Science Arts, Inc.

The Company's revenue is concentrated on management resources devoted to the Live Communication Platform "Buddycom," and if any issues arise in the growth of this business, it will directly affect the Company's financial position and business performance. While the Company seeks expansion into multiple industries and regions through a partner ecosystem with sales partners and eco-partners, the structural risk of dependence on a single product remains.

As the domestic software market expands, new competitors adopting similar business models may increasingly enter the market. If competition intensifies and the Company loses its competitive advantage, causing major customers to shift to competitors, this could lead to a decline in orders and materially affect business performance. The Company seeks to differentiate itself through the utilization of its IP radio know-how and its unique customer acquisition strategy.

"Buddycom" operates on a subscription model, and the business plan assumes maintenance of a certain retention rate and improvement in ARPU. If the churn rate rises, or if ARPU improvement through additional features such as text, image, video, and location-sharing functions fails to materialize as planned, this will directly affect business performance. Retention rate and ARPU are fundamental revenue indicators, and their trends are directly linked to the accuracy of performance forecasts.

This industry experiences rapid technological innovation, requiring continuous evolution of advanced know-how and the development environment. If significant changes in the technological environment occur beyond the Company's expectations, the Company may be unable to keep pace, potentially affecting its business activities and performance. While the Company is advancing the recruitment and training of engineers and the enhancement of its development environment, its capacity to respond to rapid changes is constrained by its organizational scale.

If large-scale system trouble occurs due to increased load from surges in access, natural disasters, computer viruses, communication failures, or other causes, this could disrupt the continuous provision of services and affect business performance. Additionally, effects on internal systems that manage order and billing data could also impact the accuracy of financial reporting. While the Company has implemented measures such as server capacity expansion, multi-region deployment, and backup system development, risks arising from unforeseeable causes remain.

Given the nature of its business, the Company holds customers' personal information and confidential information. If information leakage, tampering, or improper use occurs, this could damage the Company's social credibility and affect its business and performance. The Company has established an "Information Security Basic Policy" and "Personal Information Protection Policy," and implements measures such as internal training, verification of SOC2 reports or ISO27001 certification of outsourcing partners, and access control. However, complete protection is difficult given the increasing sophistication of external threats, and continuous strengthening of countermeasures is necessary.

If the recruitment, securing, and training/development of talented personnel do not proceed as planned, or if talented personnel leave the Company, this may constrain business expansion, lower the quality of services provided, and reduce competitiveness. While the Company is strengthening its recruitment activities and enhancing education and training, securing personnel as planned involves uncertainty amid intensifying competition in the IT talent market.

As of the end of the fiscal year, the Company had 58 employees, a relatively small organization, and its internal management structure remains commensurate with this organizational scale. If personnel reinforcement and enhancement of the internal management structure in response to business expansion and diversification do not proceed in a timely and appropriate manner, this could disrupt business activities and affect performance. Delays in governance development during the growth phase are a factor that increases operational risk.

The majority of order-taking activities are outsourced to sales agents, and if contracts with agents are terminated or an agent's financial condition deteriorates, this could directly affect the Company's current order-taking activities. While the Company currently maintains friendly relationships and its policy is to maintain and strengthen partnerships, high dependence on external partners inherently involves vulnerability in the sales channel.

Shuichi Hiraoka, Representative Director and Chairman, holds 45.8% of the total issued shares, including shares held through his asset management company, giving him significant influence over voting rights. If his shareholding ratio declines for any reason, this could affect the market price of the Company's shares and the exercise of voting rights, among other matters. In addition, if 240,000 shares of potential stock arising from the exercise of stock acquisition rights (equivalent to 2.8% of the total of 8,459,500 issued shares and potential shares) are exercised, there is also a risk of dilution of existing shareholders' share value.