eBASE Co.,Ltd.

There are numerous competing products with functions similar to eBASE, and it is highly likely that new competing products will continue to be released in the future. If a competitor develops products backed by overwhelming capital, or if the Company falls behind in pricing or sales strategy, there is a risk that functional differentiation will no longer translate into revenue. The Group is pursuing differentiation by securing functional superiority and promoting "de facto standardization of the product information exchange platform."

There is a possibility that competitors may emerge that imitate the business model itself of "de facto standardization of the product information exchange platform." Given the Group's strategy of focusing on specific industries, there is a risk that competitors may launch similar services in industries the Group has not yet entered, hindering the Group's planned industry expansion. Even in industries where the Group has already secured de facto status, a reversal could occur due to the emergence of competing products.

Due to rapid technological innovation in the IT industry, there is a possibility that eBASE's platform functions could be provided as OS functions, or that product information exchange methods could become platform-independent. The game change in the IT market driven by the emergence of generative AI is also accelerating, and if these developments materialize, eBASE's platform functions could become obsolete, potentially affecting the continuity of the business itself. Securing de facto status in the U.S. and Chinese markets is positioned as an important countermeasure, but achieving this is not easy.

Since eBASE uses Microsoft products as its platform, there is a risk that significant costs and time may be required to develop responses when platform specifications change or new platforms emerge. In addition, changes in licensing rules or pricing could affect eBASE sales and profit margins. These external environmental changes are factors that the Group cannot control on its own.

Customized development using eBASE is generally conducted under contract-for-work agreements, but if unexpected specification changes or additions occur during development, the workload may exceed the initial estimate, potentially making the project unprofitable. The Group works to prevent this by improving estimate accuracy at the order stage and strengthening project and quality management, but risk is particularly elevated for development projects involving new technical specifications. The occurrence of unprofitable projects directly leads to a decline in the profit margin of the eBASE software business.

The leakage of confidential customer information and personal information obtained through outsourced work and system development, as well as content data of "Shozai ebisu" and internal know-how, is recognized as an important management issue. If an information leak occurs due to unauthorized access or other causes, in addition to adverse effects on business performance and financial condition, it could lead to a loss of trust. The Administration Department, as the responsible division, has established regulations and conducts internal awareness-raising and training, but this does not guarantee complete prevention.

Competition for IT talent is intensifying due to the declining working population from the falling birthrate and aging population, as well as the advancement of AI and DX, making the recruitment and development of highly skilled engineers an important management issue. If recruitment and development of personnel does not proceed as planned, or if existing employees leave, this could significantly affect the growth and business performance of the eBASE-PLUS Business in particular. The Group is addressing this by strengthening recruitment of new graduates and experienced personnel and enhancing training programs and systems.

In M&A conducted for the purpose of business expansion, despite prior due diligence, there is a possibility that the acquired business may not progress as planned after acquisition, or that business performance may be temporarily affected by goodwill amortization. If contingent liabilities arise or previously unrecognized liabilities become apparent that could not be identified in the prior investigation, there is also a risk that recovery of invested capital may become difficult. It should also be noted that when new businesses are added, risk factors specific to those businesses are also added.

Because customer companies' system investments are budgeted on an annual basis, sales tend to concentrate at the end of March and the end of September, resulting in seasonal fluctuations. In the fiscal year under review, 31.3% of net sales and 45.3% of operating profit were concentrated in the fourth quarter. If the timing of customer acceptance inspections is delayed, this could affect the Group's business performance. This seasonality needs to be taken into account when analyzing operating results.

The IT Development Outsourcing Business conducted by the eBASE-PLUS Business is subject to regulation under the Worker Dispatching Act, and if the Company falls under grounds for disqualification or violates laws and regulations, business operations could become impossible to continue due to suspension of business or revocation of the worker dispatching business license. The worker dispatching business license is valid until April 30, 2030 (License No.: Haken 27-302549), and as of the present, no facts falling under grounds for disqualification have been recognized. If ongoing revisions to relevant laws and regulations result in amendments significantly disadvantageous to the Group, this could also affect the Group's financial position and business performance.