PKSHA Technology Inc.

The Group's services, centered on machine learning, deep learning, and natural language processing, are exposed to rapid technological innovation, including dramatic improvements in the performance of large language models. If technological innovation exceeds expectations or general-purpose competing products emerge, causing a decline in the competitiveness and added value of the Company's services, this could result in a decrease in new orders and a decline in the high customer retention rate, potentially having a material impact on business performance. The Group addresses this through providing solutions that combine its proprietary related technologies and through an inbound-centered order-taking system.

The Group has made subsidiaries of companies including Itec Co., Ltd. (subsidiary since July 2019), PKSHA Associates Co., Ltd. (May 2021), PKSHA Communication Co., Ltd. (June 2021; absorbed by merger in July 2025), Triumph Co., Ltd. (May 2024), and Circulation Co., Ltd. (August 2025), and positions M&A as a pillar of its growth strategy. If the performance of each subsidiary falls short of initial expectations due to changes in the business environment or other factors, goodwill impairment could occur, potentially affecting the overall performance and financial position of the Group.

The Group's business foundation depends on highly specialized personnel, namely algorithm engineers and software engineers, and continuous recruitment and development of such personnel is essential as the business expands. If recruitment and development do not proceed as planned in the highly competitive specialized talent market, the Group's ability to develop and provide services could be constrained, potentially affecting its business and performance.

Representative Director Katsuya Uenoyama possesses specialized knowledge and technical expertise in management strategy, business strategy, and development strategy, and plays an important role in Group operations. If he were to leave the Company, this could affect the Group's business and performance, and the high degree of dependence on a specific individual represents a management risk. The Group is addressing this by strengthening its organizational structure through information sharing at the Board of Directors and delegation of authority.

Due to the nature of its operations, the Group frequently has access to confidential information related to customers' management strategies, and has established information management regulations and personal information protection management regulations that require appropriate operation. However, if an information leak occurs due to human operational error or other unforeseen factors, this could result in the Group bearing liability for damages or suffering a loss of customer trust, damaging business relationships and potentially having a material impact on the Group's business and performance.

Most of the cloud software provided by the Group depends on internet communication networks, and there is a risk that service provision could be halted in the event of network disconnection due to natural disasters or accidents, or server downtime caused by a sudden surge in access. Although no major system failures have occurred to date, if stable service provision becomes difficult, this could lead to customer attrition and adversely affect the Group's business performance.

Currently, there are no laws or regulations that directly regulate the Group's internet-related business; however, if new laws targeting internet users, services, or businesses are enacted, existing laws are clarified in application, or self-regulatory rules are introduced, the Group's business activities could be constrained. As discussions on regulation of AI and natural language processing technologies progress both domestically and internationally, changes in the regulatory environment pose a risk of affecting the Group's business and performance.

While the Group's related markets are expected to grow due to increasing demand for corporate management efficiency amid a declining working population, if an economic downturn leads companies to curtail IT investment or shift investment toward other new technologies, the business environment could deteriorate, potentially affecting the Group's performance and financial position.

In addition to the financial, retail, and call center markets, the Group is actively pursuing entry into new industries and the rollout of new services across a wide range of sectors, and additional expenditures such as system investments and personnel costs could reduce profit margins. If the expansion and growth of new businesses fall short of initial forecasts, the recovery of investment could be delayed, posing a risk of adverse effects on business performance.

The Group takes measures to address potential infringement of third parties' intellectual property rights to the extent it is able to investigate; however, it is difficult to fully identify third parties' patent rights and other intellectual property in the AI and machine learning fields, and there remains a risk of unintentionally infringing on other companies' patents. If infringement is found, the Group could be required to pay royalties or face claims for damages, potentially affecting its business development, performance, and financial position.