Institution for a Global Society Corporation

As in the previous fiscal year, the Company recorded an operating loss, ordinary loss, and net loss, and material events exist regarding the going concern assumption. The primary causes are non-cash expenses such as valuation losses on investment securities related to overseas investees and provisions for allowance for doubtful accounts. The Company has implemented measures including turning the HR Business segment profitable (¥71,824 thousand), achieving positive operating cash flow for the first time in four fiscal years (¥26,652 thousand), and increasing cash and deposits (up ¥171,435 thousand) through third-party allotment capital increases, issuance of convertible bonds with stock acquisition rights, and borrowings, and judges that no material uncertainty currently exists.

While the mandating of human capital disclosure and growing social interest in non-cognitive skills assessment represent growth opportunities, business performance may be affected if the Company's development and sales systems fail to keep pace with the speed at which needs materialize among client companies and municipalities, or if there are changes in national education policy or budgetary measures for subsidies. There is also a risk that the number of users of the Education Business may decline if the declining birthrate progresses beyond expectations.

The market for talent assessment and human capital data utilization is transitioning from a "market creation phase" to a "market formation and intensifying competition phase," with diverse players entering including consulting firms, HR-related SaaS providers, global HR vendors, and generative AI/LLM-utilizing startups. In the prediction market platform "Signals" domain as well, there is a possibility of overseas players entering the domestic market or competition emerging in overseas markets. The Company aims to respond by maintaining technological advantages, protecting patents, and evolving toward upstream services, but if these measures are insufficient, business performance may be affected.

In the overseas expansion of SBT-related services and the blockchain-based prediction market platform "Signals," legal and regulatory frameworks in various countries are still being developed, and changes to or new establishment of regulations, as well as changes in the geopolitical environment, may affect service provision. While the design complies with domestic laws and regulations, overseas expansion requires responses to regulations specific to each country. Securing highly specialized personnel for blockchain technology and support for establishing overseas offices is also an important challenge.

In connection with the provision of talent assessment systems and educational assessment services, the Company handles personal information of corporate employees, job candidates, students, and others. If a cyberattack or human error results in information leakage or unauthorized use, this could lead to contract termination, damages claims, and a decline in social trust. The Company addresses this through obtaining and maintaining ISMS certification and PrivacyMark (No. 21004769(03), third renewal completed), as well as revising its privacy policy with international data protection standards such as GDPR in mind, but complete prevention is difficult.

Technological innovation in the AI field, including generative AI, is progressing rapidly, and if the Company fails to respond appropriately and in a timely manner to the emergence of new business models and competing services, as well as changes in related laws, regulations, and social expectations, its business competitiveness may decline. In addition, if ongoing investment in servers and other equipment and systems required to respond to technological innovation exceeds expectations, this could compress profits due to increased depreciation expenses, and impairment losses on fixed assets could occur if the investment does not yield the expected effects.

In both the HR Business and the Education Business, there is a tendency for revenue recognition and acceptance inspections to concentrate around clients' fiscal year-end (March). If there are changes in the timing of March acceptance inspections or delays in revenue progress, revenue recognition may be pushed into the following fiscal year, materially affecting current-period business performance. This concentration structure is a particularly strong structural risk factor for municipal projects, which have strict year-end completion requirements.

Masahiro Fukuhara, founder and Representative Director and Chairman, and Shinobu Nakazato, Representative Director and President who assumed office in June 2024, play important roles in management, and if either person becomes unable to perform their duties for any reason, this could affect the business and business performance. The Representative Director and Chairman also serves concurrently as a professor at Keio University, but the Company states that this does not hinder business operations in terms of time commitment, and is working to reduce dependence through next-generation talent development and strengthening of the management foundation.

Competition to secure highly skilled technical personnel such as engineers, data scientists, and blockchain specialists is intensifying, and if recruitment and development do not proceed as planned, appropriate staffing may become difficult, constraining competitiveness and business expansion. The Company is promoting measures such as internal training, improving job levels based on skill maps, and enhancing employee engagement, but if these measures do not function effectively, there is a risk of talent attrition and declining productivity.

The Company has granted stock acquisition rights for the purpose of providing incentives to directors and employees, and as of the filing date of this document, the number of potential shares outstanding has reached 877,981 shares (equivalent to 18.4% of the total issued shares of 4,773,400 shares). Exercise of the stock acquisition rights would increase the number of issued shares, diluting the value per share, and if a large volume of shares flows into the market at once, this could affect appropriate stock price formation.