Future Link Network Co.,Ltd.

The Group has recorded operating losses and ordinary losses for four consecutive fiscal years, posting an operating loss of ¥17,686 thousand and an ordinary loss of ¥20,614 thousand for the fiscal year under review. As of the end of the consolidated fiscal year, the Group held cash and deposits of ¥489,447 thousand, while carrying borrowings of ¥240,437 thousand (of which ¥111,035 thousand is short-term borrowings) and deposits received of ¥193,216 thousand, a situation the Group recognizes as raising material doubt about its ability to continue as a going concern. As countermeasures, the Group is working on operational efficiency improvement and cost reduction through AI utilization, strengthening the profitability of the Furusato Nozei BPO business, and improving the ratio of personnel expenses to net sales through personnel cost restraint.

The Public Solutions Business relies primarily on Furusato Nozei (hometown tax donation) administrative agency work as its main revenue source, and tax system reforms, as well as tightened regulations through guidance and requests from the government, ministries, and local municipalities, directly affect the business. The Furusato Nozei system has previously undergone institutional changes, such as tightened regulation of return gifts by the Ministry of Internal Affairs and Communications, and the risk of further system changes remains potentially high. Although the Group makes efforts to gather information and establish response systems, an impact on business performance is unavoidable depending on the content of any system changes.

In the Regional Information Distribution Business, there is a risk of intensifying competition for market share due to new entrants by major companies and expansion of business scale by industry peers, and in the Furusato Nozei support operations within the Public Solutions Business, there are concerns about entry by companies with strong capital resources and brand recognition. If the Group is unable to maintain its competitive advantage, this could lead to a decrease in advertising placement projects and advertising unit prices, as well as a decline in the number of contracted municipalities. As countermeasures, the Group is strengthening its regionally-rooted network of operating partners and expanding AI-powered management support services.

Rapid advances in AI technology are accelerating the pace at which competing services emerge, and delays in responding to technological innovation and market changes could lead to a decline in service competitiveness and deterioration in user satisfaction. In addition, if the acquisition, management, and use of data associated with AI utilization are deemed insufficient in terms of personal information protection and security, this could result in a decline in social reputation and legal risk. The Group is addressing this by establishing an AI-powered development framework and through the release of the regional information-specialized AI agent "Maipure-kun."

The Group acquires and manages personal information such as users' addresses, names, and phone numbers, and if unauthorized access from outside parties or intentional or negligent acts by related parties or business partners result in leakage, falsification, or unauthorized use, this could lead to response costs, claims for damages, and a decline in social credibility, thereby affecting the business and results of operations. As countermeasures, the Group implements network management, establishment and adherence to a privacy policy, in-house training for all employees, and internal audits, and has also taken out personal information leakage insurance.

"Maipure" is a service provided over the internet, making stable system operation essential to business execution. If system failures or information leaks occur due to increasingly sophisticated and complex cyberattacks, unauthorized access, computer viruses, natural disasters, or other causes, this could result in substantial costs and a decline in social credibility. As countermeasures, the Group continuously carries out round-the-clock network monitoring, routine maintenance and management, regular updates of OS and software, and encryption of http communications.

As of the end of the consolidated fiscal year, the Group had contracts with 154 partner companies. If any of these partner companies were to terminate their contracts, continued operation of "Maipure" in the relevant area could become difficult, potentially affecting revenue through a decline in information volume and sales activities. The partner network is fundamental to the expansion of "Maipure" areas and the realization of nationwide media value, and any damage to it would directly affect the business foundation. The Group is working to establish a handover framework while maintaining a hybrid system combining directly-operated and partner-operated locations.

Representative Director and President Takeharu Ishii plays a central role in formulating and deciding management policy and business strategy, and it is recognized that a high degree of dependence on him will likely continue for the time being. If he were to become unable to be involved in the business, this could have a material impact on the continuity and stability of management. As a countermeasure, the Group is working to strengthen its management organization, but resolving this dependence is expected to take time.

Since demand for Furusato Nozei peaks at year-end, the Group's business performance tends to be concentrated in the second quarter (December to February), and the concentration of operational workload during specific periods poses an operational risk. As the organization is small in scale, if workload exceeds initial expectations, this could impede the provision of Furusato Nozei business support services. As countermeasures, the Group is working to reduce its reliance on personnel through planned staffing and capital investment aimed at automating operations.

According to the Ministry of Internal Affairs and Communications' "Report on Internal Migration in Japan" (2024), regions other than the seven prefectures including Tokyo, Kanagawa, and Saitama continue to experience net population outflow. If regional economic decline becomes pronounced, this could shrink the advertiser base of "Maipure" through a decrease in the volume of information distributed by regional businesses, thereby affecting the business and results of operations. Since the Group's business foundation is rooted in regional communities, demographic changes could constrain medium- to long-term growth. The Group aims to diversify the value it provides to advertisers by strengthening advertising operation agency services and AI-powered management support services.