Paycloud Holdings Inc.

The Company relies on external parties for the maintenance, operation, and management of data center cloud environments and communication networks. If a system failure occurs due to a sudden increase in access, power outage, computer virus/unauthorized access, employee error, or other causes, there is a possibility that loss of credibility or damages may result. As countermeasures, the Company is promoting load balancing through multiple servers, regular backups, disaster prevention drills, full migration development to public cloud, and security measures.

The Company handles confidential information and personal information of numerous client companies. Despite measures such as obtaining Privacy Mark certification and establishing basic information security policies, if important information assets are leaked externally, this could result in loss of social credibility and claims for damages, which may affect the business and financial results. The Company continuously implements measures against unauthorized external access and maintains personal information protection policies.

The Company Group is affected by a wide range of legal regulations: the Payment Services Act for the Cashless Services business, the Outdoor Advertising Act, the Building Standards Act, and the Act against Delay in Payment of Subcontract Proceeds, etc. for the Digital Signage Business, and the Telecommunications Business Act and the Act on Regulation of Transmission of Specified Electronic Mail, etc. for the Solutions Business. If regulations are strengthened or revised, this could lead to a chilling effect on customers' business continuity or constrain the Company Group's operations. The Company has established an information-gathering system through legal advisors and others.

The Company positions the Cashless Services and Digital Signage Business as growth investment businesses. If these markets decline due to economic deterioration, conflicts, spread of infectious diseases, changes in laws and regulations, or other factors, this may affect business results. In particular, the Cashless Services business is directly linked to trends in personal consumption, and there is a risk that suppressed consumer sentiment due to consumption tax rate increases or increased social insurance premium burdens could lead to a decrease in proprietary Pay payment transaction volume.

While the Company recognizes that the Cashless Services and Digital Signage Business have relatively high barriers to entry, competition is intensifying as the markets expand. If competition intensifies with companies offering similar services and price competition occurs, and sufficient differentiation is not achieved, this may affect the business and financial results. As a countermeasure, the Company seeks differentiation through system construction pursuing optimal usability and enhancement of customer support.

All businesses operate in a rapidly changing industry where new technology development and new service introductions occur frequently. If the Company's response to technological innovation is delayed, the competitiveness of the services provided may decline. In addition, if unplanned system investments become necessary to respond to new technologies, this may affect business results. The Company is addressing this through enhanced recruitment of IT engineers and subsidies for qualification acquisition.

The Company continues to make ongoing investments in software development to expand its business operations. However, if the performance of each business falls significantly short of the business plan, and it is determined that the asset value of the software has significantly declined based on the earnings outlook at the end of the fiscal period, an impairment loss will be recorded. Should such a situation occur, it may affect business results and financial condition.

Financial covenants are attached to loan agreements with some financial institutions, and if the conditions are breached, this could result in an increase in borrowing interest rates or loss of the benefit of time, which may affect business results and cash flow. In addition, foreign currency-denominated transactions in overseas businesses (Singapore, Thailand, India, etc.) and the procurement of overseas-manufactured equipment in the Digital Signage Business are subject to exchange rate fluctuations, which may raise procurement costs and affect business results and financial condition.

While the recruitment and development of specialized personnel is essential for business expansion, if intensifying competition for talent makes it difficult to recruit excellent personnel, or if a large number of existing personnel leave the Company, this may affect the business and financial results. The Company continuously conducts recruitment and development activities, but intensifying competition for talent in the IT industry remains a challenge.

The Company grants stock acquisition rights for the purpose of providing incentives to officers, employees, and others, and intends to continue incentive plans utilizing stock acquisition rights going forward. As of October 31, 2025, the number of potential shares was 1,211,708 shares, equivalent to 7.6% of the total number of issued shares of 15,907,408 shares. If these rights are exercised, this may dilute the share value and voting rights ratio of existing shareholders.