Appirits Inc.

The online game industry has numerous supplying companies, and there is a risk that the number of users and revenue for the Company's game titles could decline significantly due to intensifying competition with rivals and changes in user preferences. While the development of new game titles requires substantial upfront investment, there is no guarantee that projected sales will be achieved, and this could potentially lead to development freezes or service discontinuation. The Company seeks to differentiate itself through planning that anticipates industry trends and strong technical capabilities, but the risk cannot be completely eliminated.

The internet industry to which the Company belongs is characterized by rapid technological innovation and rapidly changing customer needs, and appropriately responding to these is a prerequisite for maintaining competitiveness. Delays in responding to technological change could lead to a decline in competitiveness and affect the overall business. The Company continuously works to improve its technical capabilities and understand customer needs, but the risk of failing to keep pace with the speed of change is ever-present.

The Company is subject to a wide range of laws and regulations, including the Act on Settlement of Funds, laws related to worker dispatching businesses, the Subcontract Act, and the Act against Unjustifiable Premiums and Misleading Representations. If a violation of laws or regulations occurs, it could have a material impact on the business. In addition, as seen with the 2012 regulation of "Complete Gacha," there is a risk that changes in the interpretation of existing laws or the enactment of new laws due to shifts in social conditions could significantly restrict game monetization models. The Company strives to comply with JOGA's self-regulation and to stay informed of relevant laws and regulations, but changes in the regulatory environment can directly affect business performance.

The Web Solutions Business handles customers' personal information and confidential information, and the Online Game Business also holds a large amount of personal information belonging to users. If an information leak were to occur, it could have a material impact on the business and its credibility. The Company has obtained Privacy Mark certification (acquired in 2007, renewed every two years) and conducts ongoing employee education and training, but the risk of human error or unauthorized access by third parties cannot be eliminated. If an information leak occurs, it could lead to claims for damages and a loss of social trust.

The Company's business depends on network systems, and there is a risk that systems could go down due to natural disasters, computer viruses, server overload, or unauthorized intrusion from outside parties. If a system failure occurs, it could lead to a decline in sales due to service outages, claims for damages from customers, and a loss of corporate trust. The Company has strengthened its systems and security and established backup systems, but there is no guarantee that it can fully respond to unforeseen circumstances.

The Company capitalizes development costs for game titles as software and amortizes them from the time of release; however, if development is discontinued or profitability declines significantly after release, it will be necessary to recognize an impairment loss. Game development involves substantial upfront investment, but success in the market is not guaranteed, and decisions to freeze development or discontinue service directly affect the Company's finances. If such impairment processing occurs, it could affect the Company's business results and financial position.

The Company engages in investment activities such as M&A for the purpose of entering new businesses and expanding existing operations, and there is a possibility that issues not identified during pre-acquisition due diligence, such as the emergence of contingent liabilities or the discovery of unrecognized liabilities, could arise after an acquisition. If business development does not proceed as planned or if goodwill impairment processing becomes necessary, it will affect business results and financial position. In addition, the addition of new businesses carries the risk of introducing business-specific risk factors to the Company group.

The Company's growth depends on the continuous recruitment and development of talented personnel, and if personnel acquisition deviates significantly from plans or if personnel attrition occurs, the strengthening of the development structure and improvement of sales capabilities may not be realized as expected. In addition, Representative Director and President Junji Wada plays a key role in management policy and business strategy, and there is a risk that the business could be affected if he becomes unable to continue his duties. The Company seeks to reduce this dependence through information sharing at Board of Directors and management meetings and through division of duties, but the risk remains.

In the contract development undertaken within the Web Solutions Business, there is a risk that man-hours required for development could significantly exceed initial estimates due to major changes in customer specifications or unforeseen defects, leading to deteriorated profitability. In addition, delays in customer acceptance procedures and similar factors could cause a "timing mismatch" in which revenue recognition extends beyond the end of the fiscal period, affecting business results for that period. The Company implements appropriate man-hour planning, man-hour management, and quality control, but it is difficult to completely eliminate the impact of external factors.

As of the end of January 2025, the number of potential shares underlying stock acquisition rights granted to officers and employees was 464,300 shares, equivalent to 11.2% of the total number of issued shares of 4,158,762 shares. If these stock acquisition rights are exercised, new shares will be issued, potentially diluting the value of shares held by existing shareholders and their voting rights ratio. While this functions as an incentive scheme, the impact on shareholder value is at a level that cannot be ignored.