SUNNEXTA GROUP Inc.

The Company Housing Management Business is subject to corporate personnel systems, real estate-related laws, and tax regulations; the Condominium Management Business is subject to the Act on Advancement of Proper Administration of Condominium Management, the Act on Building Unit Ownership, the Subcontract Act, and the Construction Business Act; and the Incubation Business is subject to the Insurance Business Act and other regulations. Changes in various laws and systems may result in changes to service formats or new restrictions on business development. If unforeseen legal regulations are introduced or strengthened, compliance-related costs may increase, which could affect the Group's business results and financial condition. Although the Group thoroughly emphasizes compliance, its response to events beyond the scope of its efforts will be limited.

The Group operates digital businesses utilizing IT and holds a large amount of customer personal information and confidential information, including My Number (Japan's individual number system) information. If a cyberattack, system failure, information leak, or similar incident occurs, it could result in the disruption of business activities, decline in social credibility and brand image, and payment of damages. As countermeasures, the Group is strengthening its security systems (antivirus measures, vulnerability remediation), developing internal regulations, thoroughly conducting employee training, and strengthening its information management system.

The Group positions human resources as a source of competitiveness. However, in a society undergoing a full-scale population decline, if the recruitment, development, and retention of capable personnel does not proceed as planned, or if outflow of personnel to outside the company becomes apparent, this could affect the evolution and continuity of the business. Similar risks could also arise if the Group is slow to adopt technological innovations for labor-saving purposes. The Group continuously works to identify and improve inhibiting factors and to develop environments and systems in which diverse personnel can thrive.

The Group positions M&A and capital/business alliances as effective means for expanding new businesses and services, and executes them after examining profitability and the feasibility of investment recovery at the Board of Directors and other bodies. However, if subsequent unforeseen events or changes in the environment prevent the initially expected effects from being sufficiently realized, this could affect the Group's business results and financial condition. Although prior review is conducted in the decision-making process, it is difficult to completely eliminate risks that arise after the fact.

The Group holds shares as a matter of policy based on a comprehensive judgment of business relationships with business partners and other factors. If stock market prices decline or the financial condition of an investee company deteriorates sharply, causing the market value or substantial value of held shares to fall significantly below book value, this could result in the recognition of valuation losses and affect the Group's business results and financial condition. The Group reviews the rationale for continuing to hold each stock every year and plans to reduce holdings of stocks for which the rationale for holding is not recognized.

Regarding shares of affiliated companies, if the substantial value declines significantly below acquisition cost and there is no prospect of recovery, a valuation loss may be recognized through impairment processing, which would affect the Group's business results and financial condition. The Group seeks to reduce this risk by requiring affiliated companies to report regularly to the Board of Directors and by establishing an appropriate operating structure under a shared management philosophy.

The Group holds fixed assets such as property, plant and equipment, and software. If indications of impairment are recognized due to a significant change in the business environment or deterioration in profitability, and the recoverable amount falls below book value, it will be necessary to recognize an impairment loss, which could affect the Group's business results and financial condition. For assets or asset groups for which indications of impairment are recognized, the Group calculates the recoverable amount and applies accounting treatment to write down the book value to the recoverable amount.

The Group records deferred tax assets based on reasonable estimates of future taxable income. However, if there is a significant change in the estimate of future taxable income, or if restrictions are imposed on recognition due to revisions to accounting standards or other factors, the reversal of deferred tax assets could result in significant tax expenses (deferred income tax adjustment), which could affect the Group's business results and financial condition. Although the assessment of recoverability is based on reasonable estimates, future uncertainty cannot be completely eliminated.

The risk of natural disasters such as large-scale earthquakes and wind and flood damage is increasing year by year. If a disaster of a scale exceeding assumptions occurs, business activities may be forced to slow down or halt due to damage to office facilities, system failures, employees' inability to commute, disruption of social infrastructure, and other factors, and recovery may require a long period of time and substantial costs. The Group has established an emergency response system through the introduction of a safety confirmation system, the development of risk management regulations and crisis management regulations, the formulation of a business continuity plan (BCP), and the use of a backup center.