Ecomott Inc.

The pace of technological innovation in the IoT industry is rapid, and if environmental changes exceed the Company's assumptions, there is a possibility that the Company will be unable to respond adequately, affecting its business activities and results of operations. There is also a risk of recording a valuation loss on inventory of proprietary devices if lower-cost, higher-performance alternatives are developed. As countermeasures, the Company continuously promotes the recruitment and training of engineers and the enhancement of its development environment.

In FY2025 (ending August 2025), there was one major customer accounting for 10.0% or more of net sales, with its sales ratio reaching 12.2% (compared to a combined 23.9% for two customers in the previous period). If transactions with such a customer decrease significantly or become difficult to continue, this could have a direct impact on the Company's results of operations. Although the Company has adopted a policy of reducing dependence through the development of new customers, a certain degree of concentration risk remains at present.

As of the end of the 19th consolidated fiscal year, total interest-bearing debt stood at ¥1,079,196 thousand (interest-bearing debt dependency ratio of 42.2%), up from ¥946,601 thousand (36.6%) in the previous period. This includes borrowings subject to variable interest rates, and in a rising interest rate environment, further increases in interest expense (¥14,003 thousand in the 19th fiscal year) could adversely affect cash flow and results of operations. The Company strives to stabilize its fundraising by building good relationships with financial institutions.

In software development under contract agreements, the order amount is fixed at the time of contract, so if there is an increase in man-hours due to specification changes or additional work, or unexpected bugs or quality issues occur, additional costs or damages liability may arise, affecting results of operations. The Company has established a project monitoring system led by responsible executive officers, and regularly manages the appropriateness of estimates and progress status, but it remains difficult to accurately estimate the necessary costs for all projects.

The majority of cost of sales consists of engineer personnel costs (fixed costs) and outsourcing expenses, so if order volume declines sharply, personnel costs will not decrease correspondingly, posing a risk of deteriorating profitability. In addition, if the industry-wide shortage of engineers progresses, the Company may be requested to raise outsourcing unit prices, and if it is difficult to pass these costs on to customers, profitability could be affected. The Company aims to stabilize its earnings structure by building long-term, stable customer relationships and diversifying its businesses and customers.

Each service—IoT Business Innovation (peaking January to March), Yurimotto road heating (peaking December to March), and Genba Roid (peaking September to November)—recognizes sales concentrated in specific periods, creating a structure in which operating cash flow tends to turn negative during periods of sales growth. The Company addresses this through receipt of advance payments from major customers and by building good relationships with financial institutions, but the funding risk associated with seasonal fluctuations remains an ongoing matter requiring attention.

With the expansion of the IoT market, the number of new competitors advocating similar business models is increasing, raising the possibility that transactions with the Company's major customers could be taken over by competitors. If the Company's competitive advantage is lost due to the entry of competitors, there is a risk of declining sales and reduced profitability due to price competition. The Company seeks to differentiate itself through the utilization of its cloud sensing know-how and its own new customer acquisition strategy, but the risk of increasing competition cannot be denied.

In operations that handle personal information and confidential information of customers and business partners, if an information leak occurs, this could lead to a loss of sales due to reputational damage and the incurrence of damages costs, affecting results of operations. There is a risk that the Company could be held responsible even for a leak caused by an outsourcing partner. The Company has implemented measures such as obtaining ISMS international standard certification, restricting access, and concluding confidentiality agreements with outsourcing partners, but it remains difficult to completely eliminate this risk.

Founder and Representative Director Takuya Irisawa plays a central role in formulating business strategy and leveraging industry connections, and the Company itself recognizes that its dependence on him is currently high. If, for any reason, he becomes unable to continue performing his duties, this could have a material impact on business activities and results of operations. The Company is working to strengthen its management structure and to develop and recruit management personnel, but resolving this dependence will take time.

Demand for Genba Roid, the flagship service of the Construction Solutions business, is heavily influenced by construction investment trends, and fluctuations in private capital investment and public works budgets of national and local governments have a direct impact on results of operations. Since the service is centered on public construction sites, if budget cuts occur due to government fiscal policy or economic conditions, there is a risk of a significant decline in net sales. At present, the description of specific diversification measures is limited, resulting in a structure highly dependent on the external environment.