Liberaware Co., Ltd.

The drone market and the infrastructure DX market are characterized by rapid technological innovation and business model changes, and a delayed response could lead to a decline in the quality of products and services. The Group is addressing this through continuous development of new technologies and services, engineer recruitment, and collaboration with universities, but if these efforts become difficult to sustain, competitiveness may decline.

If the development of the drone market is impeded by tightened legal regulations or changes in the market environment, the Group's business activities may be constrained. In addition, in the infrastructure DX market, there is a risk that competitive advantage could be lost due to the emergence of innovative 3D scanning technologies. The Company is pursuing differentiation through in-house development of IBIS, a domestically produced small drone specialized for narrow indoor spaces, and the establishment of proprietary algorithms.

The Group handles highly confidential data such as internal images of customer facilities, and if an information leak occurs, it could severely damage the Group's credibility and brand value and materially affect its financial condition. The Company obtained ISO/IEC 27001 certification in September 2022 and promotes thorough dissemination of internal rules based on its information security regulations, but risks such as cyberattacks cannot be completely eliminated.

Amendments to laws such as the Civil Aeronautics Act, the Radio Act, the Product Liability Act, and the Foreign Exchange and Foreign Trade Act may restrict business activities. In particular, if amendments to the Civil Aeronautics Act affect the operation of IBIS, or if tightened export controls under the Foreign Exchange and Foreign Trade Act constrain overseas expansion, this could have a material impact on the Group's financial condition and operating results. The Company gathers and responds to information on legal amendments through regular liaison with its retained attorney and membership in drone-related organizations.

The Group allocates subsidies and grants from the government to part of its research and development expenses, but if the scale of national projects is reduced or funding shortages occur before subsidies are received, there is a risk that necessary R&D activities may not be able to proceed as planned. There is a time lag between the upfront disbursement of R&D expenses and the receipt of subsidies; while this is managed through thorough cash flow management and coordination with financial institutions, there remains a possibility of falling into an ordinary loss due to the mismatch between the timing of receipt and expenditure.

The Group has continuously recorded operating losses since its founding, and had accumulated losses carried forward of ¥1,914,097 thousand as of the end of the fiscal year under review. Substantial R&D expenses related to the "SME Innovation Creation Promotion Project" are expected to continue to be recorded over multiple years going forward, and if customer acquisition does not proceed as expected or if demand fails to materialize, it may become difficult to achieve profits as planned. Although profitability on an ordinary income basis was achieved in the fiscal year under review, there remains a possibility of reverting to an ordinary loss due to upfront R&D spending.

Securing specialized personnel in both hardware and software fields such as drones and 3D digitization technology is essential for business continuity, but intensifying competition for talent or the departure of existing personnel could affect business development and operating results. The Company strives to secure stable personnel through active use of referral hiring, but responding to changing market needs remains an ongoing challenge.

If defects occur in products such as small drones, this could result in claims for damages under the Product Liability Act and substantial recall costs, potentially damaging the Company's social credibility. The Company has obtained JIS Q9001 (ISO 9001) certification (September 2022) and has established a feedback framework through its Quality Assurance Committee, but risks remain from unforeseeable defects and future non-compliance due to regulatory changes.

The Company's sales to its affiliate CalTa (a joint venture with the JR East Group) are at a high level, and if CalTa changes its management policy or the joint venture relationship deteriorates, this could have a material impact on the Group's financial condition and operating results. The Company has established a monitoring and management oversight framework based on its affiliated company management regulations, including the dispatch of officers, but reducing dependence through new customer acquisition remains a challenge.

Founder and Representative Director Hong-gyu Min, an expert in robotics and mechanical engineering, plays an important role in determining management policy and strategy, and any unforeseen event affecting him could impact business development and operating results. The Company is working to reduce dependence on any single individual by expanding and developing its management team and promoting delegation of authority and division of duties, but dependence remains high at this time.