DIGITALIFT Inc.

The digital marketing industry is susceptible to economic conditions, and if an economic downturn or reduction in advertising budgets occurs, it will have a direct impact on the business performance of the Group. A scenario in which the market size does not expand as much as expected cannot be ruled out. Although the Group anticipates market expansion, it has a structural vulnerability to changes in the external environment.

The Company is actively pursuing M&A to strengthen its business foundation, but if integration work does not proceed as planned or if an acquired company fails to achieve expected profits, goodwill amortization or the occurrence of contingent or unrecognized liabilities could affect business performance. In implementing M&A, the Company conducts thorough various due diligence and sufficient deliberation at the Board of Directors, but it is difficult to completely eliminate the risk of business integration after an acquisition.

In the internet-related field, new technologies and new services are being introduced one after another, and the spread of devices such as smartphones is also progressing rapidly. If the response to environmental changes is delayed, it may lead to obsolescence of services and a decline in competitiveness, and the substantial investment required to respond to new technologies may affect the financial condition. The Group is engaged in continuous development of new technologies and new services by securing and developing excellent personnel.

There are numerous competitors in the digital marketing industry, and competition with companies offering similar services is intensifying. If the Group is unable to secure excellent personnel and fails to achieve sufficient differentiation, its competitiveness may decline, which could affect business performance. The Group seeks to enhance its competitiveness by providing high-value-added services that leverage its accumulated know-how and excellent personnel.

While there is currently no direct regulation of the internet advertising business, indirect regulations such as the Personal Information Protection Act, GDPR, and the Act against Unjustifiable Premiums and Misleading Representations may affect the management of client companies and lead to a decrease in transactions. In particular, if new regulations such as restrictions on the use of cookies or changes in the interpretation of existing laws occur, new constraints may be imposed on the Group's business. The Company has established the "Risk and Compliance Regulations" and the "Internal Whistleblowing Regulations" to build a legal compliance system.

In the advertising business, societal demand for privacy protection is increasing, and advertising methods that contribute to the preservation and sovereignty of consumer data are required. If the Group's response is delayed when various regulations related to privacy protection are changed, it may result in a loss of social credibility and claims for damages, which could affect business performance. The Company has continuously engaged in activities to improve the transparency and reliability of internet advertising, and joined the JIAA in August 2018.

As a trade practice in the internet advertising industry, the structure is such that even if a client goes bankrupt, the Group bears the burden of media fees and payments to partner companies, thereby directly bearing the client's credit risk. In addition, advertising transactions rarely involve written contracts, creating a risk that discrepancies in agreed terms could develop into claims or litigation. The Company seeks to reduce credit risk by establishing "Credit Management Regulations" and requesting the submission of purchase orders, but some clients do not comply with the request to submit purchase orders.

Securing, retaining, and developing excellent personnel is fundamental to the Group's competitiveness, and if this does not proceed as planned or if personnel leave the company, it could become a constraint on competitiveness and business expansion. In addition, Representative Director Masahiro Momoto plays an important role in overall business activities, and there is a key person risk in that if he becomes unable to perform his duties, it could affect business performance. The Group is working to secure and develop personnel by diversifying recruitment methods and establishing a training system.

If a system failure occurs due to natural disasters, human error, computer viruses, or other causes, it may disrupt the continuous provision of services and affect business performance. The Group has taken measures such as installing firewalls and security software, performing regular backups, and monitoring operational status, but the risk of failures or delayed recovery occurring despite these measures remains. Given the business characteristics based on internet-related technology, stable system operation is a prerequisite for business continuity.

The Company has issued stock options aimed at improving the morale of officers and employees, and as of the filing date of this document, the number of potential shares is 105,600, equivalent to 6.7% of the total number of issued shares. The Company plans to continue considering the use of the stock option system in the future, and if the exercise of rights progresses, the per-share value of the stock may be diluted due to an increase in the total number of issued shares, which could affect stock price formation. The Company has taken measures to reduce the degree of impact on stock prices by attaching exercise conditions such as setting a phased exercise period.