CROOZ,Inc.

New technologies such as cloud computing, AI, low-code development, and security are constantly emerging, and customer needs and development environments are changing on a daily basis. If the Group fails to continuously evolve the skills of its engineers and the services it provides, this could lead to a decline in competitiveness and adversely affect business performance. The Group addresses this by operating through compact organizational units to establish a system of rapid, on-site-driven decision-making.

Numerous companies operate in the SES (System Engineering Service) industry, and competition to acquire client companies and win projects is intensifying. If price competition and sales network expansion by major industry players and new entrants make it difficult to maintain business with existing clients or reduce opportunities to win new projects, this could affect sales and profits. Maintaining a competitive advantage is said to require not only proposal capability and project execution capability but also the securing and development of excellent personnel.

The SES business is highly dependent on human capital, and securing and developing engineers who combine technical skills, communication skills, and problem-solving ability is key to sustainable growth. As the labor market becomes more fluid, competition with other companies for talent is intensifying, and if the Company fails to secure and develop the necessary personnel, this raises concerns about impacts on business performance, such as declining utilization rates and difficulty in ensuring quality. The Company aims to improve retention rates by hiring several hundred full-time engineers annually and establishing ongoing skill development and career support programs.

The SES business primarily operates under contracts in which compensation is based on engineers' utilization status, making the utilization rate a strong factor in business profitability. If waiting periods occur after project completion or if difficulties arise in assigning engineers due to skill mismatches, the resulting decline in utilization rate could reduce profit margins. In addition, if contract unit prices decline due to industry-wide competitive intensification or price declines, this could also adversely affect business performance.

The system engineering services the Company provides are heavily dependent on client companies' IT investment, and during economic downturns there is a tendency for new projects to be curtailed and contract scale to shrink. In particular, a decrease in orders from major clients could have a significant impact on business performance. While the Company operates its business while closely monitoring client investment trends, it is difficult to fully control changes in the external environment.

The SES business involves engagement with clients' information systems and the handling of confidential and personal information, and various types of information are also managed on information systems for internal operations. If unauthorized external access or an internal information leak occurs, this could result in serious consequences such as damage to trust relationships with clients, liability for damages, and a decline in social credibility and brand image. Although the Company conducts regular security assessments and implements measures to prevent unauthorized access, it cannot deny the possibility that new threats exceeding these countermeasures may arise due to the increasing sophistication of cyberattack methods.

When using third parties' intellectual property rights, the Group obtains licenses and conducts monitoring and management to prevent infringement. However, if the Group unknowingly infringes on a third party's intellectual property, it could face claims for damages or injunctions to cease use, which could affect business performance. As services diversify, the importance of intellectual property management remains at a consistently high level.

In the course of business operations, the Company may obtain users' personal information such as addresses, names, and email addresses, which it manages under an advanced security system. If unauthorized external intrusion or intentional or negligent leakage of personal information occurs, this could affect business performance through claims for damages from users. The Company strives to maintain and improve awareness levels through the establishment of personal information protection regulations, regular verification of management status, and thorough communication to employees.

The SES business is based primarily on quasi-delegation contracts; however, depending on the actual working conditions at client sites, such arrangements may in some cases be deemed to constitute worker dispatching, raising questions of compliance with the Worker Dispatch Act and other labor-related laws and regulations. If found to be in violation of the law, the Company could face administrative guidance or business suspension orders, which could adversely affect the Group's credibility and business performance. In addition, contractual risks exist, such as disputes with clients or claims for damages arising from ambiguity in the scope of services and responsibilities under SES contracts.