SmartDrive inc.

The Group, as a business operator handling personal information, deals with personal information and information assets of client companies, and has established an information security framework by obtaining ISO/IEC27001:2013 certification. However, if important personal information or information assets are leaked externally for any reason, this could lead to a loss of social credibility and the occurrence of liability for damages, potentially having a material impact on the Group's financial position and business results. Given the nature of the Mobility DX services, the volume and variety of data handled are extensive, so the potential impact of this risk is significant.

The Group conducts reliability testing and quality evaluation by external specialized institutions from the design and development stages, and has established a quality control system that requires ISO9001 certification for manufacturing subcontractors, among other measures. However, if a defect in a product or service causes damage to a customer, this could lead to claims for damages and loss of credibility, potentially affecting the Group's financial position and business results. Although monitoring is conducted by the Risk Management Committee, it is difficult to completely eliminate defect risk given the nature of systems that combine IoT devices and cloud services.

The Mobility DX market in which the Group operates is growing rapidly against the backdrop of increasing demand for connected cars. However, there is a risk that market growth could slow if corporate IT investment stagnates due to deterioration in economic conditions or business trends. A slowdown in market growth could make it more difficult to acquire new customers and increase cancellations among existing customers, potentially affecting the Group's business results and financial position. The Group is addressing this by actively pursuing research and development of new products and services.

The pace of technological innovation in industries related to Mobility DX is rapid, and continuous acquisition of cutting-edge technical know-how is essential to building system solutions that meet advanced needs. If the Group is slow to respond to technological innovation, this could lead to a decline in competitiveness and a deterioration in the quality of products and services, potentially affecting its financial position and business results. The Group is focusing on acquiring the latest technical know-how through engineer recruitment, the development of a creative work environment, and enhancement of its development environment.

As of the filing date of this document, the Group recognizes that there are no laws or regulations that would have a direct and significant impact on the continuation of its business. However, if new laws and regulations concerning Mobility DX or data utilization are enacted in the future and the Group's business comes into conflict with them, this could result in a decline in social credibility and affect business activities and results. Regulatory trends concerning connected cars and the handling of personal data are changing both domestically and internationally, and this is an area requiring continuous monitoring.

In the field of collecting and analyzing mobile object data using IoT devices, there are competing companies of various sizes, both large and small, and competition could intensify due to improvements in competitors' technological capabilities or the emergence of unexpected new services. Intensifying competition could lead to a slowdown in the number of new contracts and an increase in cancellations among existing clients, potentially affecting the Group's financial position and business results. The Group seeks to differentiate itself by providing real-time data visualization and a big data utilization platform.

The Group recognizes that, as its business expands, it is essential to continuously recruit and develop excellent personnel with advanced technical and planning capabilities, particularly in the development department. If the Group fails to secure or develop excellent personnel as planned, this could lead to a decline in service quality and competitiveness, potentially affecting business activities and results. The Group's policy is to actively work on recruiting personnel with high growth potential and on developing and retaining existing personnel.

Due to net losses recorded in prior fiscal years, the Group has tax loss carryforwards of ¥3,043 million as of the current consolidated fiscal year. Depending on future tax reforms, tax credits from loss carryforwards could be restricted, and once the loss carryforwards are exhausted, corporate income tax and other taxes will be incurred at the normal tax rate. This could increase the tax burden compared to the current level and affect business results and cash flow.

Retsu Kitagawa, Representative Director and President, plays an important role as the founder in formulating management policy and strategy and in leveraging his network within the industry, and the Group itself recognizes that its current degree of dependence on him is high. If, for any reason, he becomes unable to carry out his duties, this could affect the Group's business development. The Group is working to reduce excessive dependence through strengthening its management structure and developing management executives.

The Group grants stock acquisition rights as incentives to officers and employees, and as of the filing date of this document, the number of potential shares stands at 2,947,740 shares (equivalent to 7.8% of the total issued shares of 37,816,740 shares). The Group plans to continue incentive plans utilizing stock acquisition rights in order to secure excellent personnel going forward, and if these stock acquisition rights are exercised, this could dilute the value of shares held by existing shareholders and their voting rights ratio.