DIGITAL GRID Corporation

A surge in fuel prices such as LNG and spikes in electricity market prices during summer and winter peak demand periods increase the risk of cancellation among customers using fully market-linked plans. This could directly affect the earnings of the Group's Electric Power Platform Business, and as a countermeasure, the Group offers hybrid menus combining fixed and variable pricing.

Large-scale, government-led reforms of the electricity system—including the FIT/FIP system, full retail liberalization of electricity, and the capacity contribution charge system associated with the opening of the capacity market—are ongoing, and unexpected changes to the system could affect the Group's financial position, business results, and cash flows. The Group has established a system to monitor amendments and abolitions of laws and regulations, and continues to closely monitor developments in relevant legislation.

Under the planned value simultaneous equal-quantity system, the difference between planned and actual supply-demand volumes is settled with the general power transmission and distribution utility as an imbalance charge. Although the Group optimizes this every 30 minutes using its proprietary system and its supply-demand balance monitoring team, if a large surplus or deficit imbalance arises, it could have a material impact on the Group's financial position, business results, and cash flows.

The Group is subject to regulations such as the Electricity Business Act, the Act on the Protection of Personal Information, the Act against Unjustifiable Premiums and Misleading Representations, and the Unfair Competition Prevention Act. Unexpected legal amendments or the enactment of new laws could impose business restrictions or result in substantial compliance costs. In addition, revocation of licenses or approvals could have a severe impact on business development, social credibility, and business results. The Group addresses this through quarterly Risk and Compliance Committee meetings and other measures, taking into account the views of outside legal counsel.

Operation of the DGP relies primarily on in-house developed systems, and if a program bug, erroneous bid in the electricity market, or a cyberattack resulting in information leakage or system downtime occurs, it could affect business continuity, reputation, and customer response, among other areas. As countermeasures, the Group plans to conduct regular third-party vulnerability assessments and vulnerability assessments at the time of updates; however, it is difficult to completely eliminate risk from attack techniques that exceed expectations.

Funds raised through the public offering at the time of listing, among other means, are planned to be allocated to the acquisition of battery storage facilities. However, if such facilities cannot be acquired as planned, or if the expected investment effects are not achieved, the intended use of funds may need to be changed, potentially preventing the achievement of the targeted increase in corporate value. In addition, impairment risk exists when tangible fixed assets such as battery storage facilities are acquired or when investments are made in SPCs, which could affect business results and financial position.

In-house developed AI models and systems/programs occupy an important position in the business, and if infringement of third-party patent rights or infringement of the Group's own patent rights occurs, resolution could require substantial time and cost, potentially affecting business results. The Group conducts regular meetings with patent attorneys and patent searches, but it is difficult to completely eliminate infringement risk, including risks arising from differences in interpretation.

As of the date of submission of this document, the number of potential shares underlying stock acquisition rights granted for incentive purposes to directors, corporate auditors, executive officers, and employees, among others, is 1,456,690 shares, equivalent to 22.6% of the total number of issued shares of 6,457,300 shares. If these stock acquisition rights are exercised, the resulting increase in the total number of issued shares could dilute the value per share, potentially affecting share price formation.

The Electric Power Platform Business has a long cash conversion cycle: payments for electricity procured from JEPX arise as advance payments within two business days of the transaction date, while collection from customers can take up to two months, resulting in a tendency for advance payments, accounts receivable, and accounts payable to be recorded in large amounts on the balance sheet. If wholesale electricity market prices spike or if fundraising through borrowing is not conducted in a timely manner, this could affect cash flows. The Group addresses this by entering into commitment lines with multiple financial institutions.

Approximately 90% of the Group's revenue consists of fee income from the Electric Power Platform Business, and if a significant change occurs in the revenue structure of this business, it could have a severe impact on the entire business. The Group is diversifying its revenue sources through the expansion of the Renewable Energy Platform Business, entry into the Balancing Power Business, and the launch of the Decarbonization Education Business, but at present, dependence on the core business remains high.