Major risk factors that may affect the Company’s business development are described below. In addition, we proactively disclose information that does not necessarily fall under the category of business risks but is considered important for investors’ investment decisions from the perspective of information disclosure to investors. The Company recognizes the possibility that these risks may arise and intends to avoid them or, if they do arise, to minimize their impact on the Company's business performance and financial position. Unless otherwise specified, the following forward-looking statements are subject to inherent uncertainties and are based on the company's judgment, which may differ from actual results.
Risks Related to Industry Environment
EdTech market
The need for EdTech in Japan has been increasing in recent years due to the development of IT technology and the trend toward paperless society. Demand from users for EdTech is expected to continue to increase due to the widespread use of smartphones and tablets. However, a significant slowdown or reduction in the needs or growth of these markets could affect our business and earnings.
Internet-related business
Focusing primarily on EdTech-related business, we believe that further improvement of the internet environment and expansion of internet use are necessary for the Company's business to continue to grow and expand. The Company's business and earnings could be affected; however, if there are significant changes in the expansion of internet use in the future due to the introduction of new regulations, technological innovation, or other unforeseen factors related to the use of the internet.
Impact of declining birthrate
The education industry faces the problem of a declining school-aging population due to a reduced birthrate. Combined with the declining birthrate, the increasing cost of learning for children, and the growing number of cram school establishments, the education industry is expected to face intensifying competition among its peers to attract more students.
Under these circumstances, the Company intends to develop its business to help children acquire "true academic skills that can be used for a lifetime" and realize that “hard work will pay off” and to support those who use the Company's services to open their cram schools to succeed in their operations; however, a rapid decline in the birthrate and a significant contraction in the overall education market may affect the Company's business and earnings.
Changes in the education system
The need for globalization and ICT (Information and Communication Technology) has increased in the education sector in recent years. Further changes in the environment are expected, such as the introduction of a new university entrance examination system, which is under consideration, and the educational needs of children and their parents are expected to diversify and become more individualized rapidly.
Under these circumstances, the Company is developing new technologies and acquiring new know-how to provide products and services that meet fragmented customer needs. However, if the educational environment and customer needs change more rapidly in the future than we can respond to, it could affect our business and earnings.
Risks Related to Business
Competition with other companies
The Company continuously enhances its competitiveness by providing distinctive services such as “Surala,” strengthening those functions, expanding the service portfolio, and reinforcing the management support system for cram schools, school corporations, and other educational institutes.
However, the Company's business and earnings could be affected by customer outflows and increased costs due to intensified competition from companies offering EdTech similar to the Company and new entrants to the EdTech market.
Business alliances with other companies
The Company works to expand its business through business alliances with other educational content providers. We aim to generate significant synergies by combining our content and business partners' content and business operation know-how; however, if anticipated effects are not achieved, or if these alliances are dissolved, our business performance may be affected.
Response to technological innovation
New technologies are being developed, and new services based on these technologies are being introduced one after another in the EdTech industry in which the Company operates. To respond to these changes, the Company focuses on hiring and training development staff and acquiring cutting-edge technologies, knowledge, and know-how. However, our competitiveness may decline if difficulties arise in acquiring such knowledge and know-how or if we are late in responding to technological innovations. Expenditures for additional system investments, personnel costs, and other expenses may increase to support new technologies, possibly impacting the Company's business and earnings.
Risks related to outsourcing partners
The Company outsources some operations, such as programming of content systems, and carefully manages the project progress to ensure that the subcontractors do not cause development delays or other negative impacts. However, if an event significantly impacts service provisions, such as a development delay, business failure, or a subcontractor's violation of laws or regulations, our business and operating results may be affected.
Ongoing capital investment for Business Expansion
The Company has made capital investments in system infrastructure in preparation for future growth in the number of users and accesses. However, if the number of users and accesses increases more rapidly than planned by the Company, capital investments and depreciation expenses may increase, which may affect the Company's business and earnings.
Changes in the number of school buildings and cancellations
While cram schools and school facilities introducing the Company's services are on the increase as a result of the increase in schools newly introducing the Company’s services due to advertising and sales activities, the Company's business and earnings could be affected if the number of new school facilities acquired falls short of plans or if the number of cancellations exceeds the Company's expectations due to a decrease in the number of independent cram schools or a slowdown of the introduction of "Surala" at cram schools and other facilities.
Changes in the number of IDs
The Company promotes activities to increase students through various management support programs for schools using its services, including cram schools, and the number of IDs using the Company's services tends to increase due to these activities; however, if the number of students does not increase even after the Company provides management support to the schools and the Company does not obtain the number of IDs as expected, the Company's business and financial results may be affected.
Cancellation by corporate clients
The Company promotes activities to increase contracts not only with private cram schools but also with corporate clients such as cram school operators and school corporations having multiple school buildings and a large number of students. We are encouraging these cram school operators and corporations to continue using "Surala" and other services by incorporating flipped classrooms using "Surala" into their educational curriculums.
However, if corporate clients with multiple school buildings and a large number of students switch to another company's services or cancel their contracts with us for other reasons in the future, the number of school buildings and IDs may decrease significantly, which may affect our business and financial results.
Recruitment and retention of human resources for the sales department
Recognizing the importance of recruiting and retaining excellent human resources in the sales division and training them to promote further business expansion in the future, the Company has conducted recruitment activities for new graduates and mid-career employees in a timely manner, while building HR systems and training programs to enhance the motivation of hired personnel. Still, since our sales division is currently small and each person has many roles, our business and earnings could be affected if we cannot hire new personnel as planned or if existing personnel leave the company.
Software development
The Company has been developing new services and adding functions to enhance its competitive advantage and is expected to continue to increase its software assets to improve service quality and expand its product lineup.
If the Company needs to develop more software in the future than it expects, an increase in depreciation and amortization expenses may squeeze profits, and an impairment loss may be incurred if the Company cannot generate the anticipated revenue and an operating loss is recorded. The Company has outsourced some development work, and may incur costs and losses related to software modifications if problems arise with the quality of deliverables from the contractors. Any of these events may arise, the Company’s business and earnings could be affected.
System Failures
The Company provides services through information systems and communication networks. The Company has taken the following measures to reduce the probability of system troubles.
- Thoroughly conduct verification before releasing new services
- Balance the load on the servers in the data center operated by the outsourced company and backup them daily in case of failure.
- Outsource the maintenance, operation, and management of servers to an external specialized company and establish a framework whereby the outsourced company notifies our system operation personnel of any sign of a failure identified or any failure that actually occurred.
In the event of any of the following system failures, however, our services may be suspended, which may affect the business performance.
- Unable to use communication networks and servers due to power shortages, disasters, accidents, etc.
- Infection with computer viruses or unauthorized access
- Malfunction or failure in software or hardware
Risks Related to Legal Regulations
Legal regulations
The Company’s business is subject to legal regulations, including under “Act on the Protection of Personal Information,” “Act on Prohibition of Unauthorized Computer Access,” “Act on Specified Commercial Transactions,” “Act on Regulation of Transmission of Specified Electronic Mail,” ”Act on the Limitation of Liability of Specified Telecommunications Service Providers for Damages and the Right to Demand Disclosure of Sender Identification Information,” and ”Telecommunications Business Act.” The Company has developed and strengthened a system to comply with these laws and regulations by establishing an internal management system. However, if the Company should receive any administrative punishment for violating these regulations, etc., due to unforeseen circumstances, or if these laws and regulations are strengthened in the future or new laws and regulations are established that restrict the Company's business, the Company's business and earnings may be affected.
Personal information management
The Company possesses personal information related to students, business partners, employees, shareholders, and others that use the Company’s services. We have taken all possible measures to manage personal information by developing internal regulations, providing training and guidance to employees, and acquiring JSMS (JIS Q 27001) in February 2021. However, if personal information is leaked to outside for some reason, our business and earnings could be affected due to a loss of public trust in the Company.
Risks Related to Intellectual Property rights
The Company works on acquiring intellectual property rights related to content and services it operates, and, to the extent that it can investigate, takes measures not to infringe on any intellectual property right of third parties. However, if intellectual property rights we do not recognize have already been established in our business field, or if any third party acquires rights in our business field in the future, the third party may sue us for damages or an injunction against using our intellectual property. We may also be required to pay royalties and other compensation related to the rights and our intellectual property may be infringed. In such cases, our business and earnings may be significantly impacted.
Risks Related to Corporate Management Framework
Dependence on Takahiko Yunokawa, CEO
Takahiko Yunokawa, the founder of the Company, has served as the Chief Executive Officer since its establishment. Having considerable experience and knowledge in launching new businesses, including EdTech, and providing management support to clients, he plays a vital role in determining and executing management policies and business strategies.
The Company is working to develop a management structure that does not overly rely on him by information sharing of directors and executives at Board of Directors meetings, etc. and strengthening the management organization. Nevertheless, if he were unable to continue working for the Company for any reason, it could impact the Company's business and earnings.
Management system in a small organization
The Company operates as a small organization with two directors, three directors who are members of Audit and Supervisory Committee, and fewer than 100 employees. The Company put internal control system in place according to its organizational size. Responding to future expansion and diversification, the Company intends to increase its workforce and enhance its internal management system. However, if these measures do not proceed timely and appropriately, the Company's business activities may be hindered, and its business and earnings may be affected.
M&A, etc.
In January 2022, the Company acquired Fantamstick, Ltd. as a subsidiary, which is expected to eventually significantly contribute to the group’s business performance. However, if the post-acquisition performance deviates from the business plan projected at the time of acquisition due to changes in the business environment or other factors, there is a risk of impairment of goodwill and shares of affiliated companies, which may affect our business and performance.