sinops Inc.

In the 39th fiscal period, over 80% of net sales were derived from the food supermarket industry, resulting in a business structure in which performance is heavily influenced by IT investment trends in that industry. Should the industry as a whole experience a deterioration in business conditions or a curtailment of IT investment, this could have a direct impact on the Company's business and operating results. Although the Company has adopted a policy of diversifying into industries other than food supermarkets to mitigate this risk, the concentration risk may persist depending on the progress of such diversification.

Against the backdrop of labor shortages in the distribution industry and heightened interest in the issue of food loss, new entrants into the demand forecasting and automatic ordering service field may increase, intensifying competition. If competitors advance in pricing or in differentiating their products and services, and the Company is unable to achieve effective differentiation, it may become difficult to acquire and retain customers, thereby affecting operating results. While the Company intends to continue providing products and services that reflect customer needs, responding to changes in the competitive environment remains a challenge.

If innovative technologies or significant changes in the market environment beyond the Company's expectations occur, there is a risk of losing technological superiority should the Company fail to respond in a timely manner. Although the Company has a strong track record of implementations in the demand forecasting and automatic ordering service field, rapid technological advances such as AI and machine learning could significantly alter the competitive environment. The Company continuously works to keep up with the latest technology trends and to improve user experience.

If an error occurs in the demand forecasting logic of "sinops," abnormal order recommendation data may be provided to users, potentially causing widespread malfunction in ordering operations. If recovery takes a considerable amount of time, there is a risk of facing claims for damages and of losing customers due to reputational damage, making customer acquisition and retention more difficult. The Company is addressing these risks through continuous R&D to improve logic accuracy and by implementing measures such as switching to manual ordering in the event of special circumstances.

Human error, hardware or communication line malfunctions, or external factors such as an AWS outage or contract termination could cause the demand forecasting and automatic ordering service to be interrupted or degraded in quality. If the impact is widespread and recovery takes time, there is a risk of claims for damages and damage to reliability and brand reputation. Although the Company has established specifications to send backup order recommendation data during the previous day and maintains a continuous monitoring system, it may not be able to fully address unforeseen events.

For the Company, which employs a subscription-based recurring revenue model, maintaining the retention rate of existing customers and improving unit prices are fundamental to sustainable growth, and a significant shortfall relative to expectations would directly affect operating results. There is a risk of increased churn due to customers switching to competitors or dissatisfaction with additional features and support, as well as a risk that upsell and cross-sell strategies may not align with customer needs. The Company seeks to maintain and improve the retention rate through the development of additional features and enhanced support.

The Company handles customer information (including personal information) and confidential information, and there is a possibility of information leakage or loss due to intentional acts, negligence, or cyberattacks. Should an information leak occur, in addition to the risk of facing claims for damages, it may become difficult to acquire and retain customers due to a decline in reliability and corporate image. Although the Company has implemented security measures, complete defense against increasingly sophisticated cyberattacks remains difficult.

The Company records each sinops-CLOUD product as software under intangible fixed assets, and if sales do not proceed as planned, it may become difficult to recover development costs, potentially resulting in an impairment loss on the software. Recognition of an impairment loss would directly and adversely affect operating results and financial position. Although the Company manages these assets grouped as assets of the cloud business, there is a risk that sales plans may not be achieved due to changes in the market environment or competitive landscape.

As of December 31, 2025, the organization is small in scale, with 7 directors and 110 employees, resulting in a high degree of dependence on specific officers and employees for business operations. Should personnel attrition occur due to illness, injury, job change, or other reasons, it could hinder the execution of operations, making the securing, development, and retention of excellent personnel a critical priority. Although the Company is implementing measures such as active recruitment activities and the enhancement of its personnel evaluation system and training programs, the effectiveness of these measures cannot be guaranteed.

In the Implementation Support Service, if man-hours increase significantly due to unforeseen troubles or schedule changes, there is a risk of incurring order losses. In addition, if the Company decides, at its own discretion, to re-provide the Implementation Support Service free of charge to existing users, a provision for product warranties may arise even though there is no contractual obligation to do so, potentially affecting financial position and operating results. Although the Company seeks to minimize the impact through installment-based acceptance inspections and rigorous project management, accurate estimation for all projects remains difficult.