NETSTARS Co., Ltd.

The Company holds personal information and personal-related information obtained through its business activities. In the event of an unforeseen leakage or a problem arising during the collection process, the Company may face claims for damages or loss of credibility, which could affect business performance and business development. The Company has established a Risk & Compliance Office and is working to thoroughly strengthen information management and comply with its personal information protection policy.

The Fintech Business (Single Segment) relies on AWS and telecommunications carriers' internet lines as its infrastructure. If a system failure or cyber attack causes system downtime, service provision may be impeded, potentially having a material impact on business performance. The Company ensures redundancy through the use of multiple geographic regions, conducts regular vulnerability assessments, and implements unauthorized access countermeasures, but complete elimination of such risks is difficult.

There exist major QR code payment operators that account for a high proportion of net sales. If such operators terminate contracts or change terms, this could have a material impact on business performance. The Company seeks to reduce this risk by offering multiple payment services from a neutral position, but dependence on specific operators remains high.

If payment services utilizing new technologies emerge and lower-priced products and services are introduced in the market, the competitiveness of the Group's QR code payment services could decline, potentially impacting business performance. The Company strives to reduce this risk through continuous research into new technologies in the market, but the risk of alternative technologies emerging over the long term remains.

As of the end of the consolidated fiscal year under review, tax loss carryforwards exist. If business performance continues to progress favorably and the loss carryforwards are resolved or expire, corporate tax, resident tax, and enterprise tax will be recorded based on ordinary tax rates, which could affect net income and cash flow for the period. This is recognized as a risk that is highly likely to materialize over the medium term as business expands.

The QR code payment market is transitioning toward a mature stage, with intensifying competition among payment operators. If competitors advance low-price strategies or enhance functionality, this could result in deteriorating profitability due to lower fee rates, slower acquisition of new merchants, and the switching of large merchants to other providers. The Company addresses this through its technological capabilities derived from early development of multi-payment services and by expanding its merchant base through OEM provision and agency partnerships.

The Fintech Business (Single Segment) accounts for a large proportion of the Group's overall net sales, and business performance is highly dependent on trends in the multi-payment service StarPay (Multi QR Code Payment). If the total transaction value processed through StarPay (Multi QR Code Payment) declines, this would directly impact the Group's overall business performance. As a countermeasure, the Company is pursuing revenue diversification through overseas business expansion and the deployment of DX Products (Self-Checkout, Mobile Ordering, etc.), but the level of dependence is expected to remain high for the time being.

Securing excellent talent and strengthening the organizational structure are essential for achieving further growth, and if appropriate recruitment does not proceed as planned, this could impact business performance. In addition, Representative Director, President and CEO Gang Li plays an important role in management policy and business strategy, and there is a risk that business development could be affected if he were to resign or become unable to continue his duties. The Company addresses this through the promotion of multinational hiring and the expansion of talent at the executive officer and department head levels.

In overseas expansion through its Singapore subsidiary, unforeseen changes in laws and regulations, political and economic changes, exchange rate fluctuations, and differences in business customs could impact business performance. In addition, if the handling of Chinese QR code payment services such as Alipay and WeChat Pay is suspended or terminated due to international disputes or other reasons, this could also affect business performance. The Company seeks to mitigate this risk by handling a wide range of overseas QR code payment services and expanding into multiple countries.

In operating the multi-payment service and the cross-border payment service JPQR Global, the Company is required to comply with relevant laws and regulations, including the Installment Sales Act, as well as industry guidelines. If laws are amended or new regulations are applied, additional costs may arise from strengthened merchant management and security measures, potentially impacting business performance. The Company monitors trends in legal and regulatory changes through participation in industry associations and works in coordination with related companies to respond.