BlueMeme Inc.

In the current consolidated fiscal year, over 95% of Software License Sales and Professional Services revenue was related to OutSystems®, and there is a risk that if the market for this product contracts or the sales distributor agreement is terminated, the business foundation could be fundamentally undermined. The contract can be terminated with three months' prior notice, and an immediate termination clause also exists. As a countermeasure, the Company is expanding sales of other companies' products, but the current level of dependency remains extremely high.

In the no-code/low-code market, there are competitors both domestically and internationally offering similar products and services, and competition may intensify as competitors improve their sales capabilities and technical capabilities. A decline in competitiveness directly leads to a decrease in revenue and profit, affecting the financial position and operating results. The Group is differentiating itself through a combination of low-code technology and agile methodology under its proprietary development methodology "AGILE-DX."

Technological innovation is progressing rapidly in the information services industry, and if the Group fails to respond appropriately, there is a risk that its technology and know-how could become obsolete, causing it to lose its competitive advantage. In particular, the rise of next-generation technologies such as AI and quantum computing could change the structure of the existing no-code/low-code market. As a countermeasure, the Group is actively engaged in next-generation technology research, including industry-academia collaboration such as joint research on quantum computing with a national university corporation.

Representative Director and President Masayoshi Matsuoka plays a critical role in everything from determining management policy and business strategy to building business models and commercializing them, and the Group continues to be highly dependent on him. If he becomes unable to continue performing his duties for any reason, there is a possibility of significant disruption to the continuity of management. The Group is working to reduce this dependency through information sharing at board meetings and strengthening the management organization, but the level of dependency is still recognized as high at present.

If the Group and its service partner companies are unable to sufficiently secure and develop the engineering talent they need, there will be a shortage of personnel to meet customers' development demand, leading to lost opportunities to provide services. The tight supply-demand balance for engineering talent in the information services industry is an industry-wide challenge and could become a constraint on the Group's growth. As countermeasures, the Group is working to enhance its talent recruitment and training programs and to build human resource systems and improve the working environment with an emphasis on work-life balance.

In lump-sum contract agreements for contracted development services, if development man-hours increase due to significant specification changes or unexpected defects, revenue recognition may be pushed back to the following quarter or the following fiscal year. Combined with the seasonal characteristic of revenue and profit being concentrated in the fourth quarter, this increases the uncertainty of business performance. As countermeasures, the Group is standardizing development know-how, establishing a quality control framework, and promoting the shift to quasi-mandate contracts.

The Group's business consists of a single segment, the "DX Business," and if growth in the DX market slows or the business environment changes suddenly, the entire business would be directly and broadly affected. Because there is no diversification effect from business diversification, vulnerability to fluctuations in a specific market is high. The Group anticipates continued growth in the DX market, but if it fails to respond appropriately to changes in the market environment, its business performance and financial position could be affected.

As the Group is involved in developing customers' business systems, it handles confidential information, and if an information leak occurs due to human error or other causes, it could damage the Group's social credibility and give rise to liability for damages, affecting its financial position and operating results. The risk of cyberattacks is also increasing with the progress of cloud adoption. As countermeasures, the Group has established its "Information System Management Regulations" and "Information Management Regulations," and conducts information management training upon joining the company or being assigned to a project.

Expanding Professional Services requires securing engineering talent and strengthening the Software License Sales system, and continuously requires maintaining stable business relationships with service partners and developing new ones. If the Group is unable to secure appropriate partners in line with growing demand, its capacity to provide services may be constrained, affecting its financial position and operating results. With some partners, the Group has established partnerships not only for providing contracted development services but also for reselling software products.

The Group grants stock options as incentives for officers and employees, and as of May 31, 2025, the number of potential shares was 58,800, representing a potential share dilution ratio of approximately 1.6% relative to the total number of issued shares of 3,603,946. If the exercise of these options progresses, there is a risk that the value of shares held by existing shareholders could be diluted. Note that the Company has not paid any dividends since its founding, and it continues to prioritize building up internal reserves and investing for growth.