Brains Technology,Inc.

In the IT industry where the Company operates, the pace of technological innovation is rapid, and maintaining the competitiveness of services utilizing machine learning, deep learning, and natural language processing technologies is a challenge. If rapid technological innovation exceeding expectations or the emergence of alternative technologies or generic competing products occurs, and the Company's services are unable to secure sufficient competitiveness or added value, this could lead to a decline in new orders received or a decrease in contract renewal rates. The Company addresses this by combining leading open technologies with its proprietary technologies and continuously monitoring market trends.

The AI system market is a field expected to grow in the future, and new entrants, both domestic and overseas, may enter the market. While the Company currently believes it has secured an advantage in terms of implementation track record, patents held, and know-how, if it is unable to achieve sufficient differentiation or if competition intensifies, this could affect the Company's business and results of operations. The Company addresses this by accumulating a track record ahead of competitors and establishing an early position within the market.

While rapid expansion of the AI system market is anticipated, it may be affected by corporate economic trends and investment trends in other new technologies. If the business environment deteriorates due to changes in economic conditions, this could affect the Company's business and results of operations. The Company enhances its resilience to fluctuations in the external environment through a combination of cloud-based and on-premise offerings, as well as subscription and purchase models.

The Company's service development relies heavily on the technical capabilities of its employees (engineers). If the training of personnel in line with business expansion or the recruitment of excellent talent from outside the Company does not proceed as planned, this could adversely affect the execution of the growth strategy. There is a similar risk if excellent personnel leave the Company. The Company strives to secure personnel and prevent turnover through active recruitment activities, in-house training, and the development of a comfortable working environment.

Representative Director and President Sawako Saito, as the founder, has played an important role in formulating and driving management policy and business strategy since the Company's establishment. If it becomes difficult for her to perform her duties for any reason, this could affect the Company's business and results of operations. The Company is promoting the development of an organizational structure that reduces dependence on a specific individual by advancing information sharing and delegation of authority to management executives; however, the degree of dependence remains high at present.

Due to the nature of its business, the Company may come into contact with confidential information important to customers' management strategies. If an information leak occurs due to unforeseen factors such as human operational errors, the Company may bear liability for damages, or the business relationship may deteriorate due to loss of customer trust. The Company addresses this by establishing information management regulations and personal information protection management regulations and mandating their appropriate operation; however, it is difficult to completely eliminate this risk.

The Company's cloud-based software services depend on internet communication networks, and services may be suspended due to communication interruptions caused by natural disasters or accidents, overload from a sudden increase in access, or server downtime at cloud service providers. If a service suspension occurs, this could affect the Company's business and results of operations. The Company implements technical measures such as ensuring system redundancy and monitoring operational status, and to date, no significant failures have occurred.

The Company invests in software to strengthen and maintain its market competitiveness, and records production costs recognized as certain to generate future revenue or reduce future expenses as intangible fixed assets (software). If rapid changes in the market or competitive situation render such assets unusable, or if a decline in profitability makes recovery of the invested amount unlikely, this could result in disposal or impairment, affecting the Company's business and results of operations. While the Company carefully assesses marketability at the time of development, the risk of sudden changes in the external environment remains.

It is difficult to fully grasp third parties' intellectual property rights related to the Company's business domain, and the possibility that the Company may unknowingly infringe on another company's patents cannot be denied. If infringement occurs, this could affect the Company's business and results of operations through royalty payments or damage claims. The Company addresses the possibility of third-party intellectual property rights infringement to the extent investigation is possible, while also striving to protect the intellectual property rights of its own differentiated technologies and know-how.

Because the content of performance obligations differs for each transaction in AI services, judgments regarding revenue recognition according to contract form and the substance of transactions require complex accounting determinations. If this judgment cannot be appropriately made for any reason, there is a possibility that the results of operations and financial position may not be accurately reflected. The Company works to identify performance obligations and appropriately recognize revenue through the development and operation of internal controls.