Business Risks

Among the matters related to business and accounting situations described in the annual securities report, those that may have a significant influence on the judgement of investors are listed below as risk factors.

Regarding matters that do not necessarily correspond to risk factors, those that are considered to be essential for investors’ investment decisions are disclosed from the perspective of proactive information disclosure to investors.

The matters relating to the future prospects described below are based on the judgement of our group as of the end of the fiscal year and do not cover all risks that may occur in the future.

Corporate governance is indispensable for us to gain the trust from the society, and we are actively working to tackle important management issues.Our directors, corporate auditors, and employees understand their roles required of each of us, continuously maintain and improve awareness of laws, social norms, ethics and so forth, and engage in appropriate and efficient management activities while we strive to enhance corporate governance.

1. Risks derived from the business environment

① Impact of economic trends

The platform business developed by our group is a service that matches client companies and individuals online.In the current consolidated fiscal year, the number of companies that place orders through online-based communication has increased significantly due to the impact of COVID-19 pandemic.We predict that the market will continue to grow in the future, and plan to further expand our business by adding functions according to the needs of our clients.

However, if the market growth slows down or the market environment changes due to domestic and foreign economic conditions and trends, it may affect our business and our business performance in the future.

We believe that it is relatively unlikely that such risky situations will occur.However, in order to deal with these situations, we attempt to collect information on market trends, and consider the possible and limited situations, which may have a significant impact on our group.

② Labour-related laws and regulations and trends in workforce

Our group’s main service is the platform business.In order to develop our business, we believe that it is necessary to increase the work force of freelancers (including side businesses and multiple businesses) who work mainly using the Internet and to expand related markets.While the domestic working population is expected to decrease by approximately 10% from the current 66 million to 59 million by 2030, according to the survey results (“Freelance Survey 2021”), the freelance population in a broad sense increased from 9.13 million in 2015 to 16.7 million in 2021.

However, in case that the increase in the freelance population slows down due to domestic labour laws and regulations or population trends, side businesses do not expand, or the market environment changes, our groups’ business and our performance may be affected.

We believe that such future outcomes are relatively unlikely to occur, but we will continue to collect information on labour-related laws and regulations to prepare for those risks.

③ Related laws and regulations

Based on the vision of “creating a society where everyone can work in their own way with technology”, we are developing various services that support freelancers who work as business owners.However, the income from employment placement is small, and we do not provide any services that are subject to the Worker Dispatching Law.In addition, in the area of online staffing, to facilitate the settlement of commercial transactions between users, we temporarily receive compensation from our clients on behalf of freelancers who are supposed to receive the payment through the escrow method, which also provides value to our users.However, it is not subject to the Investment Law and the Fund Settlement Law.We consult with external experts, such as corporate lawyers, gather information on law revisions, thoroughly educate employees, and build and strengthen a system for complying with laws and regulations so that they do not violate them in business operations.

However, if our business conflicts with the laws and regulations due to amendments to these laws and regulations, enactment of new laws, changes in the views of regulatory agencies, changes in social structure, or other unexpected situations, it may affect our business and our business performance.

Although we believe that the possibility of such a risk scenario materializing is relatively low, our group strives to collect information on laws and regulations in order to respond to such risks.

④ Responding to technological innovation

As for the Internet-related market in which our group operates, technological innovation and changes in customer needs are extremely rapid, and Internet-related business operators need to respond flexibly to such changes.

If we are unable to respond to technological innovations and changes in user needs, or if it requires a large amount of costs for system investment and labour to respond to those changes, it may affect our business and our business performance.

We actively hire and train excellent engineers so we can respond to rapid technological innovation.Moreover, by building a system that can constantly grasp the latest technological trends and environmental changes, we are striving to respond promptly to changes in user needs.

2. Risks derived from business contents

① Changes in the competitive environment

Our main business domain is the platform business, and we aim to create new work styles that utilize the Internet.However, in the recent field of labour, many companies are developing their businesses, including services in the crowdsourcing areas.

Therefore, if competitions with other companies that develop services similar to ours intensify, if we cannot achieve sufficient differentiation, or if the structure of the business domain undergoes an innovative change, it may affect our business and our business performance.

Our group is working to build services that pursue appropriate usability, ensure safety when using our website, enhance customer support functions, and develop businesses based on the code of conduct that prioritize the success of freelancers, which will improve our competitiveness in the market.

② Uncertainty of new businesses

To further develop businesses of our group and to achieve the mission of "individual empowerment", we aim to expand our business scale and increase profitability, and we will actively work on new business development as well as existing businesses.In particular, we recognize that the risk of launching a new business is higher than that of an existing business.As for various services that may be newly developed in the future, despite careful market analysis and business plan construction, if a situation different from the forecast occurs and it does not proceed as planned, investment funds may not be recovered, and the business and business performance of our group may be affected.

Even if the risk becomes apparent with the launch of a new business, we are strengthening our monitoring system to minimize the impact on our business and business performance.

③ Service profitability

Our group will continue to add new functions as IT technology advances, actively work to activate services and strengthen usability, and strive to always provide new services that are valuable to the users.

However, if the expected profit is no longer receivable due to the occurrence of an unexpected event, or if the system investment cost and the associated labour cost are required more than expected in the development, it may affect our business and our business performance.

Therefore, when developing a new service, we have been building a system to proceed after fully considering the profitability of the new service.

④ Website safety and soundness

On our website, we provide a function that allows users to freely send information when making job requests and proposals so that transactions between them can be carried out smoothly, and when evaluating among the users who made transactions.However, there is a risk that information is false or abusive.Furthermore, there is a possibility that our group may be held liable for failing to detect inappropriate postings, or for delaying their detection.In addition, our group's business and business performance may be affected in the event that our group's reputation or image as a website or website operator deteriorates due to malicious word-of-mouth posting on the Internet.

In response to these situations, we have established terms of use and guidelines, and we monitor job requests and posted contents.If we determine that untrue information and abusive comments are inappropriate, we delete it before or after they are posted, which will maintain the soundness of our website.

⑤ Information security

We hold personal information and confidential information on the platform business we operate.As a group, we regard the management of information as an important matter in business operations, not only to prevent the leakage of personal information and confidential information, but also to prevent improper use and falsification.

However, if personal information or confidential information is leaked externally due to unauthorized access from the outside or a defect in the internal management system, and there is a claim for damages to our group, or if social credibility is lost, it may affect our business and our business performance.

To prevent such potential risks from becoming apparent, we have established an information security policy, strictly manage personal information and confidential information, and provide security-related regulations and manuals for executives and employees.We have also built a system to thoroughly manage information, such as conducting in-house training.We have been certified by the Japan Institute for Promotion of Digital Economy and Society (JIPDEC) in April 2017 as a privacy mark system, which was renewed in April 2021.

⑥ System failure

The platform business operated by our group provides services through a system called "Lancers.jp", and stable operation of the system and Internet connection environment is a major premise for conducting our business.

However, in the event of an unexpected issues such as a natural disaster or accident, a rapid increase in the number of users or traffic, a software malfunction, unauthorized access via a network, or computer virus infection, it may affect our business and our business performance.

We save data on the cloud to avoid risks in order to prevent business impacts due to server outages caused by unforeseen circumstances and loss of accumulated data.We also secure the necessary security system to prevent unauthorized access from the outside.

⑦ Infringement of intellectual property rights

Regarding the possibility of infringement of intellectual property rights of a third party by the Group, we are cooperating with experts and responding to the extent that it can be investigated.However, it is difficult to fully understand the intellectual property rights of third parties regarding the business areas of our group, and it is undeniable that we may infringe the intellectual property rights of other companies without being aware of it.In this case, a claim for damages or an order to prohibit use may affect the business and business performance of our group.

3. Other risks

① Continuous investment

We have endeavoured to raise awareness, increase the number of users, and expand new services for continuous growth.Specifically, there are investments in marketing to increase the name recognition of our group, advertising expenses to acquire new users, and an increase in labour costs and outsourcing costs for developing new services.

We plan to continue to actively invest in the development and expansion of new services and functions and in advertising expenses.However, if the investment does not affect our business positively as expected and the cost burden increases, it may affect the business performance of our group.

We have been strengthening our budget management system and monitoring the effects of investment occasionally.

② Dependence on a specific person

Yosuke Akiyoshi, President and Representative Director of our company is the founder and the Chief Executive Officer since it was founded.He plays an extremely important role not only in determining the company’s management policies and business strategies, but also in promoting business in the fields of sales, technology, and finance.

However, if it becomes difficult for him to continue the business for some reason, it may affect the business and business performance of our group.

We have been working to share information and strengthen the management organization of officers and executives at the Board of Directors, as well as developing a management system that does not excessively depend on him.

③ Small organization

We are organized with the minimum number of people necessary for business execution.

However, if our measures are not implemented in a timely and appropriate manner, or if an employee leaves our company unexpectedly, it may affect our business and business performance.

To prevent such situations, we plan to secure and train human resources as our business expands and to enhance our business execution system.

④ Acquisition and development of human resources

We believe that it is important to sympathize with our mission and vision in order to achieve continuous growth and business scale expansion in the future, continuously hire highly motivated and talented human resources, and build a strong organization.

However, if the human resources required by our group cannot be sufficiently secured and/or trained, or if the outflow of human resources progresses, the business and business performance of our group may be affected.

Therefore, we have been attempting to implement measures to secure excellent human resources, appropriately develop and allocate them by introducing a personnel system in anticipation of continuous business expansion, and reduce the possibility of risky situations.

⑤ Strengthening the internal control system

We understand that it is necessary to further strengthen and enhance the internal control system for the continuous growth of our group.However, if there is a delay in building an internal control system that matches the scale of our business due to the rapid expansion, it may become difficult to operate the business properly, which may affect the business and business performance of our group.

To reduce such risks, we will ensure the appropriateness of operations and the reliability of financial reporting, and thoroughly comply with internal regulations and laws and regulations.Furthermore, we will strengthen the compliance system and internal control system of the group by strengthening the management system of subsidiaries and ensuring the reliability of financial reporting as a consolidated group to continue business expansion while continuing to carry out M & A, etc.

⑥ Reduced stock value from exercising stock options

We have adopted a stock option system for the purpose of incentives for executives, employees, and business supporters.As of the date of submission of this document, the number of potential shares under stock acquisition rights is 1,123,300 shares, which is 7.17% of the total number of issued shares of 15,658,100 shares.We are also considering using the stock option system in the future.If the stock acquisition rights granted in the future are exercised in addition to the stock acquisition rights currently granted, the value of the shares held may be diluted.

⑦ Loss carried forward from the previous term for tax purposes

We have a loss carried forward from the previous term for tax purposes, and it is possible that we may be able to receive deductions for the loss carried forward within the deadline if the business performance of our group continues to be favourable.

However, if a loss carried forward expires due to a downturn of our business performance, the taxable income will no longer be deductible.Moreover, corporate tax, inhabitant tax and business tax based on the normal tax rate will be levied on taxable income, which may affect the business and business performance of our group.

⑧ M&A

We have been conducting M&A as necessary to accelerate business growth.Before conducting M&A, we perform detailed due diligence on the financial details and contractual relationships of a target company and execute after examining the risks.

However, if risks arise after the investment that were not recognized in prior investigations, such as the discovery of contingent or unrecognized liabilities, or if the integration of the business after the investment does not proceed as planned, it may be necessary to write down the value of the shares of the target company or the business assets transferred, which may have a significant impact on the financial position and business performance of Our Group.

In addition, goodwill has been recorded due to the M&A carried out by our group in the past.In the future, if it is expected that the business performance plan at the time of stock acquisition will not be achieved and impairment losses are required, it may have a significant impact on our group’s financial condition and business performance.In order to prepare for this risk, we will implement appropriate due diligence and allocate appropriate human resources to achieve the strategic objectives of each business and establish an organizational structure.

⑨ COVID-19 pandemic

We thoroughly inform all our employees regarding employment policies when suspected of being infected or in poor physical condition and have been taking measures to prevent the spread of infection while continuing business activities.However, if the spread of COVID-19 infection does not slow down as expected and the domestic economic stagnation continues for a long time because of self-isolation by the declaration of a state of emergency again, the business development and business results of our group may be affected.

We have been working to improve and strengthen the remote work environment in its business operation system and promote online internal communication in order to deal with the risks associated with the prolonged COVID-19.