ZenmuTech, Inc.

While the information security market is expected to expand, it is difficult to estimate the pace of growth of the domestic market, and there is a risk of losing market share if the Company is slow to respond to the entry of competitors or to changes in the market. The Company is working to deepen research and development of new products and solutions and to enhance its proposal capabilities, but if it is unable to take effective countermeasures, this could affect its business performance.

In the information security field, it is difficult to acquire engineers with specialized technical skills and sales personnel well-versed in the industry and technology. If the Company is unable to secure sufficient appropriate personnel, or if excellent personnel leave the Company, this could affect the execution of management strategy. The Company strives to retain personnel through the improvement of the working environment, such as remote work, and through the appointment of a CWO (Chief Well-being Officer) to enhance employee well-being.

In the fiscal year ended December 2025, the secret sharing business accounted for a high 82.2% of revenue composition, indicating an extremely high degree of dependence on the mainstay service, ZENMU Virtual Drive. The Company is advancing OEM enhancement of ZENMU Engine and research and development of secure computation solutions, but if the relevant market contracts or if the Company's response to changes is insufficient, this could have a material impact on its business and business performance.

In the information security field, there is a risk that market needs may change rapidly due to new threats and technological innovation. If it becomes difficult to secure development funding, or if competitors develop superior technologies or products, the Company's products and services could become obsolete and lose competitiveness. The Company strives to maintain and improve its competitiveness through research and development by its technology development department and through collaboration with research institutions and presentations at academic conferences.

The Company is investing research and development expenses toward the development and commercialization of secret sharing technology and secure computation technology, but it is difficult to predict market trends, and if other companies develop superior technologies or products ahead of the Company, this could lead to product obsolescence and a shrinking sales share. In particular, for new technologies it is difficult to set research directions, and there is high uncertainty regarding the recovery of research and development expenses. The Company is advancing development based on joint research with the National Institute of Advanced Industrial Science and Technology, but if it is unable to contribute to earnings, this could affect its operating results and financial condition.

If a dispute arises with a third party regarding patent rights or other intellectual property rights, regardless of the validity of the claims, resolution could require a significant amount of time and cost. Similarly, if a third party infringes on the Company's technology, similar costs could arise, which could have a material impact on business strategy and business performance. Currently, the Company adopts a strategy of patenting and public disclosure for its secret sharing and secure computation technologies, using this as a source of competitive advantage.

Funds raised through the public offering are planned to be allocated to business expansion investments such as research and development expenses and personnel costs, but due to changes in the business environment, it may not be possible to allocate the funds as originally intended. Furthermore, even if the funds are used as planned, there is a risk that the expected investment effects may not be achieved, which could affect business performance.

Regarding stock acquisition rights granted as incentives to officers, employees, and external collaborators, the ratio of potential shares to the total number of issued shares as of the filing date of this document is 7.10%. If these stock acquisition rights are exercised, the value of shares held by existing shareholders and their voting rights ratio could be diluted. The Company appropriately monitors and manages this ratio through its capital policy.

As a result of recording net losses from the fiscal year ended February 2016 through the fiscal year ended December 2022, tax loss carryforwards continue to exist, which currently reduces the Company's corporate tax burden. If the business progresses smoothly and the tax loss carryforwards are exhausted, a tax burden based on the normal tax rate will arise, which could affect business performance and cash flow. Note that the Company's excess of liabilities over assets was already resolved through profitability in the fiscal year ended December 2023 and a third-party allotment of new shares.

The Company operates its business efficiently with a small-scale structure and has built internal controls suited to its current organizational structure, but there is a risk that if rapid business expansion occurs, appropriate human and organizational responses may not keep pace, resulting in delays in building internal controls. If deficiencies in internal controls occur, business operations could become difficult, which could affect business performance.