Capital Asset Planning, Inc.

The Company depends on domestic financial institutions, particularly life insurance companies, for the majority of its net sales, and financial reorganization such as mergers and consolidations in the life insurance industry, changes in laws and regulations, and shifts in the industry's IT investment trends directly affect business performance. Furthermore, there are specific customers accounting for over 10% of sales, and if transactions with such major customers were terminated or significantly reduced due to changes in their sales policies or reductions in system investment scale, the impact on business performance would be substantial. As countermeasures, the Company is promoting the acquisition of banks and securities firms as customers, developing non-financial institution clients, and acquiring new customers through new services utilizing generative AI.

Many development projects are conducted under contract-based agreements, and there is a risk that profitability of development projects may deteriorate due to work hours exceeding initial estimates, additional costs from specification changes, or development delays caused by changes in customers' business policies. Although the Company has adopted a policy of paying close attention to profitability in its order-taking activities, it is difficult to completely eliminate such excess costs given the nature of development operations. If profitability deterioration occurs simultaneously across multiple projects, the impact on business performance could become correspondingly significant.

The Company is in a position to obtain confidential information, including personal information, in the course of constructing customers' information systems, and if an information leakage occurs due to negligence by the Company Group or unlawful acts by third parties, it may affect business performance through claims for damages and loss of social credibility. As countermeasures, the Company has obtained ISO27001 certification and implemented security measures such as entry/exit management, access restrictions, and access log collection, but it is not possible to completely eliminate this risk. Given the nature of the business, with financial institutions as its main customers, damage to credibility in the event of an information leakage could be particularly severe.

Due to constraints on IT investment budgets of major customers such as life insurance companies and a tendency for new product sales periods to be concentrated around October, net sales, operating income, and ordinary income are seasonally concentrated in the second quarter (January–March) and fourth quarter (July–September). For projects for which sales are recognized on an acceptance basis, if the timing of acceptance is delayed into the following period for any reason, there is a risk that business performance for that period may decline significantly. This seasonal fluctuation is structural in nature, and particular caution is required when evaluating short-term business performance.

The Company develops and provides systems that support the sale of financial products, and if a system defect (bug) is discovered after customer acceptance, it may affect business performance through increased costs associated with repair work, loss of credibility, and claims for damages. Although the Company has obtained ISO9001 certification and strives for thorough quality control, it is difficult to completely prevent the occurrence of defects. Given the nature of systems for financial institutions, the impact of defects on customers' business operations is significant, and the risk of claims for damages is correspondingly high.

The Company operates a highly specialized business of system development and consulting in compliance with the Financial Instruments and Exchange Act, and the continuous securing of excellent personnel is essential for the development and expansion of new services. As development skills become increasingly diversified, the mobility of highly skilled personnel is progressing, and it is uncertain whether the Company will be able to secure the necessary personnel going forward. If sufficient personnel cannot be secured, it may lead to a decline in development capability and the loss of opportunities to win new orders, which may affect business performance.

Since net sales heavily depend on life insurance companies, sales trends of insurance products, the number of new products sold, and revisions to related laws and regulations such as the Insurance Business Act directly affect business performance. If regulatory revisions cause changes in life insurance companies' IT investment policies or new product development plans, there is a risk that the volume of orders placed with the Company Group may fluctuate significantly. Additionally, if the Company falls behind in grasping the latest technologies, including AI, it may fail to capture market needs and its competitiveness may decline.

In the financial retail market, the Company differentiates itself through a "one-stop service" that handles everything in-house from proposals and requirements definition to development, operation, and maintenance. However, if competitors with more advanced technology and know-how emerge and provide systems that more accurately capture customer needs, the Company Group's competitive advantage may decline, affecting business performance. In particular, as technological innovation, including generative AI, progresses rapidly, maintaining a technological edge remains a challenge.

Masakazu Kitayama, the founder and Representative Director and President, plays a critical role in determining and executing management policies and business strategy, and if he becomes unable to perform his duties, it could affect the acquisition of new projects, among other things. The Company is working to establish an organizational structure that does not depend on a specific individual through information sharing with executive staff and delegation of authority, but at present, the degree of dependence on him remains high.

As of the end of the month preceding the filing date of this document, the number of potential shares was 70,000 shares, equivalent to 1.2% of the total number of issued shares. If stock options are exercised, the value per share may be diluted. The Company plans to continue implementing a stock option program as part of its capital policy going forward, and the number of potential shares may increase in the future.