Financial Statements2019

Financial Statements2020

Financial Statements2021

Business Risks

The followings are the principal risk factors which can potentially affect the Company’s business operations and prospects. They describe matters relating to the Company’s business and financial condition that could affect investment decisions. Some of the risks described below are not considered by the Company to be real risks, but are nonetheless included below as they may be considered material by investors for making an investment decision. In addition, readers are advised that these matters do not purport to cover all possible risks that might be material for making investment decisions, and various other factors might also be relevant. Further, any forward-looking information included below are based on judgments of the Company as of October 22, 2021 and does not take into account all potential risks that might arise in the future.

(1) Risks relating to the business environment

1. Domestic E-commerce market of printing services

According to the Company’s survey, the Japanese online printing market, the main operating market of the Company, has recorded an average annual growth rate of more than 10% between 2012 to 2018, and the market size is assumed to have reached 100Bn JPY in fiscal year ended March 31, 2020. The Company expects continued growth in the market along with a continued increase in the percentage of printing ordered online in the future. However, if the domestic online printing market fails to grow as expected above, it may affect the financial condition and results of operations of the Company.

Given this risk, by utilizing the customer and supplier base acquired through the flyer printing business, the Company continues to expand TAM and increase profit by increasing ARPU of existing customers by expanding advertising services and customer base by launching additional unique product lines.

2. Trends among competitors

The Company recognizes that there is a certain competitive environment in the core business area of the Company with domestic online printing services currently being developed by multiple competitors. The financial condition and results of operations of the Company may be affected by the future emergence of competitor(s) with a superior business model, which could intensify the competition among its existing and new businesses.

Given this risk, in addition to expanding the product lineup in response to a wide range of customer needs, the Company has been conducting proactive marketing activities and enhancing customer support, as well as expanding services and improving the quality of services. The Company will continue to be actively engaged in strengthening its services from a user-oriented approach and improve its brand recognition.

3.  Acquisition of registered users

Sales in printing services, which is the core business of the Company, may fluctuate based on the number of users registered for Company services, usage by registered users, and the average amount of purchases by registered users, and the growth of the business depends on a steady increase in the number of registered users. The Company continuously implements measures for the acquisition of new users, promoting additional sales to existing users, and the retention of existing users while measuring the effectiveness of marketing approaches. While the aforementioned KPIs have been steadily improved, the financial condition and results of operations of the Company may be affected by sluggish growth in sales figures or an increase in marketing expenses resulting from the growth in the number of registered users falling below expectations due to factors such as changes in social and economic circumstances leading to changes in customer needs, intensified competition with other businesses, or ineffective marketing by the Company, etc.

Given this risk, the Company continues to engage in trying new ways to acquire new customers and comparing customer acquisition costs with past years to maintain and expand the growth in the number of registered users.

4. System troubles

The business of the Company is based on the Internet, and the services rely on communication networks to connect to the Internet. While the Company has reinforced related facilities such as servers and established internal systems to ensure stable service operations, the financial condition and results of operations of the Company may be affected by a major system failure caused by an unexpected incident such as surge in traffic, a natural disaster, e.g. an earthquake, or an accident.

Given this risk, the Company has established a monitoring system as well as combined measures from organizational, personnel, and technical perspectives to construct a multi-layered defense system.

5. Dependence on the printing business

The Company’s sales depend largely on its core business, namely, the printing business. The Company foresees further growth in the printing business in consideration of the continued expansion of the domestic online printing market, the growth of the user base, and service enhancement, etc. However, the financial condition and results of operations of the Company may be affected by a future decrease in sales proceeds in the printing business caused by a decline in the user base of the “Raksul” site or a decline in the market.

Given this risk, the Company continues to expand its platform business to other industries such as the TV commercial related platform “Novasell” and the logistics platform “Hacobell”, and will continuously aim to expand to numerous industries in the mid to long term.

6. Production system in the sharing economy model

Rather than having its own printing plants, the Company has established a production system in the so-called sharing economy model based on a network of printing companies and suppliers in the printing business, which is the core business of the Company. The financial condition and results of operations of the Company may be affected by the discontinuation of partnership-based subcontracting caused by a surge in raw material procurement costs or changes in the business circumstances of such suppliers in the future.

Given this risk, the Company has made efforts to establish central purchasing system which enables competitive pricing for some raw materials, as well as strengthen relationships with suppliers through regular communication to ensure stability of production.

7. Shipping costs

Product shipping operations in the Company’s “Raksul” service are consigned to external carriers and, except for certain products, Company goods are provided without shipping charges for the sake of user convenience. The financial condition and results of operations of the Company may be affected by a future increase in shipping costs.

Given this risk, the Company ensures stable contract prices by using multiple carriers, etc.

(2) Risks relating to business systems

1.Recruitment and development of qualified personnel

In line with the expanding scale of business, the Company believes that it is vital to constantly recruit qualified and highly-motivated personnel resonant with the philosophy of the Company in order to establish a robust organization. While the Company plans to proactively conduct recruitment activities, the financial condition and results of operations of the Company may be affected by a failure in the recruitment, development, or retention of its employees.

Given this risk, to ensure a friendly and rewarding environment for the employees, the Company provides opportunities in which one can challenge and grow through the growth of the business, and continues to develop an attractive HR system. Employment of software development engineers is essential to the quality improvement of the Company’s services, hence the Company has established overseas development centers in addition to domestic recruitment activities, and will continue to strengthen development capabilities.

2. Establishment of internal control organization

The Company recognizes that appropriate corporate governance is indispensable for the continuous growth of the Company. The financial condition and results of operations of the Company may be affected by inappropriate business operations resulting from the failure to implement effective corporate governance in line with the rapid growth of the business.

Given this risk, the Company thoroughly works to ensure proper operations, the reliability of financial statements, and compliance with internal regulations and applicable laws and regulations.

3. Information security

The Company has established a strict information security management system to manage its own confidential information, and collect, store, and process confidential information and personal information obtained from customers in the course of business operations. The reputation of the Company and the financial condition and results of operations of the Company may be negatively affected by a leakage or abuse of information by Company employees or subcontractors.

Given this risk, the Company has obtained and maintained Privacy Mark and ISMS*1 certifications, provides repeated employee training, and implements other full-fledged measures for information management.

4. Lending of printing machines to a partner printing company

The Company has lent a total of three printing machines to a partner printing company for the purposes of training and research and development in production operations. Operators of the printing company have used the said printing machines for the actual production of printed materials. The loaned printing machines are insured to mitigate the risk of general damage and loss. However, a financial loss would be incurred in the case of damage or loss of the printing machines out of the scope of insurance coverage, such as damage or loss caused by willful or negligence of the partner printing company or by a natural disaster such as an earthquake, which may affect financial condition and results of operations of the Company.

Also, due to their size and weight, the industrial printing machines are not readily transferable, and transportation and installation costs may be substantial. Therefore, in the case of loaning the printing machines to another printing company due to the bankruptcy of the partner printing company, for example, material costs may be required for the recruitment of a receiving printing company and for transportation and installation, which may affect the financial condition and results of operations of the Company.

Given this risk, the Company has made efforts to understand production and management conditions of the partner printing company through regular visits by the production supervisor.

5. Investments and loans

For future business expansion, the Company may conduct investments and loans, such as investments in a domestic/international business, establishment of a subsidiary, development of a joint venture, formation of an alliance, and mergers and acquisitions. While the Company will conduct thorough evaluations of associated risks and potential returns prior to any investment or loan, it is not always possible to accurately predict the impact of such an investment or loan on Company business. Thus, the financial condition and results of operations of the Company may be affected by the impossibility of receiving a return on an investment or recovering a loan, or by the impairment of assets in the future.

Given this risk, investment decisions are made through careful consideration of the business model as well as alignment with the Company’s corporate vision, and continuous monitoring post investment.

(3) Risks relating to statutory regulations

1.Lawsuits

In the course of business operations, any unexpected trouble with a customer, business partner, or third party may result in a lawsuit. Depending on the nature and result of such a lawsuit, financial condition and results of operations of the Company may be affected. Also, major legal expenses and damage to the Company’s reputation associated with such a lawsuit may affect financial condition and results of operations of the Company.

Given this risk, to ensure compliance with applicable laws and regulations and contractual duties, etc., the Company has established compliance policies and reinforced internal education and compliance systems.

2. Protection of personal data

The Company retains personal data including information of registered users and is subject to the Act on the Protection of Personal Information. In the event of the leakage or abuse of personal information retained by the Company for any reason, such an incident may affect the Company’s financial conditions, results of operations, and reputation.

Given this risk, the Company has adopted a Privacy Policy and Personal Data Protection Regulations and has established an internal system for education and management.

3. Statutory regulations relating to the Internet and transportation

The Company’s business operations are subject to laws and regulations, including but not limited to the Telecommunications Business Act, Act Concerning the Prohibition of Unauthorized Computer Access, Act on Specified Commercial Transactions, Provider Liability Limitation Act, and Act on Regulation of Transmission of Specified Electronic Mail. As the “Hacobell” service offered by the Company is subject to the Consigned Freight Forwarding Business Act, the Company is registered as a First Class Consigned Freight Forwarding Business and operates the service under supervision of the Ministry of Land, Infrastructure, Transport and Tourism. Financial condition and results of operations of the Company may be affected by the enforcement of new laws and regulations in the future or the tightening of existing laws and regulations, resulting in tighter constraints on Company business. Furthermore, any future violation of laws and regulations resulting in the suspension or revocation of the First Class Consigned Freight Forwarding Business license or permit could prevent the continuation of the “Hacobell” service, which may affect financial condition and results of operations of the Company.

Given this risk, the Company complies with the said laws and regulations in its business operations and will continue its efforts in internal education and system development.

(4) Other

1. Dividend policy

The Company recognizes the importance of making an appropriate return to shareholders and has set a policy of appropriately distributing any surplus in light of the balance against internal reserves. However, the Company has prioritized the reinforcement of its internal reserves as it is still in the growth stage, and so no dividends have yet been paid as of October 22, 2021. The possibility and timing of any future distribution of dividends has not been determined.

2. Dilution of the value of shares

The Company has adopted stock acquisition right and restricted stock compensation plans. The Company considers these plans as being effective in raising the appetite for the improvement of Company business performance and a sense of participation in management among Company officers, employees, and external cooperators, and may continue to utilize such plans. The Company has also issued Euro Yen Convertible Bonds due 2024. Due to the above, the value and voting power of existing shares may be diluted with the exercise of stock options, issuance of shares related to the restricted stock compensation plan, and conversion of bonds to the Company’s shares.

3. Spread of COVID-19

Business challenges exacerbated by COVID-19 such as long-term stagnation of consumer spending due to global economic downturn, spread of COVID-19 amongst employees, downsize or shutdown of outsourcing companies’ operations, may affect the Company’s financial conditions and results of operations.

To mitigate the risk, the Company has implemented flexible working systems and consistent hygiene management to prevent the spread of infection to employees and will continue to take measures to prevent the spread while minimizing the impact on business operations, with the safety of the employees as the highest priority.

 [Term definition]
*1
ISMS (abbreviation for Information Security Management System):
A framework for evaluating the compliance of information security management systems with international standards for information security management. A third party certification body certifies that businesses and organizations are taking continuous measures to manage information security risks, avoid/mitigate risks, and establish and maintain management systems in compliance with international standards.