Innovation Inc.

Due to the rapid spread of generative AI, user search behavior is shifting from traditional search engines to AI chat tools and similar services, and visitor numbers for the Online Media Business declined significantly by 33.9% year on year in the fiscal year under review. Should this trend accelerate going forward, it may directly affect the performance of the Online Media Business, which is the Group's primary revenue source. As countermeasures, the Group is implementing new customer acquisition measures such as AI-compatible SEO and LLM-linked content, and is working to optimize visitor numbers and the conversion rate for document requests.

The Group's principal revenue is concentrated in income from the Online Media Business, and if sales of the Online Media Business decline significantly due to intensifying competition with rival media or other factors, it could have a severe impact on the Group's overall performance. The Group is also developing new services that do not rely on advertising revenue with the aim of diversifying its revenue sources, but the high degree of dependence continues.

The Online Media Business relies heavily on customer acquisition from search engines such as Google and Microsoft, and there is a risk that changes to search logic or the emergence of new search engines or alternative services could significantly reduce customer acquisition for the services provided. Although the Group continuously implements SEO measures, policy changes by search engine providers are an external factor and are difficult to fully control.

The Financial Platform Business is subject to regulation under the Financial Instruments and Exchange Act, the Insurance Business Act, and other laws, and operates on the premise of registration as a financial instruments intermediary business as well as registration as a non-life insurance agency and life insurance solicitor. In the event of a violation of laws or regulations, registration could be revoked or administrative sanctions could be imposed, and business activities could be constrained by future amendments or enactments of related laws and regulations. The Group is working to strengthen its internal control system and enhance its compliance framework, but there remains a risk that a compliance violation by an IFA or by officers or employees could result in a loss of credibility or liability for damages.

The Group handles confidential information and personal information of numerous client companies, and if information assets are leaked due to a cyberattack, unauthorized access, intrusion by a computer virus, or other cause, it could result in a loss of social trust or claims for damages. The Group has formulated a basic information security policy, obtained Privacy Mark certification, and is working on the operation, maintenance, and improvement of its ISMS, but continuous response is required in the face of increasingly sophisticated threats.

The loan agreements the Company has entered into with financial institutions contain financial covenants requiring the maintenance of net assets and the securing of ordinary income, and if these covenants are breached due to a significant deterioration in operating results or other factors, the Company could lose the benefit of the term on its borrowings and be required to repay them in a lump sum. In such a case, this could have a material impact on the Group's business performance and financial position, and could lead to a deterioration in cash flow.

As of the end of the fiscal year under review, the number of potential shares arising from stock acquisition rights was 306,700 shares, equivalent to 11.1% of the 2,762,100 total shares issued. If these stock acquisition rights are exercised, the value per share could be diluted, potentially affecting the share price.

In the Online Media Business and the IT Solutions Business, which provides the SHANON MARKETING PLATFORM, there are numerous competitors of various sizes, and barriers to entry cannot be said to be particularly high. If similar services are developed by competitors, including major companies with strong financial resources and brand power, and price competition intensifies, this could affect the Group's business and performance. The Group is working to maintain its competitive advantage by leveraging its first-mover advantage to grow its customer base and by developing services that meet customer needs.

Naoto Tomita, President and Representative Director, is the founder and plays a critical role in determining management policy and business strategy as well as in driving the Group's businesses, and if he were to become unable to continue performing his duties, this could affect the Group's business and performance. The Group is working to build a system that avoids excessive dependence through information sharing at Board of Directors and management meetings and through strengthening its management organization, but the risk remains.

The Financial Platform Business handles products such as equities that are highly susceptible to financial market factors including economic trends, stock market conditions, interest rate levels, and exchange rates, and an economic slowdown or deterioration in market conditions could lead to reduced investment appetite and a contraction in transactions. In addition, if there are major changes in government tax reforms or monetary policy, there are concerns about a decline in investment appetite among existing customers and an impact on the inflow of new funds. The Group strives to mitigate the impact of short-term market fluctuations through long-term customer engagement via IFAs, but there are limits to what can be done in the face of changes in the external environment.