G-NEXT Inc.

The Company has continuously recorded operating losses, ordinary losses, and net losses from the 21st fiscal year (FY2022, ended March 2022) through the current consolidated fiscal year, and operating cash flow has also remained negative, giving rise to circumstances that raise material doubt about the going concern assumption. Although the Company achieved a quarterly operating profit surplus for the first time in five years in the fourth quarter, the countermeasures are still in the process of being implemented, and material uncertainty remains. The Company aims to achieve full-year operating profit surplus in FY2027 (ending March 2027) and resolve this note, but if this cannot be achieved, it could have a material impact on business continuity.

"Discoveriez" involves extensive integration with core systems, and there is a risk that the decision-making lead time until implementation may lengthen or be delayed due to increased opportunities for remote decision-making, resulting in orders being pushed back. If the Company is unable to acquire new customers as planned due to economic downturns or other factors, it may fail to obtain the expected revenue, resulting in a shortfall in business performance. Both maintaining continued use by existing customers and acquiring new customers are essential for business expansion, and if either falters, it may affect the Company's operating results and financial condition.

The Company's revenue base depends on recurring revenue (continuous usage fees), and if the Company falls behind in enhancing service functions desired by customers or responding to technological innovation, there is a risk that cancellations will increase due to a decline in competitiveness. An increase in cancellations directly leads to sluggish growth in recurring revenue, which may affect the Company's operating results and financial condition. The Company is working on functional enhancements, understanding of corporate needs, and proactive adoption of technological innovation, but if these responses are insufficient, this risk may materialize.

The pace of technological innovation surrounding cloud services is rapid, and continuous investment in advanced technical know-how is necessary to keep providing services that meet customer needs. If the Company falls behind in responding to technological innovation, or if competitors develop superior services, there is a risk that the Company's competitiveness, service quality, and industry standing may decline. In addition, additional expenditures such as system investment and personnel costs to respond to new technologies may expand, which could affect the Company's operating results and financial condition.

The Company holds confidential information of client companies (including personal information received via inquiry contact points) and personal information of employees, and there is a risk of leakage due to human or technical errors, unauthorized access, or actions by insiders. If an information leak occurs, the Company may be subject to liability claims and regulatory measures, and trust from clients and the market may be damaged, potentially leading to a loss of competitive advantage. The Company implements security measures, but complete prevention is difficult, and if an incident occurs, it may have a material impact on the Company's operating results and financial condition.

Intensifying competition with existing companies and an increase in new entrants are expected, and if excessive price competition occurs or sufficient differentiation cannot be achieved, there is a risk that the Company's competitiveness will decline. Since its founding, the Company has accumulated proprietary development know-how specializing in "business systems for customer contact points," but if it cannot respond to changes in the competitive environment, this may affect its operating results and financial condition. The Company seeks to differentiate itself through functional enhancements tailored to corporate needs and strengthened development through data and knowledge sharing with client companies.

The Company is a small organization, and securing engineers and sales personnel in particular is key to business expansion; however, if recruitment does not proceed as planned or if current employees resign, this could constrain business expansion. If unexpected resignations occur in succession, the operational execution structure may weaken, which could affect the Company's operating results and financial condition. The Company is working on proactive recruitment and in-house education and development, but there is a risk that securing personnel will become difficult amid intensifying competition in the IT talent market.

The Company's services are provided via the Internet, and if a system failure or network disconnection occurs due to large-scale program defects, natural disasters, unauthorized access, or other causes, service continuity may be impaired. If recovery is delayed, this may lead to a decline in trust in the service and the occurrence of complaints, which could affect the Company's operating results and financial condition. The Company is implementing measures such as server capacity expansion, enhanced security, and system redundancy, but it is difficult to completely eliminate unpredictable troubles.

The Company adopts a closed strategy and does not file for patents, which creates a risk that its technology and know-how held may be infringed upon by third parties; conversely, if the Company infringes on the intellectual property rights of a third party, it may be subject to claims for damages or injunctions against use. It is difficult to fully grasp third parties' intellectual property rights related to the Company's business domain, and if infringement is found, the Company may need to change its service content or pay compensation. The Company has not received any claims related to intellectual property rights to date, but the risk exists latently.

The Company has tax loss carryforwards, and if business performance progresses favorably and taxable income exceeds the tax loss carryforwards, a tax burden for corporate income tax and other taxes based on the prescribed tax rate will arise. This may affect net income (loss) and cash flow for the period. Although the Company has continued to record losses at present, an increased tax burden after returning to profitability could be a factor affecting its financial condition.