Bank of Innovation, Inc.

If the group receives an infringement lawsuit or a demand to cease use regarding intellectual property rights held by a third party, resolution could require substantial cost and time, potentially significantly affecting the business and performance. The annual securities report notes that there is a material lawsuit currently in dispute. The company seeks to avoid such risks through cooperation with its retained attorneys and patent attorneys and by strengthening internal management systems, but management is also required with respect to the risk of intellectual property being taken out by officers, employees, and temporary staff.

In the smartphone game industry, concerns about inducing gambling-like impulses through paid items have repeatedly been raised, and there is a risk of tightening regulation under the Act against Unjustifiable Premiums and Misleading Representations (misleading representations regarding advantage or quality) and the Payment Services Act (handling of virtual currency), among others. The company also provides services subject to legal regulations concerning internet dating services, and if the business is significantly restricted due to changes in interpretation of laws or the enactment of new legislation, performance could be significantly affected. The company undertakes voluntary measures such as compliance with JOGA guidelines and consultation with retained attorneys, but the risk of tightening regulation due to changes in social conditions remains.

94.5% of consolidated net sales for the fiscal year ended September 2025 depend on a single title, "Memento Mori," resulting in an extremely fragile revenue base. If revenue from the existing title falls significantly short of expectations, it would have a direct and substantial impact on the entire group's performance. The company aims to diversify revenue through PDCA-cycle improvements to the existing title and by concentrating human resources on new development.

Revenue from smartphone apps is heavily dependent on two companies, the App Store (Apple Inc.) and Google Play (Google LLC), to which fees are also paid. If service provision becomes difficult due to changes in ranking specifications or terms of service, business continuity could be seriously affected. The company seeks to mitigate this risk by complying with each operator's terms, but because this is an external factor, fundamental countermeasures are limited.

The domestic smartphone game market in Japan has remained at approximately ¥1 trillion in scale, but competition is intensifying due to entry by overseas manufacturers and other factors. If the company is unable to maintain a competitive advantage amid intensifying competition with peers, the number of users of its apps could decline, affecting performance. The company counters this through differentiation via its proprietary original 2D graphics production technology and continued provision of high-quality apps.

Because development and operation are conducted in-house, development and operating costs tend to be high, with a risk of further increases due to content quality enhancement, among other factors. In addition, advertising activities aimed at establishing proprietary IP require substantial expenditure, and there is a risk that advertising unit costs may rise or cost-effectiveness may fall short of expectations. If such cost increases coincide with a shortfall in sales after service launch, profits could be significantly squeezed.

In phases of large-scale upfront investment such as major advertising placements, the company recognizes the need for external fundraising, including financial institution borrowings as well as equity financing. There is a risk that the company may be unable to raise necessary funds at the required timing or on the required terms, or that fundraising costs may increase, due to rises in market interest rates or deterioration in capital market conditions. Even if raised funds are deployed as planned, there is a possibility that expected results may not be achieved due to market fluctuations and other factors, which could affect performance and financial condition through reduced capital efficiency and increased cost burden.

Because sales proceeds from overseas users are collected in local currency via overseas platform operators and converted into Japanese yen, significant deviations in exchange rates may affect operating results and financial condition. There is also a risk that the company may be unable to provide services as planned due to changes in local circumstances or region-specific legal regulations. The company works to avoid such risks in advance through legal research conducted with its retained attorneys, but there are limits to addressing changes in the external environment.

The business relies entirely on communication networks and computer systems, and network disconnection due to natural disasters, accidents, or human factors could seriously affect the business and performance. System downtime caused by unpredictable factors such as sudden surges in access, power supply interruptions at data centers, or cloud service outages could also affect performance. The company works to prevent such issues in advance through regular backups and continuous monitoring of operational status, but complete elimination of such risk is difficult.

Tomohiro Higuchi, Representative Director and President, has played an extremely important role in management strategy and business strategy as chief executive officer since the company's founding, and also concurrently serves as representative director and president of two subsidiaries, Koiniwa Co., Ltd. and Bank of Incubation Co., Ltd. If he becomes unable to continue his duties for any reason, it could affect the group's overall business execution. The company is promoting the recruitment and development of talented personnel and delegation of authority with the aim of establishing an organizational management structure, but at present the degree of dependence remains high.