ARCHITECTS STUDIO JAPAN INC.

In the fiscal year under review, the Company recorded net sales of ¥897,496 thousand, an operating loss of ¥96,615 thousand, an ordinary loss of ¥92,982 thousand, and a net loss attributable to owners of the parent of ¥79,904 thousand, while cash flow from operating activities was also negative at ¥84,249 thousand. Net sales have declined significantly since FY2020 (ended March 2020), giving rise to material uncertainty regarding the going concern assumption. As countermeasures, the Company is promoting improvements to its revenue structure, reductions in selling, general and administrative expenses, and improvement of its financial condition through capital and business alliances; however, these measures are still in progress and material uncertainty remains.

As of March 31, 2025, the market capitalization of tradable shares satisfied the ¥500 million threshold; however, total market capitalization was below ¥4.0 billion, failing to meet the Growth Market listing maintenance criteria. If the Company is unable to satisfy the listing maintenance criteria and the transitional measure maintenance criteria by FY2026 (ending March 2026), its shares may be delisted. While the Company aims to improve its share price through company-wide efforts to recover performance and enhance corporate value, there is a risk that meeting the criteria may become difficult depending on financial condition, economic conditions, and market environment.

To improve its financial condition and establish a stable financial base, the Company may raise funds through the issuance of new shares, among other means. If uncertainty arises in achieving such fundraising due to deteriorating economic conditions or business trends, this may affect the business and cash flows through a decrease in liquid assets on hand and working capital. In addition, future issuances of new shares, etc. may result in dilution of shares. As a countermeasure, the Company is exploring capital and business alliances with companies offering synergies, and total net assets increased by ¥281,328 thousand following the completion of the exercise of stock acquisition rights after the end of the fiscal year under review.

Since member construction companies are significantly affected by Japan's economic environment and regional economic conditions, continuation of the ASJ Architect Network Business may become difficult due to deterioration in their business conditions, changes in management policy, or unforeseen circumstances. In such cases, a decrease in the number of operating studios could lead to decreased sales, prolonged receivables collection periods, and increased provisions for doubtful accounts. As a countermeasure, the Company is strengthening planning and operational support for member construction companies' studio management through sales representative SVs.

Net sales related to contract royalties in the fiscal year under review amounted to ¥285,211 thousand, accounting for a high proportion of total net sales; however, there is a tendency for construction contracts to increase in March each year, resulting in a concentration of recorded sales in the fourth quarter. If construction contracts and other agreements are not concluded as planned due to various circumstances, fourth-quarter net sales may fall short of the plan. As a countermeasure, the Company is working to level out the recording of sales by diversifying the timing of conclusion of construction contracts and architectural design/supervision outsourcing contracts, and by thoroughly managing project progress.

Yuhei Maruyama, the founder and Chairman of the Board of Directors, plays a key role across the overall business, including the operation of the ASJ Architect Network Business and building networks with numerous architects. If he becomes unable to perform his duties for any reason, this could disrupt business activities and affect performance. As a countermeasure, the Company is working to build a business structure that eliminates excessive dependence on a specific individual through sharing management know-how, delegation of authority, organizational development, and acquisition of new personnel.

As of the filing date of the Annual Securities Report, the Company operates its business with a small structure of 4 directors, 3 directors who are Audit and Supervisory Committee members, and 49 employees. If the Company is unable to smoothly secure personnel commensurate with its business scale, or if officers or employees unexpectedly resign, there is a risk that its internal control and business execution systems may fail to function effectively. In particular, SVs play a wide range of roles from supporting member construction companies to new recruitment, and the impact of a personnel shortage would be significant. As a countermeasure, the Company has adopted a policy of improving the quality of all employees and improving treatment and labor conditions.

Regarding software development for the IT systems related to the operation of the ASJ Architect Network Business, the Company is currently highly dependent on In Control Inc. If cooperation with this company becomes unstable due to changes in its management policy or if software development does not proceed as planned, this could disrupt business operations. As a countermeasure, the Company aims to mitigate this risk by fostering a relationship of trust with this external outsourcing provider and maintaining a favorable ongoing partnership.

Regarding the core information systems A-POS (information management system) and COSNAVI (quantity estimation software for architects), both developed in-house, if unforeseen malfunctions or system downtime/failures caused by computer viruses or other factors occur, this may disrupt the operation of the ASJ Architect Network Business. In addition, since personal information of member construction companies, registered architects, and customers is shared, any leakage of information could result in liability for damages and loss of social credibility, among other impacts. As a countermeasure, the Company has established hardware configurations and software development processes and implemented appropriate security measures.

If it becomes necessary to record impairment losses on fixed assets due to changes in the business environment, economic factors, business performance trends, or other factors, this may affect the Company's business results. Given the current environment of continued recording of operating losses and ordinary losses, the risk of assets becoming subject to impairment assessment is relatively elevated. As a countermeasure, the Company strives to achieve its management plan and carefully considers new capital expenditure projects before implementation in order to avoid situations that could lead to the recording of impairment losses.