RISK FACTORS

Business Risks

(1)

Risk of dependence on specific suppliers

The Group's principal business is the maintenance of elevators and other equipment.
The Group strives to reduce the risk of not being able to secure parts for maintenance of elevators by purchasing parts from multiple suppliers, but for the purpose of maintaining quality, some parts are purchased only from manufacturers (including affiliated companies) of elevators subject to maintenance.
The Group prepares for shortages or delays in the supply of these parts by holding a certain amount of inventory, recycling parts, and considering procurement from overseas markets. However, if for some reason we are unable to secure these parts in a timely manner and in adequate quantities, we may not be able to perform our maintenance operations in a timely manner.
In addition, if the prices of these parts increase for reasons such as the rising prices of the materials that make up these parts and we are unable to pass these costs on to our service prices, our group's financial position and operating results may be affected.

(2)

Risks related to competition

In the maintenance market, there are many competitors of various sizes, including manufacturers of elevators and other equipment, maintenance specialists affiliated with manufacturers, and independent maintenance companies, etc. Intensifying competition may result in a decrease in the number of new contracts or contract switching, which could reduce the Group's market share. In addition, a decline in service prices could affect the financial position and operating results of the Group, which is engaged in a single business of maintenance.

(3)

Technological innovation

New elevator and escalator models are constantly being released and installed, and the Group is striving to improve its technical standards so that it can maintain any model from any major Japanese manufacturer. However, if the Group is unable to respond in a timely manner due to rapid technological innovation by manufacturers, this may affect the financial position, business performance, and future business development of the Group.

(4)

Laws and regulations

(i)

The Building Standards Act stipulates that statutory inspections of maintenance and repair work performed by the Group shall be performed by persons qualified as inspectors of elevators and escalators, etc. However, if for some reason we are unable to secure enough inspectors for elevators and escalators, it may affect our financial position and business performance.

(ii)

In the modernization business conducted by the Group, we operate under a license for machinery and equipment installation work business based on the Construction Business Act. However, the revision or abolition of the Construction Business Act, Building Standards Act, and other related laws and regulations could affect the financial position and business performance of the Group for reasons such as the need to change product specifications.

(5)

Intellectual property rights

The Group owns, maintains, and manages a number of intellectual property rights, and strives to avoid the occurrence of infringement of intellectual property rights by conducting technical surveys, etc., as necessary.
However, there is a possibility that the Group's intellectual property rights may be invalidated or imitated, and if the protection of the Group's intellectual property rights is undermined, the Group's business results may be affected. In addition, the Group may be liable for damages to a third party due to infringement of the intellectual property rights of a third party.

(6)

Inventory and calculation risk of maintenance parts

The Group holds these assets as parts inventories for maintenance, repair, and modernization operations for elevators and other equipment. Inventories may increase due to the large number of models of elevators and other equipment subject to maintenance and the expected lengthy maintenance periods.
The Group manages inventory according to the importance of the parts, such as by controlling the number of standard inventories. However, if the asset value of inventory assets declines due to a decline in profitability or other factors, the Group's financial position and operating results may be affected.

(7)

Risks associated with accidents, disasters, etc.

The Group is engaged in maintenance, repair and modernization services for elevators and other equipment.
In performing these services, our group takes sufficient care to ensure the safety of our clients and users by complying with the "Common Specifications for Building Repair Services" of the Ministry of Land, Infrastructure, Transport and Tourism, as well as our own safety standards established within the company.
However, in addition to accidents caused by earthquakes and other disasters, user usage, and defects in elevators and other equipment, accidents involving damage to equipment and, in some cases, personal injury may occur due to human error on the part of the Group's employees or contractors during maintenance work.
Although we strive to avoid risk by providing thorough safety instructions to Group employees and contractors and by purchasing liability insurance, the occurrence of losses that cannot be covered by insurance or a loss of trust in us could affect our Group's operating results.

(8)

Risks related to industrial accidents

Maintenance work on elevators and other equipment is hazardous work. The Group strives to prevent accidents by providing thorough safety training to its employees.
However, in the unlikely event of a serious accident or occupational injury, the Group may incur a temporary burden of compensation and other costs, which may seriously affect the Group's social credibility and affect its financial position and operating results.

(9)

Risks related to acquisitions or business alliances

The Group acquires other companies and engages in joint ventures and business alliances with other companies. However, if acquisitions or alliances do not go smoothly, or if the acquired company's business, joint venture, or business alliance does not produce the expected benefits in the expected time frame as originally anticipated, the financial position and operating results of our group may be affected.

(10)

Risks associated with overseas business development

The Group is expanding its business overseas, and there are several risks associated with doing business in overseas markets, including the following

(i)

Unexpected changes in laws and regulations

(ii)

Changes in social, political and economic conditions or deterioration of public security

(iii)

Adverse changes in various tax systems or taxation

(iv)

Credit risk of business partners due to different business practices, etc.

(v)

Changes in the working environment and difficulties in securing and training human resources

(vi)

Foreign exchange risk

To minimize risks listed above, we intend to build a system that will enable us to quickly and promptly take countermeasures from local legal counsel, accounting firms, and other sources. However, the emergence of risks may make it difficult to provide services, which may affect the financial position and business performance of our group.

(11)

Liability for defect warranty, etc.

If any part of an elevator that has undergone modernization work (our product) fails during the warranty period (12 months from delivery) under specified conditions, such as proper installation, connection, maintenance, and inspection control in accordance with the instruction manual, etc., we will repair or replace the failed part free of charge according to the method specified by us.
The Group is also liable for compensation for damages to customers directly caused by serious defects in its products or by gross negligence in the Company's fabrication and installation.
If for some reason the Group is pursued for liability for defects or damages, and is held liable for compensation, the financial position and business performance of the Group may be affected.

(12)

Securing and developing human resources

The Group is working to secure highly specialized technical personnel and to increase the number of sales and administrative personnel in anticipation of future business expansion. We also focus on human resource development and strive to improve our technical capabilities and strengthen and enhance our internal management system. Failure to take these measures in a timely and appropriate manner could affect the financial position and operating results of the Group, such as when the Company increases its workforce in advance of business expansion and incurs expenses in advance, or when it is unable to secure the necessary personnel for its business, or when human resource development does not progress as expected.

(13)

Management of customer information

Since the Group handles a large amount of customer information, including that related to maintenance, repair, and modernization contracts, it has introduced a system to prevent information leaks from within as well as countermeasures against unauthorized network intrusions from outside, and has established an "Information Security Policy In addition, we have established "Information Security Policy" and "Rules for the Protection of Personal Information and Specified Personal Information" to prevent information leakage.
However, in the unlikely event that customer information is leaked outside the Group due to unforeseen circumstances, the Group's financial position and operating results may be affected by a loss of trust and claims for damages.

(14)

System failure

Our control center monitors the condition of elevators and other equipment 24 hours a day, 365 days a year to ensure that we can respond to any problems without delay.
Since the control center services are provided through computer systems and communication networks, we make every effort to prevent or avoid system problems by taking backups on a regular basis, but if a natural disaster, unforeseen accident, temporary overload due to a sudden increase in access that exceeds expectations, or other factors cause computer system problems, our group's financial position and operating results may be affected.

(15)

Interest-bearing debt

The balance of the Group's interest-bearing debt (including lease obligations) was 7,757 million yen as of the end of the fiscal year ending March 31, 2023, making the Group 26.7% dependent on interest-bearing debt. Therefore, if refinancing becomes difficult due to turmoil in the financial markets, economic stagnation, or changes in the lending attitudes of financial institutions, or if interest expenses increase sharply due to a rapid rise in market interest rates, etc., the financial position and operating results of our group may be affected.
Certain loans payable are subject to financial covenants. In the event of a breach of financial covenants, the Group's financial position and cash flows could be affected because it would lose the benefit of time if requested by the lender and would need funds to repay the debt immediately.
Details of the financial covenants are as described in "Item 5 [Financial Statements and Supplementary Data] 1, Consolidated Financial Statements, (1) Notes to Consolidated Financial Statements (Notes to Consolidated Balance Sheets), 2 Financial Covenants" and "Item 5 [Financial Statements and Supplementary Data] 2, Financial Statements, (1) Notes to Financial Statements (Notes to Balance Sheets), 2 Financial Covenants".