Photosynth inc.

The Group conducts its business on the premise of growth in the security-related market, personal authentication market, and spatial management solutions market. If these markets fail to grow due to changes in economic conditions, business trends, or the social environment, this could affect the Group's financial position and business performance. The same risk applies if customer companies restrain their security/DX investments and new or additional orders do not progress as expected, or if the churn rate exceeds expectations. As a countermeasure, the Group continues to expand its business to capture demand for access management and unmanned/labor-saving solutions through cloud services.

Existing competitors are present in the markets where the Group operates, and new entrants are also expected as these markets expand going forward. If intensified competition prevents the Group from developing its business as planned, this could affect its financial position and business performance. As a countermeasure, the Group strives to maintain its competitiveness by expanding product functions and services, improving quality, and pursuing advanced security and convenience.

The spatial DX domain in which the Group operates is characterized by rapid technological innovation, and customer needs also change quickly in response to shifts in the social environment. Maintaining a competitive advantage requires the Group to lead or promptly respond to technological innovation. If the Group's response to technological innovation is delayed for any reason, or if technological innovation arises that it is unable to address, this could affect its financial position and business performance. As a countermeasure, the Group is focusing on hiring and developing excellent engineers, gathering information on the latest technology trends, and strengthening its technology development capabilities through the establishment of a CTO position.

Akerun, the Group's core service, operates on the HESaaS subscription model, and the Group makes upfront investments in advertising expenses for customer acquisition as well as engineer personnel costs and R&D expenses for development activities. Although the Group achieved profitability in operating income and free cash flow starting from the 11th consolidated fiscal year (January 1, 2024 to December 31, 2024), it may continue to make upfront investments as a matter of management judgment going forward. If such investments fail to produce the expected results due to a sudden change in the business environment or other factors, this could affect the Group's financial position and business performance.

The Group holds personal information such as Akerun entry/exit records, authentication-related personal information, and information on customer executives. If such personal information is leaked externally or misused due to malicious hacking, computer viruses, or other causes, the Group could bear liability for damages to third parties and suffer a loss of customer trust, which could affect its financial position and business performance. As a countermeasure, the Group has established a basic information security policy and personal information protection management regulations, obtained ISO/IEC 27001:2022 (JIS Q 27001:2023) certification, and appointed dedicated security personnel, among other measures.

Because cloud-based services such as Akerun and fixU are provided via the internet, a large-scale system failure caused by a natural disaster, accident, program defect, unauthorized external access, or other cause could result in liability for damages to third parties and a loss of customer trust, which could affect the Group's financial position and business performance. As countermeasures, the Group has built its applications on AWS, implemented redundancy for critical servers, conducts regular database backups, and performs failure-response drills. In addition, Akerun is designed to allow local authentication via edge devices even during a cloud outage.

A large portion of the Group's revenue comes from Akerun subscription revenue. If Akerun loses its competitiveness due to changes in the market or customer needs, or the emergence of attractive services from competitors, this could have a significant impact on the Group's financial position and business performance. As a countermeasure, the Group is working through its subsidiaries to develop new businesses, including services for the residential sector, facility operation outsourcing services, one-stop SaaS solutions for store operations, and digital identification, thereby diversifying its revenue sources.

Akerun does not have its own manufacturing plant and outsources all production externally. If it becomes difficult to secure alternative contractors due to deteriorating relationships with manufacturing contractors, disasters, business closures, or other reasons, the production system could collapse, affecting the Group's financial position and business performance. In addition, certain specialized circuit board components have long procurement lead times and limited distribution channels, so a supply shortage caused by a supplier's disaster, business closure, or a surge in demand could make it difficult to manufacture products according to the production plan. As countermeasures, the Group selects alternative manufacturing contractors, procures from multiple distributors, and undertakes advance procurement of components with high supply risk as well as design changes to optimize the number of components used.

The continued growth of Akerun and business development through subsidiaries require the Group to secure, develop, and retain excellent personnel who share its corporate philosophy. If recruitment, development, and retention do not proceed as planned, or if there is an outflow of excellent personnel, this could affect the Group's financial position and business performance. In an environment where competition for specialized talent such as engineers is especially intense, human resource risk is recognized as an important issue for the continuity of the business.

As of the end of the consolidated fiscal year under review, the Group has tax loss carryforwards. If profit recognition continues going forward, the resolution of these loss carryforwards would increase the corporate tax burden, which could affect net income/loss and cash flow for the period. In addition, the recoverability of deferred tax assets is based on forecasts and assumptions, including estimates of future taxable income. If the actual timing or amount of taxable income differs from these estimates, this could affect the Group's business performance and financial position. The existence of competitors also introduces a degree of uncertainty into the continued acquisition of new orders, which further heightens the uncertainty of these estimates.