Blue innovation Co., Ltd.

The Company has continued to record operating losses from FY2023 (ending December 2023) through FY2025 (ending December 2025) (FY2023: ¥289,759 million loss, FY2024: ¥398,416 million loss, FY2025: ¥548,051 million loss), with operating cash flow also remaining negative over the same period. The main causes are fund procurement for development of core services, the shift from human-based services to subscriptions, and cost increases from organizational structure development, and the Company continues to anticipate recording losses for a certain period going forward. If there is a sudden change in the business environment or a delay in monetization, this could have a material impact on the Company's financial position and business results.

The Company is jointly developing solutions with customers toward the practical implementation of drone and robot integration services centered on Blue Earth Platform® (BEP), but there is a risk that the initially expected results may not be achieved or may not lead to revenue. There is also a risk that services may not be provided as planned due to requirement changes based on customer needs, requests for quality improvement, development delays, and other factors. If these risks materialize, they may affect the Company's business and business results.

The ELIOS series currently sold by the Company is manufactured by Flyability SA of Switzerland. The Company holds sales rights in Japan through an annually renewed Reseller agreement, but if it loses these sales rights upon contract renewal or if it becomes difficult to secure a stable supply of the products, this would affect the Company's business and business results. Although switching to alternative drones is possible in principle, there is a risk that software adjustments and securing a new stable supply source could take time.

Technology for replacing operations with drones and robots is a field where research and development is progressing globally, and the speed of technological innovation is extremely fast. If the Company falls behind in responding to technological innovation, its competitiveness may decline, potentially affecting its business and business results. The Company is working to expand its business foundation by promoting research and development activities, but the risk of delayed response cannot be eliminated.

The founder, who is the father of the Representative Director and President, serves as a director and secretary-general of JUIDA, making it a related party classified as an "other specified person." Sales to JUIDA in FY2025 (ending December 2025) amounted to ¥138,062 million (13.1% of total net sales), and if the transaction agreement is not renewed or the transaction terms are changed, this could affect the Company's business and business results. The appropriateness of the transactions is ensured through deliberation and resolution by the Board of Directors, and the relative degree of dependence is expected to decrease as the Company's solution services expand.

Takayuki Kumada, Representative Director, President and Chief Operating Officer, plays an important role in formulating and executing management policy and business strategy, and if he becomes unable to continue his management duties, this could affect the Company's business and business results. He also provides personal guarantees for the Company's borrowings from financial institutions, for which no guarantee fees are paid. The Company is working to reduce this dependence through delegation of authority and strengthening of its organizational structure, and its policy is to resolve the debt guarantee issue by refinancing into borrowings that do not require such guarantees.

Due to the nature of solution services for large corporations, sales tend to be concentrated in the first quarter (January to March) and the fourth quarter (October to December), as customers' budget consumption cycles and inspections for annual contract projects are concentrated at year-end (December) and fiscal year-end (March). Quarterly sales for FY2025 (ending December 2025) confirmed this uneven distribution: first quarter ¥343,304 million, second quarter ¥179,423 million, third quarter ¥247,291 million, and fourth quarter ¥281,447 million, creating a risk that sales may be recorded in the following period due to timing shifts.

There is a possibility of unexpected enactment or revision of regulations, or delays in regulatory easing, regarding related laws and regulations such as the Civil Aeronautics Act, the Radio Act, the Product Liability Act, and the Foreign Exchange and Foreign Trade Act. The Company has established a system to confirm legal regulations and strives to comply with them, but if it is unable to respond flexibly, there is a risk that its business activities could be restricted due to revocation of permits or licenses, among other consequences. In particular, response to Level 4 flight operations (beyond visual line of sight flight over populated areas), which came into effect in December 2022, remains an ongoing challenge.

The IoT and drone-related market is attracting attention as a growth market, and the Company's competitiveness may decline due to new entrants and the provision of superior services at lower prices by competitors. The Company seeks to differentiate itself by leveraging know-how and data through services centered on BEP, but if price competition intensifies, this could affect its business and business results.

The Company has issued stock acquisition rights for stock option plans and fundraising purposes, and as of the filing date of this document, the number of potential shares outstanding reached 451,290 shares (equivalent to 11.2% of the 4,032,201 total shares issued). The Company may issue additional stock acquisition rights in the future to secure talented personnel or raise funds, and if exercise of these rights progresses, the per-share value of the stock could be diluted, potentially affecting share price formation.