Prodelight Co.,Ltd.

While the cloud PBX and IP telephony service market is expected to expand due to diversifying work styles and other factors, there is a risk that existing customers may migrate to competing services as new entrants increase. The Group's strengths include ARR and recurring revenue streams such as "INNOVERA" and a low churn rate, but if this competitive advantage is lost, it could materially affect the Group's financial position and business results through a decline in the recurring revenue ratio and a rise in the churn rate. The Group addresses this by providing services that capture customer opinions and trends in a timely manner.

The pace of technological innovation in cloud services is rapid, and if the Group falls behind in responding to trends such as the progress of FMC (Fixed Mobile Convergence), migration of PBX to the cloud, addition of CRM functions, AI-based text conversion, and natural language processing, its services may become obsolete and it may fall behind competitors. The Group addresses this through catching up with cutting-edge technologies, actively introducing new services, and strengthening R&D activities, but insufficient response to technological innovation may adversely affect its financial position and business results.

The line service "IP-Line" depends on lines provided by Arteria Networks Corporation, and business results may be affected if trading terms change or if the transaction relationship cannot be continued. In addition, the contract with Yealink, the Group's main supplier of SIP telephone terminals based in China, includes a clause allowing cancellation of sales rights if quarterly purchase targets are not met for two consecutive quarters, as well as a clause permitting suspension of product supply upon written notice. If supply is suspended, this could materially affect business results. The Group states that it currently maintains good relationships with both companies.

In the Mobile Communications Equipment Business, there is a certain degree of dependence on construction orders from major prime contractors. If order volume decreases due to changes in the prime contractor's management policies or contract terms, or a review of the business relationship, this could affect the Group's business results and financial condition.

Services such as cloud PBX and IP lines depend on internet communication infrastructure, and there is a risk that the Group may become unable to provide services in the event of system failures or network disconnections caused by large-scale program defects, natural disasters, unauthorized access, or other causes. Service interruptions could lead to a loss of social trust and claims for damages, potentially materially affecting the business and business results. The Group addresses this through server capacity enhancement, load balancing, backup system construction, and security reinforcement.

Line services are subject to notification and regulation under the Telecommunications Business Act, and if the Group receives an administrative disposition from the relevant regulatory authority for any reason, this could affect business development or make it impossible to continue operations. The Group thoroughly disseminates the content of laws and regulations to officers and employees and conducts business in compliance with them, but the impact would be significant if a regulatory violation were to occur.

The Group may carry out corporate acquisitions or business alliances to expand its business domain, and there is a risk that the anticipated effects may not be achieved due to problems not identified during prior due diligence or changes in the business environment. In particular, impairment of goodwill arising from corporate acquisitions could affect the Group's financial position and business results. The Group's policy is to conduct detailed prior due diligence on the target company's technological capabilities, financial position, and business relationships, and to examine risks when making decisions.

The Group holds a large amount of personal and confidential information, such as customers' call records, and if such information were to leak externally due to human error or unauthorized external access, this could result in post-incident handling costs, reputational decline, and loss of trust due to claims for damages, potentially affecting business results. The Group addresses this through obtaining the Privacy Mark certification, establishing an information management system, and conducting information security training, tests, and seminars for all officers and employees.

Securing talented personnel is a critical issue for business expansion, but there is no guarantee that measures such as recruitment activities, development of personnel evaluation systems, and training programs will be effective. If the Group fails to sufficiently secure and develop the necessary personnel, or if there is significant turnover after hiring, this could affect the business and business results. There is also a risk that, due to the Group's small organizational scale, its business execution and internal management systems may not keep pace with business expansion.

The number of potential shares underlying stock acquisition rights issued as incentives to officers and employees is 83,200 shares, equivalent to 4.9% of the total number of issued shares of 1,682,900 as of the filing date of the Annual Securities Report. If these stock acquisition rights are exercised, the value of held shares may be diluted.