditions of producing countries and significant changes in import/export tariffs also pose risks to business performance.

As of the end of the fiscal year ended June 2025, the consolidated balance sheet includes ¥193 million in goodwill related to Steady Study Co., Ltd., which became a subsidiary in March 2020; if future cash flows are judged to be insufficient, an impairment loss will need to be recognized. In addition, regarding securities of domestic and overseas venture companies acquired as part of the "capital participation-type PR service," a significant decline in their value could result in valuation losses that affect business performance.

Management policy and business strategy depend on the company's officers, and if, for any reason, such officers become unable to continue executing management duties, this may affect business performance. As countermeasures, the company is proactively delegating authority and continuously maintaining opportunities for information sharing among officers of group companies to strengthen its management organization.

The company continuously considers business alliances, joint ventures, strategic investments, and M&A to enhance corporate value; however, there are risks that deterioration in a partner company's business condition may make it difficult to maintain the alliance, that deterioration in an investee's financial condition may result in a write-down of held shares, and that contingent liabilities arising after M&A or significant deviation from business plans may result in goodwill impairment. If such events occur, they could have a material impact on business performance.

Because the business is a licensing business for the "bills" brand, if the license agreement is not continued, or if the outsourcing agreement with the business partner company cannot be continued, it may become difficult to continue the business. In addition, upon closing a store, losses on disposal of fixed assets, impairment losses, penalty payments, and restoration costs may occur in excess of expectations, and in overseas expansion, there is also a risk of delays in store openings due to uncontrollable factors such as permits and licenses.

Classified under the "human rights" category among sustainability-related risks, employee health and safety has been identified as a key risk event (rated A). Detailed response policies are described in the section on sustainability philosophy and initiatives, and a management framework has been established through the Risk and Compliance Committee.

Corporate spending on marketing and communication services tends to fluctuate in line with economic conditions, and during economic downturns, there is a risk that the number and value of orders will decrease, particularly in the Brand Communication business. In addition, the rise of new technologies such as AI may affect service delivery processes and content, potentially forcing a transformation of the business model.

Given the nature of its business, the company frequently handles clients' corporate information, confidential marketing information, and personal information; if information leakage or unauthorized use occurs, it could lead to damages compensation, litigation costs, and loss of social credibility. The company obtained ISO27001 (ISMS) certification in March 2008 and is working to build an information management framework and improve employee morale through education.