FORVAL TELECOM,INC.

The Company's earnings depend on the billing margin with supplier telecommunications carriers, and if a supplier changes its transaction terms, the resulting increase in call charge costs, etc., may reduce the billing margin and affect business performance. The number of supplier carriers is limited to a small few, concentrating the risk of policy changes. Although the Company currently believes there are no particular problems, there is no guarantee that the current terms will continue in the future.

The "Smart Hikari" service uses the fiber-optic network and IP telephone platform of ARTERIA Networks Corporation, and is therefore greatly affected by that company's business development policies and schedules. There is also a possibility that sufficient communication line capacity cannot be secured, which may make it difficult to expand the customer base as planned. Unforeseen impacts from large-scale disasters, etc., cannot be ruled out.

In the billing and invoicing systems that form the Company's business infrastructure, there is a possibility that latent bugs may surface or that system reconstruction may become necessary due to the introduction of new services. If system failures or delays in data arrival from suppliers result in billing errors or delayed charging, this may cause delays in the collection of usage fees and a decline in the collection rate, thereby affecting business performance and cash flow.

The Company relies on sales agents for its sales activities in order to minimize fixed selling expenses. However, if an agent judges that the Company's services have lost market competitiveness, or changes its policy on the products it handles, customer acquisition activities may be curtailed or suspended. In such a case, the Company may be forced to establish or strengthen its own direct sales department, and the resulting increase in fixed costs may affect business performance.

Changes in the international situation and increasing global electricity demand associated with climate change may raise the import prices of power generation fuel. In addition, if the government issues requests for power conservation, customers' electricity usage may decrease, which could push down the earnings of the Company's electricity retail business. The Company recognizes the risk of rising fuel prices as a structural issue common to the industry as a whole.

The Group has recorded tangible and intangible fixed assets, including goodwill arising from corporate acquisitions and business-use assets, as well as deferred tax assets. If a divergence from business plans or a decline in fair value results in an inability to generate expected cash flows, this may lead to the recognition of impairment losses or the reversal of deferred tax assets. These constitute financial risks that directly affect the Group's business performance.

As a provider of communication services, the Company holds a large volume of personal information, and if an incident such as unauthorized access, leakage, or falsification occurs, this may damage the Company's social credibility and result in claims for damages, thereby affecting business performance, etc. The Company has implemented multifaceted measures, including formulating a personal information protection policy, appointing administrators, managing entry and exit, and implementing computer system safety measures, but the risk cannot be entirely eliminated.

Sales incentives paid upon customer acquisition are funded by the billing margin generated from customers' continued usage, and if a customer cancels early, it becomes difficult to recover these costs. In addition, there is no guarantee that the current terms for referral commissions paid to sales agents will continue, and if the terms are changed and the amount payable increases, this may affect the Company's business performance.

The Company has introduced a restricted stock compensation plan as an incentive plan for officers and employees, and the issuance of new shares in connection with the implementation of this plan may dilute the share value held by existing shareholders. Although the plan is intended to secure capable personnel and boost morale, its impact on shareholder value may continue to occur.

The Company provides low-cost communication services to small-volume users in the rapidly changing telecommunications industry, but there is a risk that intensifying price competition from major telecommunications carriers and new entrants may reduce the market competitiveness of the Company's services. If sales agents switch to competitors' services, customer acquisition may stagnate, which may affect business performance.