Sobal Corporation

If the Group is unable to adequately secure and develop the technical personnel who form the foundation of the engineering business, its ability to respond to customer needs may decline, affecting business performance. The Group addresses this through new graduate and experienced hire recruitment as well as technical training and health management promotion, but the risk of personnel shortages during business expansion phases remains an ongoing challenge.

Since the majority of the Group's cost of sales consists of labor costs, if increases in labor costs cannot be passed on to contract amounts, profitability will directly deteriorate. While the basic policy is to absorb such increases through revenue growth, if pricing negotiation power proves insufficient, this could affect business performance and financial condition.

Contract amounts are affected by economic conditions, competition with peer companies, and the degree of responsiveness to technological innovation, and may decline due to changes in the business environment or a decline in competitiveness. While the Group strives to maintain stable transactions with existing customers and acquire new customers, in periods of intensifying competition, downward pressure on prices could affect business performance and financial condition.

If quality issues occur in contracted software development, product design, maintenance services, and other offerings, additional response costs and damages liability may arise, affecting business performance. The Group strives to prevent unprofitable projects through thorough project management from the inquiry, quotation, and order-taking stages and by strengthening project management capabilities, but complete elimination is difficult.

If personal information or specific personal information is leaked, this could lead to damages claims as well as a significant impact on business activities due to a decline in social credibility. The Group conducts strict management through the appointment of management officers, the establishment of basic policies, and obtaining Privacy Mark certification, but the risk of leakage cannot be entirely eliminated.

If confidential information such as customer information or product development information handled in the course of business is leaked externally, this could damage credibility and corporate image, affecting business performance and financial condition. The Group addresses this through strengthened physical security, security policy training, and the formulation and dissemination to all employees of a policy on the use of generative AI, but threats such as cyberattacks are ever-present.

Part of the engineering business falls under the worker dispatch business, and there is a risk of a business suspension order being issued due to falling under disqualification grounds or violations of laws and regulations. Additionally, amendments to the Worker Dispatch Act or increased regulation could have an unfavorable impact on the Group. The Group strives to comply with relevant laws and regulations, but continuous monitoring of regulatory trends is essential.

In the event of product quality defects or a recall, there is a possibility of a significant decline in customer trust and liability for damages exceeding expectations; while the Group addresses this through product liability insurance, this may not cover all risks. Additionally, if the Group unintentionally infringes on a third party's intellectual property rights, this could result in damages claims, injunctions against use, and payment of consideration, affecting business performance and financial condition.

In promoting AI-related businesses, if market analysis and service development take longer than expected, or if the cost of acquiring necessary resources exceeds projections, business development may not proceed as planned, resulting in losses. Suppression of corporate capital investment due to economic downturns could also hinder the business from becoming established. The Group strives through active sales activities and enhanced services, but uncertainty regarding profitability remains.

In M&A and business alliances aimed at expanding the scope of business, even after conducting due diligence, unexpected liabilities may come to light, or changes in the business environment or competitive landscape may disrupt business plans. There is a risk that unexpected costs arising in the post-acquisition integration process or failure to achieve performance targets could affect the Group's financial condition.