GarageBank Corporation positions compliance with laws and the strengthening of internal controls as priority management issues for the sustainable enhancement of corporate value. We provide ongoing training to all officers and employees to confirm that operations are conducted in line with applicable laws and internal regulations, and we maintain and improve our compliance framework through regular reviews.
If competitors offer services similar to cashari, our principal sale-and-leaseback service, intensifying market competition could raise customer acquisition costs and reduce profitability, forcing us to revise our business strategy and adversely affecting our results and financial position.
To address this risk, we are working to establish our business foundation at an early stage, and we have obtained a patent on the system that delivers the entire workflow from valuation and application to contract management within the app, creating a barrier to entry against similar services offered by third parties. In addition, following our becoming a wholly owned subsidiary of Komehyo Holdings Co.,Ltd. in July 2026, we are advancing collaboration with the sales channels and appraisal expertise the group holds in the secondary distribution market, shifting toward a structure in which the source of our competitive advantage does not rest on the patent alone.
On the other hand, a patent protects a specific technical implementation and does not preclude entry into the business domain itself. The possibility therefore remains that similar services using different methods, or operators with greater financial resources, may enter the market.
Accounts receivable, our principal trade receivables, are exposed to the risk of non-collection or delayed collection arising from deterioration in customers' creditworthiness. Our users are primarily individuals, and if delinquent receivables or bad debts increase due to changes in economic conditions or the employment environment, our results and cash flows could be affected through additional provisions for doubtful accounts and similar measures.
To address this risk, we have established periodic reviews of credit limits in accordance with our credit management rules, together with a framework for identifying and responding to overdue receivables on an individual basis. In addition to eKYC (online identity verification) and AML (anti-money laundering) controls applied when a transaction begins, we operate a proprietary credit model that combines multiple data sources, including movable-asset portfolios, and work to reduce credit risk by improving screening accuracy.
Our service is structured so that we acquire the customer's movable property and lease it to the customer, which may mitigate losses in the event of non-collection compared with unsecured credit. Its effectiveness, however, depends on the market price and recoverability of the movable property concerned.
We procure the funds to acquire the movable assets associated with our sale-and-leaseback business primarily through borrowings from financial institutions, the issuance of bonds, and capital increases. If we are unable to raise funds in a timely manner on our preferred terms due to changes in financial market conditions or our financial position, or if funding costs for working capital and refinancing rise as market interest rates increase, our operating results and financial position could be affected.
Following our becoming a wholly owned subsidiary in July 2026, we are able to draw on a funding base supported by the creditworthiness of our parent company, Komehyo Holdings Co.,Ltd., and our level of liquidity risk has declined compared with the period in which we relied on standalone funding.
On the other hand, if our dependence on intra-group funding increases, our parent company's financial policies and capital allocation decisions will bear on our funding plans. We intend to continue securing funding through the liquidation of movable assets (small movable goods and vehicles) and to diversify our funding methods.
We determine the valuation price of movable property acquired from customers based on our own standards. If valuation prices diverge from actual conditions in the secondary distribution market, overvaluation could result in a shortfall in proceeds at the time of sale, while undervaluation could lead to lower customer satisfaction and lost opportunities for use, adversely affecting our results and financial position. Errors in authenticity assessment could also lead to losses from acquiring counterfeit goods, legal issues, and reputational damage.
To address this risk, we combine proprietary valuation expertise with machine-learning models to operate automated valuation technology that determines the value of items from image data, and we have built a mechanism that continuously monitors price trends in the secondary distribution market and reflects price movements in valuation terms. In addition, having become a wholly owned subsidiary of Komehyo Holdings Co.,Ltd., we are now able to draw on the appraisal knowledge and market price data accumulated by the group, whose principal business is the buying and selling of pre-owned goods, and we are advancing initiatives to improve authenticity assessment and valuation accuracy.
Our service is provided over the internet, and stable system operation is a prerequisite for delivering it. We are reinforcing server infrastructure, strengthening security measures, and developing our management framework, including 24-hour unattended monitoring. We have also obtained ISO/IEC 27001:2022 and JIS Q 27001:2023 certification for our information security management system, which we continue to operate and improve.
Nevertheless, we cannot rule out the possibility of unforeseeable system failures or network disruptions caused by program defects, unauthorized access or cyberattacks, communication line failures, natural disasters, or similar events.
We handle personal information, including identity verification documents. If such events were to cause a prolonged service outage or a leak of personal information, our operating results and financial position could be affected through lost opportunities, damage to our social credibility, compensation for damages, responses and reports to supervisory authorities, and recovery costs.
We recognize that investment in systems and infrastructure ahead of business growth is necessary to maintain stable service operation and improve customer satisfaction. If the number of customers increases significantly beyond our initial projections, expanding facilities and accelerating software development could result in an investment burden exceeding our initial plans.
In addition, if development is delayed as its scale expands rapidly, if outsourcing costs rise sharply, or if customer retention commensurate with our investment does not progress as expected, our operating results and financial position could be adversely affected through higher expenses and the recognition of impairment losses on fixed assets. We intend to avoid excessive dispersion of development resources by prioritizing investment projects and monitoring their progress on a regular basis.
Securing, developing, and retaining personnel with specialized knowledge and skills is extremely important to our continued business expansion. If we are unable to secure or develop personnel when needed because of intensifying competition for talent, or if attrition progresses, this could reduce operational efficiency and delay service development, affecting our competitiveness and operating results. Increases in recruitment costs and personnel expenses could also put pressure on profits.
Furthermore, we are currently in a transitional period for our organizational framework following our becoming a wholly owned subsidiary, and we anticipate an increase in work such as developing internal controls and handling financial closing and disclosure as required of a member of a listed parent company's group. We will work to ease concentrations of workload and to retain personnel by revising our evaluation and compensation systems, promoting the delegation of authority, and standardizing business processes.
A small number of core personnel — our management team, including the Representative Director, together with individuals who hold advanced expertise in specific specialized fields — each play a central role in determining management policy, formulating business strategy, developing systems, designing our credit and valuation frameworks, and negotiating with important external counterparties.
We are building a framework to reduce dependence on specific individuals by thoroughly sharing information with directors and senior staff at meetings of the Board of Directors, promoting the delegation of authority, standardizing and documenting operations, and ensuring that key operations are staffed by more than one person. In addition, we expect our framework for management continuity to be strengthened by the dispatch of directors from our parent company following our becoming a wholly owned subsidiary and by the complementary functions of group management.
Nonetheless, the accumulation of our distinctive business expertise and the advancement of business development still depend to a considerable extent on specific personnel. If these core personnel were to become unable to continue in their roles for any reason, our operating results and financial position could be affected through delays in decision-making and in advancing our business strategy, the loss of expertise, and similar consequences.