Neural Group Inc.

The Group's business is centered on proprietary AI algorithm-based image and video analysis technology, making it essential to maintain and strengthen technological competitive advantage. If the Group fails to respond promptly to technological innovation, or if development costs and other expenses significantly exceed expectations, this may affect its business results. As countermeasures, the Group has built a system for keeping abreast of the latest technology trends through the recruitment and development of talented engineers, participation in external events, and holding of technical study sessions.

The number of highly skilled engineers specializing in AI is limited both in Japan and overseas, and competition with other companies arises in acquiring talented personnel. If the Group is unable to secure and develop personnel as planned, or if talent outflow progresses due to changes in the labor market or business environment, this could become a factor constraining competitiveness and business expansion, thereby affecting business results. The Group has established an English-language AI development framework to build a system for recruiting talented engineers from overseas, and is also working to create a comfortable working environment.

The Group is actively promoting the rollout of new services and new businesses across a wide range of industries, and profit margins may decline due to additional expenditures such as system investments and personnel costs. If the expansion and growth of new businesses do not proceed as initially expected, this poses a risk of affecting the Group's business and results of operations. While the Group's policy is to expand into multiple industries by leveraging the versatility of its algorithm modules and software, uncertainty regarding the recovery of investment is a constant risk.

The Group is considering M&A, capital investments, and the establishment of subsidiaries both in Japan and overseas as options for business expansion. If costs are incurred in the course of consideration, if unexpected events come to light after execution, or if the business of an investee does not proceed as planned due to changes in the market environment, this could result in an inability to recover investments or the recognition of impairment losses, thereby affecting the Group's operating results and financial position. The Group's policy is to conduct detailed prior examination of business, financial, and legal matters to reduce such risks.

The Group has a total of four subsidiaries: two domestic companies (Neural Engineering Co., Ltd. and Neural Marketing Co., Ltd.) and two Thai companies (Neural Group (Thailand) Co., Ltd. and Neural Solutions (Thailand) Co., Ltd.). As the period since these companies came under the Group has been short and their business scale is small, there is a possibility that the development of management systems may not keep pace with rapid business growth. If inadequacies in management systems result in legal violations or deficiencies in licensing procedures, this poses a risk of affecting the Group's business and results of operations. The Company's supervising divisions are working to strengthen management systems, including internal controls.

The Group may hold confidential customer information and personal information through its business activities, and if information leakage occurs due to human operational error or unforeseen circumstances, the Group could bear liability for damages and its business relationships could deteriorate due to loss of customer trust. The Group has established information security management regulations and strives for appropriate operation, but complete prevention is difficult.

Michitake Shigematsu, Representative Director and President, has been the Company's leader since its founding, and he and his asset management company are also major shareholders holding 56.49% of the total number of issued shares. He plays an important role in management strategy, business strategy, and development strategy, and if he becomes unable to perform his duties for any reason, this could have a significant impact on the Group's business and results of operations. The Group is working to reduce this dependence through delegation of authority to the heads of each business division and through personnel development.

The Group is considering overseas business expansion going forward, and a wide range of risks exist, including exchange rate fluctuations, economic trends and political instability in the countries of expansion, and changes in laws and regulations. If unforeseeable risks materialize, this may affect the Group's operating results and financial position. While the Group's policy is to proceed with business expansion after taking sufficient countermeasures, its business is currently centered on Japan, and its track record in managing overseas risks remains limited.

The domestic AI business market is forecast to expand 3.7-fold in FY2028 (ending March 2028) compared to FY2023 (ending March 2023), but if the pace of growth slows or market share shifts rapidly due to new entrants by major companies, this may affect the Group's business and results of operations. There is also a constant risk of reduced competitiveness due to an increase in competing services or the emergence of superior competitors. The Group is continuously working to expand its business and maintain and strengthen its competitiveness.

As the Group's business is centered on the collection and analysis of image data, if amendments to the Copyright Act restrict the use of publicly available image data, or if regulations under the Act on the Protection of Personal Information are tightened, this may affect the Group's business and results of operations. Currently, the Group extracts and analyzes only attribute information that cannot identify individuals and judges that this is not subject to the Act on the Protection of Personal Information; however, laws and regulations both in Japan and overseas are continually being reviewed. The Group is proceeding with operations in compliance with the "Camera Image Utilization Guidebook" formulated by the Ministry of Economy, Trade and Industry and the Ministry of Internal Affairs and Communications.