CELSYS,Inc.

While the flagship product CLIP STUDIO PAINT has significant growth potential through multilingual support and other measures, political conditions, government regulatory trends, and intensifying competition may have a significant impact on sales. The Company is focused on maintaining differentiation and competitive advantage over rivals through the development of new services and improvement of existing services based on users' latent needs.

The Company's business depends on computer networks, and if the network fails to function normally due to a natural disaster or unforeseen accident, it may affect business activities such as service provision. As countermeasures, the Company has established sufficient verification and testing procedures, regular updates and monitoring, and a system for rapid response in the event of a malfunction.

The software industry is characterized by an extremely rapid pace of technological innovation, and if the Company is slow to respond to new technologies and services, or if competitors enter the market with products superior in functionality or price, the Company's products and services may become obsolete, affecting business and financial conditions. The Company is working to enhance service value through analysis of the latest trends, consideration of new services, and strengthened recruitment and talent development.

In the software and internet services industry, where the pace of technological innovation is rapid, continuous research and development and product development are essential to maintaining competitiveness; however, if changes in industry trends and other factors prevent the Company from generating sufficient returns to recoup its investments, this may affect business and financial conditions. The Company is focused on development utilizing new technologies, leveraging cutting-edge development environments and excellent development personnel.

Most of the Company's business depends on human resources, and if the Company is unable to recruit and develop the excellent personnel needed to respond to rapid technological innovation and to conduct continuous research and development as planned, this may affect business and financial conditions. As countermeasures, the Company is working to strengthen new graduate internships and mid-career recruitment, implement appropriate development plans, and create a comfortable working environment through measures such as recommending childcare leave and remote work.

Entry into new businesses and services requires additional investment such as personnel recruitment, system development, and strengthening of sales structures, and stable profitability may take a long time to achieve. If growth falls short of expectations, the Company may be forced to discontinue or withdraw from the business, resulting in losses from asset disposal and write-offs that could affect business and financial conditions. The Company makes decisions after conducting risk analysis of market trends, technology trends, customer needs, and other factors, and conducts periodic strategy reviews.

As of the end of the fiscal year under review, the Company held investment securities of ¥567,648 thousand and has invested in software-related companies in Japan and overseas where business synergies are expected; however, if returns fall short of expectations due to sudden changes in the investee's management environment or economic conditions, this may affect business and financial conditions through impairment of shares and other measures. At the time of investment, the Company has established a decision-making process involving thorough due diligence on business content, legal matters, and finances, as well as board of directors' approval.

With the spread of social media, if reputational damage arising from online posts or subsequent media coverage occurs and spreads, this may damage the Company's corporate value and affect business and financial conditions. The Company strives to provide high-quality products and build good relationships with customers, and has established a system to promptly request deletion, coordinate with retained legal counsel, and report to the police, among other measures, when such risks materialize.

The Company's net sales are highly dependent on CLIP STUDIO PAINT in the Creator Support field, and if the number of users decreases or the market shrinks, this may affect business and financial conditions. The Company is working to stabilize sales of its flagship product while focusing on diversifying the risk of dependence on a specific product through continuous development of new products and services.

The Company is a personal information handling business operator that holds and manages customers' personal information, and if personal information is leaked due to unauthorized external access or human error, this may affect business and financial conditions through loss of social credibility and claims for damages. As countermeasures, the Company implements internal training and strengthening of its compliance promotion system, conducts external vulnerability assessments, collaborates with retained legal counsel, and monitors through its Risk and Compliance Committee.