Smaregi, Inc.

Since the register function of the flagship service "Smaregi" operates only on iOS, there is a risk that the service provision foundation could be impaired due to a decline in the domestic market share of iOS devices or a shift in Apple Inc.'s business strategy. App distribution requires passing through Apple Inc.'s review process, creating a structure in which business continuity is influenced by the platform operator's actions. Although iOS currently maintains a leading share within Japan, the high degree of dependency could become a mid- to long-term vulnerability.

The Group's services are managed entirely on Amazon Web Services (AWS), with AWS's stable operation being a prerequisite for business operations. If a service outage occurs due to AWS deficiencies, malicious acts, natural disasters, or other causes, there is a risk of lost revenue opportunities and damage to social credibility. While outage monitoring has been outsourced and a system for prompt recovery has been established, there is also a risk of contract termination or changes with Classmethod, Inc., AWS's consulting partner.

The Group handles confidential information and personal data of numerous client companies, and if an information leak occurs, it could lead to a loss of social credibility and claims for damages. Measures such as establishing a basic information security policy, obtaining Privacy Mark certification (November 2018, renewed every two years thereafter), setting access permissions, log management, and employee training have been implemented, but unforeseen leakage risks cannot be completely eliminated. Given the nature of the Cloud Service Business, deficiencies in information management pose a risk that could undermine the very foundation of the business.

The Cloud Service Business has low entry barriers, with numerous competing companies, and there are also several competitors in the payment services field. The Group seeks to differentiate itself through function improvements, enhanced customer support, and comprehensive service offerings through integration with Smaregi, but if competition intensifies or differentiation becomes insufficient, it could adversely affect the business and results of operations. While the policy is to continue speedy business development and strengthen the development system, maintaining a competitive advantage remains an ongoing challenge.

In the Cloud Service Business, the pace of technological innovation is rapid, and there is a risk that responding to and differentiating from new services introduced by other companies that surpass existing services could become difficult. The Group continuously develops products by improving and adding existing functions and adapting to user needs, but a delay in keeping up with technology trends could lead to a decline in competitiveness. Particularly in the POS register and payment domains, digitalization is progressing markedly, making continuous investment in development essential.

The Group provides cloud services and register peripheral equipment to a variety of industries, and if an economic downturn causes bankruptcies among client companies, a decrease in new store openings, or store closures, it will directly affect business results. In addition, in the payment services business, a decline in payment amounts and affiliated stores due to a contraction in economic activity could put pressure on business results. The decline of retail stores and others accompanying the expansion of internet-related markets could also be a factor changing the customer base.

The Cloud Service Business is subject to regulations such as the Telecommunications Business Act and the Act on the Protection of Personal Information, and the enactment or amendment of new regulations could affect business operations. While a system has been established to obtain early information on new regulations and respond through legal counsel and others, the risk of costs associated with responding to changes in the regulatory environment or business restrictions cannot be eliminated. In particular, the strengthening of regulations related to personal information protection is an important matter to monitor for the Group, which handles large volumes of data.

The Group invests in IT-related startup companies through "Smaregi Ventures," and a deterioration in the business environment or financial condition of investees could affect the Group's financial condition and business results. In addition, regarding assets recorded in connection with such investments, there is a risk of recognizing impairment losses if expected cash flows cannot be generated due to divergence from business plans or market changes. While decisions are made taking investment risk into account, the nature of startup investment inherently involves high uncertainty.

Securing highly specialized personnel (particularly engineers) is essential for maintaining the Group's competitiveness, but there is a risk that intensifying competition in the IT talent market could make it difficult to hire excellent personnel. If personnel development does not proceed as planned, or if measures to secure personnel, including outsourcing software development, do not succeed, it could affect the business and results of operations. As a company still in a growth stage, there is also a simultaneous need to enhance internal management systems, making personnel-related issues a compound risk.

The Group bears the risk of bad debts due to unexpected bankruptcies of business partners, and although credit management is thoroughly enforced, complete avoidance is difficult. In addition, since credit cards and bank account transfers are used for the settlement of service usage fees, accounts receivable balances tend to be concentrated with certain payment processing companies, creating a risk that payment could be disrupted if a system failure or other issue occurs at such a payment processing company. This concentrated dependence on payment infrastructure is a structural risk that could constitute a single point of failure.