Fuva Brain Limited

In addition to the growing and increasingly complex information security threats, the pace of evolution of new technologies such as generative AI is extremely rapid, and if technology development and acquisition cannot keep up, this could lead to a decline in competitiveness in both the IT Tools Business and the IT Services Business. This may also hinder the realization of the "AI Guardian from Japan" concept set forth in the medium-term management plan. As a countermeasure, the Group is leveraging the recruitment and generative AI expertise of the newly acquired subsidiaries Youth Planet and ProofX to promote the development and acquisition of IT and AI talent.

In the IT Tools Business, competition with overseas security vendors and domestic manufacturers with similar concepts is intense, and in both the IT Services Business and the Recruitment Support & Staffing business, there are numerous competitors of varying scale. If competitors develop or acquire superior products or services, the Group's competitiveness may decline, potentially affecting business performance. The Group is strengthening product development capabilities and AI talent recruitment capabilities and differentiating itself through the acquisition of Youth Planet and ProofX as subsidiaries.

The IT Tools Business accounts for a high proportion of net sales, and the Group is highly dependent on its major sales partners, "OA equipment sales companies" and "SIers." If these major sales partners change their handling policies due to changes in their business or product strategies, this could directly impact business performance. The Group is addressing this through the development of new sales partners, direct sales to end-user companies, and diversification of its business structure through the acquisition of FXT, Youth Planet, and ProofX as subsidiaries.

The development and acquisition of IT and AI talent is the most critical issue for the expansion of the IT Tools Business and IT Services Business, and in particular, continuous talent acquisition is a prerequisite for business expansion in the IT engineer services. If it becomes difficult to secure personnel, this could lead to slower growth, and if talent flows out to competitors, the leakage of technical know-how could disrupt business activities. Through the acquisition of Youth Planet and ProofX as subsidiaries and the recruitment of a Chief AI Officer (CAIO), the Group is strengthening its group-wide framework for developing and acquiring IT and AI talent.

The Group positions M&A growth and investment growth as key growth factors and actively pursues M&A and strategic alliances; however, if effective investment opportunities cannot be found or the expected strategic effects are not achieved, business performance may be affected. In addition, if actual results fall significantly short of future plans, impairment of goodwill and other assets recorded in connection with M&A may become necessary. The Group strives to avoid such risks through rigorous due diligence.

Beginning in the current consolidated fiscal year, the Investment Business has been established as a new reportable segment, and profit contribution is expected from the sale of held shares through investment subsidiaries. However, if the value of held securities declines significantly due to stock market trends, deterioration of the macroeconomic environment, or poor performance of investee companies, recognition of valuation losses may become necessary. In addition, if share sales cannot be executed as planned due to market conditions or other factors, and the expected gains on sale of investment securities cannot be achieved, this may affect the business plan and performance.

As of the end of the current consolidated fiscal year, the number of consolidated employees was 251 (52 on a non-consolidated basis), a small scale, and if the development of internal management systems cannot keep pace with business expansion, appropriate business operations may become difficult. The Group recognizes ensuring the effective functioning of corporate governance as an important issue and is focused on the appropriate operation of internal control systems to ensure the appropriateness of business operations and the reliability of financial reporting. The Group is enhancing its organizational structure by strengthening recruitment, development, and product development capabilities through the acquisition of Youth Planet and ProofX as subsidiaries.

In the course of handling confidential information of user companies and partner companies as well as internal technical information, if confidential information is removed or leaked by related parties, this could damage the Group's reputation and affect its business and performance. The Group has taken measures such as concluding confidentiality agreements with employees, establishing operational systems and providing employee training, introducing security products, and utilizing support from external specialized organizations; however, these measures cannot reduce the risk of leakage to zero. In the event of an incident, the Group has established a response system in which a task force headed by the Representative Director is set up to respond.

The IT engineer services business is subject to the Worker Dispatching Act, and the recruitment support business is subject to the Employment Security Act. If the Group falls under disqualification criteria or violates laws and regulations, this could lead to a business suspension order. In addition, if restrictions are imposed on products or services due to legal amendments or the introduction of new regulations, the associated response costs and time may affect business performance. The Group continuously gathers information and analyzes the impact of trends in relevant laws and regulations, and incorporates regulatory analysis into feasibility assessments for new businesses as well.

If a user company that has implemented the Group's products experiences a security incident due to a cyberattack or other cause, this could lead to a decline in confidence in the Group's products and the development of legal proceedings such as damages lawsuits, potentially affecting the Group's business and performance. The Group takes measures such as utilizing malware databases from global security vendors and network appliances provided by global vendors, but complete prevention is difficult. Regarding litigation risk, as of the date of submission of this document, the Group is not a party to any litigation proceedings.