Collabos Corporation

In the fiscal year under review, "@nyplace" accounted for approximately 54.2% of total net sales, reflecting a high degree of dependence on a specific service. This service uses an AVAYA IP telephone exchange system, and if AVAYA were to withdraw from the Japanese market or otherwise make product procurement difficult, there is a risk that continued service provision could be hindered. The Company is working to establish a new revenue base through proprietary services such as "VLOOM," but at present this dependence continues.

The Company's head office and many of its contracted data centers are concentrated in the greater Tokyo metropolitan area, and if a large-scale earthquake or other natural disaster were to paralyze urban functions, business continuity could become difficult. The Company has established a risk management framework that includes load reduction through equipment configuration and concentration of facilities at data centers, as well as recovery testing, but there remains the possibility that unforeseen events on the scale of the Great East Japan Earthquake could not be fully addressed. Earthquakes, typhoons, tsunamis, fires, and the spread of infectious disease are also recognized as similar risk factors.

It is said to be impossible to completely eliminate defects in highly sophisticated systems, and if a latent or critical defect originating from a vendor or the developer of a programming language were to be discovered, service provision could be disrupted. The Company strives to prevent system malfunctions in advance by enhancing its development, maintenance, and operational frameworks, but it cannot completely eliminate the possibility of unforeseen malfunctions. If a malfunction is not addressed appropriately, it could have a material impact on the Company's business and results of operations.

As the cloud services market expands, numerous new entrants are expected, including highly competitive companies such as major systems engineering firms and telecommunications carriers. If the Company's first-mover advantage were to diminish due to technological innovation or intensifying price competition, its business and results of operations could be affected. The Company is working to develop and differentiate services that match market needs while leveraging its advantage as a pioneer, but responding to changes in the competitive environment remains a challenge.

The cloud services market is characterized by extremely rapid technological innovation, and if the Company were to lag behind competitors in advanced technological innovation, its competitiveness could decline, affecting its business and results of operations. The Company's policy is to gather needs through client surveys and day-to-day sales activities and to develop and provide new functions and services that respond to market needs. Similar risks exist if the development of new businesses and services does not proceed as planned, or if unexpected technological innovation occurs.

In connection with its operations, the Company holds a large amount of personal and corporate information, and if information were to leak due to malfunction of information equipment or operational errors, the Company could bear liability for damages and suffer a loss of social credibility. As countermeasures, the Company has obtained Privacy Mark and ISMS certification, and implements measures such as publishing its basic information security policy, conducting in-house training, and carrying out risk analysis and improvement measures. The Company also recognizes risks of intrusion by third parties, such as cyberattacks, malware, and unauthorized access.

The Company's business is subject to various legal regulations and supervision, including under the Telecommunications Business Act, and if a violation of laws or regulations were to occur, the Company could be subject to penalties such as fines, business suspension orders, or revocation of licenses or approvals. In particular, the "Telecommunications Number Use Plan Certification" carries an annual reporting obligation, and if the Company were to neglect this reporting due to human error or inadequate management systems, the certification could be revoked, causing serious disruption to its business. The Company strives to reduce this risk by thoroughly maintaining its management framework and submitting reports by the required deadlines.

Among the listing maintenance criteria of the Standard Market of the Tokyo Stock Exchange, the Company's "market capitalization of tradable shares" has been trending at a level close to the required standard, and if it fails to meet the standard, there is a risk of entering a prescribed improvement period. If improvement is not achieved within the improvement period, the Company's shares could be delisted, and the resulting significant decline in share liquidity could disadvantage shareholders. The Company's policy is to enhance its corporate value over the medium to long term and to conduct active IR activities in order to improve its share price level and stably maintain and expand the market capitalization of tradable shares.

Because technological innovation in the cloud services market is rapid and competition is intense, the continuous securing and development of personnel with specialized technical expertise and management talent is an important management challenge. If the Company is unable to develop or recruit such personnel, its business and results of operations could be affected over the long term. Additional costs, such as for training related to personnel development and recruitment, may also arise.

If the establishment of an appropriate management and business structure is delayed due to rapid business expansion or other factors, making it difficult to operate the business under a sufficiently robust corporate governance framework, the Company's business and results of operations could be affected. The Company recognizes the need to promote the development and operation of internal control systems and the establishment of management frameworks for each business process, in parallel with expanding personnel and developing human resources in line with business growth. Similar risks also exist if corporate acquisitions, capital participation, business alliances, or similar initiatives do not proceed smoothly, or if the expected effects are not achieved.