Datasection Inc.

The Company has issued stock acquisition rights for officer and employee incentives and fundraising purposes, and the number of potential shares outstanding at the end of the consolidated fiscal year under review was 38,737,100 shares, equivalent to 130.1% of the 29,769,051 shares of total issued shares. If these stock acquisition rights are exercised, the per-share value of the Company's stock may be significantly diluted. The level of potential shares exceeding the total number of issued shares poses a particularly large impact on existing shareholders.

In addition to the rapid increase in foreign-currency-denominated transaction volume, the financial statements of overseas subsidiaries are prepared in local currencies and translated into yen when preparing the consolidated financial statements, resulting in a structure that is highly susceptible to the effects of exchange rate fluctuations. Sharp exchange rate movements or significant divergence between assumed and actual rates may affect the financial position and operating results. Although the parent company leads risk control efforts such as unifying settlement currencies, complete avoidance is difficult.

Continuous capital expenditure and M&A activities have led to an accumulation of balances in tangible fixed assets and intangible fixed assets, including goodwill. Impairment testing is conducted when signs indicating difficulty in recovering book value are identified, and if sufficient future cash flows are not expected, recognition of an impairment loss becomes necessary, which may materially affect the financial position and operating results. Although the Company strives to avoid this through selection and concentration via business portfolio management, the risk continues to exist given the active pursuit of M&A.

The AI and data analytics fields are subject to successive developments of new technologies and are extremely fast-changing industries, creating a risk that acquiring the necessary knowledge and know-how may become difficult. Delays in responding to technological innovation could lead to a decline in competitiveness and affect the financial position and operating results. Although the Company is strengthening engineer recruitment and development, improving the work environment, and prioritizing the acquisition of AI and data analytics technologies as its most critical challenges, keeping pace with rapid technological change remains an ongoing challenge.

The AI domain in which the Group operates is undergoing rapid technological evolution, and customer needs are also changing rapidly. Failure to respond appropriately and in a timely manner to changes in customer needs may affect the financial position and operating results. This risk is closely linked to the technological innovation risk, and agile responsiveness to changes in the market environment is required.

With a small workforce, securing highly skilled personnel capable of immediate contribution is essential for business expansion, but competition for talent in the AI and data analytics fields is intense. Failure to retain, secure, and develop personnel, or the unexpected departure or resignation of officers or employees, could constrain business expansion and affect the financial position and operating results. Although the Company is actively engaged in recruitment activities, its small organizational size increases dependence on specific individuals, heightening this risk.

The Company's business foundation is heavily dependent on internet communication networks, and if a system outage or information leakage occurs due to a cyberattack, the provision of services to customers may be disrupted, affecting the financial position and operating results. Although preventive measures such as monitoring of operational status are implemented, it is difficult to completely prevent large-scale system failures or information leaks. Given the nature of a business model that handles customer data, information security incidents also carry the risk of directly damaging trust.

The Company actively pursues investments in and consolidation of companies with business synergies, conducting detailed due diligence and PMI; however, if investees, subsidiaries, or new businesses fail to progress as planned and their business conditions deteriorate, this may affect the financial position and operating results. As global M&A expansion continues, the number of consolidated subsidiaries subject to management is also on an increasing trend, raising the complexity of integrated management.

The Group operates seven overseas consolidated subsidiaries and conducts business globally, making it susceptible to the effects of geopolitical risks in each region. If geopolitical risks materialize, they could affect the continuity of local operations and asset values, adversely affecting the financial position and operating results. Although geopolitical risk is examined when constructing the portfolio, there are limits to responding to unpredictable changes in the political and security environment.

The Company's business activities, including those in the AI and data analytics fields, are subject to various legal regulations, and the Company strives for compliance in cooperation with external experts such as attorneys. If laws and regulations are amended or newly enacted, or if the Group violates them, the Group may face restrictions on business activities or sanctions, affecting the financial position and operating results. As legal frameworks concerning AI regulation continue to develop both domestically and internationally, the impact of changes in the regulatory environment on the business model may expand further in the future.