WELLNET CORPORATION

The Company operates its business under regulations based on the Installment Sales Act, the Payment Services Act, the Act on Prevention of Transfer of Criminal Proceeds, and the Financial Services Agency's anti-money laundering guidelines. If these laws are amended in the future, it may become necessary to strengthen merchant management and review transaction operation and management systems, which could affect business results. The Company continues to respond to current regulations, but depending on the content and scope of future legal amendments, additional cost burdens may arise.

In the multi-payment service, collection agency proceeds are temporarily held in deposit accounts under the Company's name, and are recorded on both sides of the balance sheet as "Cash and deposits" and "Deposits received for collection agency services." If financial administrative policy regarding deposit insurance (payoff) is changed such that these accounts become excluded from deposit protection, changes to the custody method or accounts receivable collection method may become necessary, potentially affecting business operations and results. Currently, the Company manages these funds separately from its own funds in settlement-type deposit accounts at financial institutions and mitigates credit risk through a fee offset scheme.

The convenience store payment function of the multi-payment service is premised on infrastructure such as KIOSK terminals operated by convenience store chains. If convenience store chains simultaneously change their service provision methods, such as terminal changes, response costs will be incurred by the Company, which could affect business results. Due to the high degree of dependence on specific infrastructure, there is a risk that response burdens could become concentrated in a scenario where multiple chains make changes at the same time. The Company has not described specific alternative measures at this time.

Given the nature of payment services, system outages constitute a serious problem. If system functionality declines, malfunctions, or fails due to natural disasters, accidents, unauthorized external intrusion, computer viruses, cyberattacks, or similar causes, business results could be affected. The Company has implemented measures such as redundancy of server equipment and communication lines and 24-hour on-site maintenance staffing, but unforeseen circumstances cannot be completely eliminated. Additionally, given the nature of business handling funds such as collected payments, if operational risk materializes, it could result in claims for damages or disruption to business activities.

Amid the progress of cashless transactions, the Company is developing schemes to respond, but if a paradigm shift occurs due to innovation or new payment schemes exceeding the Company's expectations, business results could be affected. Although the Company is working on developing schemes proactively, there is a risk of falling behind in a market environment where the pace of technological innovation is rapid. The Company is also actively investing in new businesses, but if progress does not proceed as planned and sufficient investment returns are not obtained, there are concerns about the impact on business results.

While the Company continuously strives to expand its base of new business partners, a decline in sales to current major business partners could affect business results. Given the nature of collection agency services, continuation of contracts with major business partners is directly linked to revenue stability, making the risk relatively high in the event of business contraction by partners or their switching to competitors. Although the Company is working to diversify its business partners, specific figures regarding the current degree of dependence are not disclosed in this section.

The Company holds customers' personal information across various business operations, and the volume of personal information handled is expected to continue increasing as services expand. If important information is leaked externally for any reason, the Company could face claims for damages and a loss of social credibility, potentially affecting business results. The Company has obtained Privacy Mark and ISMS (Sapporo head office) certifications and has established internal management systems, but recognizes that the risk of leakage cannot be reduced to zero.

The "Shiharai Hisho" service is an electronic money-related financial service for which fraud prevention is extremely important. The Company is implementing measures such as electronic certificate login functionality using My Number cards, as well as server-side security measures including biometric authentication and real-time monitoring. The Company has also commissioned stress tests from external organizations and entered into consulting agreements with information security experts, but if new security measures continue to be required, these costs could affect business results. As security threats become more sophisticated, response costs are considered to be on an increasing trend.

The services provided by the Company belong to a field where the pace of technological innovation is extremely rapid. If the Company's services become significantly obsolete due to the emergence of entirely new payment schemes that differ fundamentally from conventional ones, business results could be affected. Technological innovation in the payment industry continues to advance, creating a risk that the competitive advantage of existing services could rapidly decline. The Company is investing in the development of new schemes, but the impact could be significant if it falls behind in responding to technological change.

Barriers to entry in the collection agency service business are not necessarily high, and competition among existing payment agency operators is intensifying. The emergence of new competitors offering innovative services utilizing new technology, or the adoption of low-price strategies by competitors, could affect the Company's business results. Intensifying price competition could pressure the Company's profit margins, and there is a risk that new entrants with technological capabilities could erode the Company's market share.