Smartvalue Co.,Ltd.

There is a risk that a decline in customers' capital expenditure appetite due to population decline, the falling birthrate and aging population, and economic stagnation could lead to sluggish new customer acquisition and a decrease in orders received. In the Smart Venue business as well, a decline in consumer purchasing intent, a loss of confidence in the entertainment business due to misconduct by third parties, or the suspension of venue rental operations due to natural disasters could reduce sales and profits. The Group has indicated a policy of striving to prevent the occurrence of these risks and to respond appropriately if they materialize.

In the cloud solutions business, there is a risk of intensifying competition due to competition with existing competitors as well as the emergence of new market entrants. Should competition intensify, it may adversely affect business performance through a decrease in the number of orders received, leading to lower sales and profits. The Group is countering this by leveraging its track record with local governments and public institutions, its know-how in the automotive and Digital Government fields, and its many years of accumulated cloud technology as sources of competitive advantage.

Continuous strengthening and maintenance of the development organization is essential in order to keep providing new features and services while keeping pace with the rapid innovation in internet technology. If, for whatever reason, it becomes difficult to strengthen or maintain the development organization, the Group could lose its technological advantage, and rising labor costs incurred to compensate for this could lead to a decrease in profit. The Group's policy is to constantly monitor the latest technology trends and build services that incorporate user needs.

If personal or corporate information is leaked due to malfunction of information equipment, operational errors, or loss of mobile devices, this could lead to a decrease in sales and profits through the burden of liability for damages, loss of social credibility, and termination of contracts with major customers. The Group strives to prevent information leakage through the establishment and disclosure of an information security policy, in-house training, acquisition of ISO27001 certification, and the implementation of risk analysis and improvement measures.

Given the Group's high dependence on computer systems and networks, if a system failure occurs due to external damage, human error, or an unforeseen event, profit could decrease due to service suspension, loss of customer data, and increased costs for equipment restoration. The Group has taken countermeasures by enrolling in IT business liability insurance and adopting a cloud environment operated by a robust specialized infrastructure provider equipped with redundant power supplies and communication lines.

The Group itself recognizes that the Smart Venue field, which fuses digital and physical elements in a manner unprecedented even domestically, carries higher risk than its existing businesses. It takes a certain amount of time for a new business to generate stable revenue, and when unplanned events occur, additional expenditures for securing human resources, system investment, and advertising may accumulate, potentially leading to a decrease in sales and profit. The operating loss for the full fiscal year under review reached ¥440,677 million (original figure in thousands of yen: ¥440,677 thousand), indicating that delayed monetization has affected the Group's financial results.

Quarterly revenue is structurally subject to significant fluctuation depending on factors such as whether Smart Venue events and B.League season games are held, changes in customer traffic due to infectious disease outbreaks, and the progress of system development projects. In the fiscal year under review, net sales fluctuated significantly, from ¥805,408 thousand in the first quarter to ¥1,451,110 thousand in the fourth quarter, making it difficult to judge the full-year outlook based on the results of a specific quarter alone. In addition, if development costs are estimated to exceed budget, this could lead to a decrease in sales and profit.

In corporate acquisitions and strategic business alliances aimed at enhancing corporate value, there is a risk that changes in market conditions or customer needs could prevent the achievement of the original plan, resulting in returns that do not justify the investment and costs incurred. In addition, if the initially expected results are not achieved following an acquisition, impairment losses on goodwill or fixed assets could occur, leading to a decrease in profit. The Group's policy is to thoroughly examine the target company's business content, contractual relationships, and financial condition.

Jun Shibuya, Representative Executive Officer and President, plays an important role in determining management policy and business strategy as both Chief Executive Officer and a major shareholder, and if he were to become unable to continue his duties, this could adversely affect business performance, including a decrease in sales and profit. The Group is working to reduce this dependence by inviting personnel with extensive experience and knowledge to join the management team and by delegating authority to the leaders of each business division.

The Group has filed a notification as a telecommunications carrier under the Telecommunications Business Act, but if internet-related legislation advances further both domestically and internationally, profit could decrease due to increased compliance costs and burdens. Because the internet is a network that transcends national borders, there is also a risk of being affected by legal regulations in foreign countries. At present, the Group is not subject to any substantial constraints on business continuity, but it is necessary to prepare for future regulatory tightening.