FLECT Co., Ltd.

The Company's net sales depend to a certain extent on development utilizing Salesforce products, and if Salesforce, Inc. changes its business strategy, withdraws from the Japanese market, experiences application failures, raises usage fees, or similar events occur, this could have a material impact on the Company's financial position and business results. As a countermeasure, the Company is promoting multi-cloud strengthening by expanding into areas such as Okta, Databricks, and AWS, but the current level of dependence remains high.

The Company's business is founded on the technical capabilities of its engineers, and the stable securing and development of excellent talent forms the foundation of business continuity. If recruitment and training do not proceed as planned due to intensifying competition in the labor market, or if the outflow of existing employees to other companies accelerates, this may constrain the Company's ability to maintain its service provision structure and expand its business. The Company is promoting measures such as enhancing job attractiveness through the use of cutting-edge technology, enriching internal education systems, and disseminating information through technical blogs, but the risk continues to exist.

The cloud/AI market in which the Company operates has continued to grow rapidly, but if an unexpected slowdown in growth occurs due to deterioration in domestic and overseas economic conditions or business trends, the number of new contracts and business negotiations may decrease, potentially impacting the Company's financial position and business results. The Company aims to capture a certain market share through the expansion of its products and sales organization, but structural vulnerability to changes in the external environment remains.

In the cloud/AI market, the development of new technologies and the introduction of new services occur frequently, and if the Company is slow to respond to unexpected rapid technological changes, this could result in a decline in competitiveness or require unplanned system investments, potentially impacting the Company's financial position and business results. The Company has established a research and development department to conduct research on information technology and development technology, but there is a risk that the response may not be able to keep pace depending on the speed of technological change.

In the Cloud Integration Service, unexpected defects or similar issues may cause a significant increase in development man-hours, potentially resulting in unprofitable projects. Although the Company implements personnel management, progress management, and budget management, if a gap arises between customer requirement specifications and estimated man-hours, profitability may deteriorate significantly.

In the course of its business, the Company handles a large amount of personal information and other information assets belonging to numerous client companies, and if important information is leaked externally for any reason, this could result in a loss of social credibility or the occurrence of liability for damages, potentially impacting the Company's financial position and business results. The Company has formulated a basic information security policy and conducts regular training for officers and employees, but external threats such as cyberattacks are always present.

Representative Director and CEO Koji Kurokawa, as the founder, plays an important role in formulating business strategy and leveraging his network in the industry, and the Company itself recognizes that its current level of dependence on him is high. If, for any reason, he becomes unable to carry out his duties, this could impact the Company's financial position and business results. The Company is working to strengthen its management structure, develop management executives, and establish a clear division of duties, but resolving this dependence will take time.

For projects in which revenue is recognized on an acceptance basis, changes in delivery timing may cause revenue and profit recognition to shift to the following quarter or the following fiscal year, potentially causing fluctuations in business results for each period. In addition, because acceptance inspections are concentrated among companies with a March fiscal year-end, the Company's earnings structure is weighted toward the second half of the fiscal year, and if orders for new or additional contracts decrease, the impact on business results will be greater.

In the cloud integration market, there are competing companies of all sizes, both large and small, and if competitors' technical capabilities improve rapidly or price competition intensifies due to similar services, this could result in the loss of sales opportunities and impact the Company's financial position and business results. The Company strives to maintain its competitiveness by strengthening multi-cloud and multi-AI capabilities, enhancing the technical capabilities of its engineers, and improving service quality.

The number of potential shares related to stock acquisition rights granted as incentives to officers, employees, and others is 307,760 shares, representing a dilution factor of 5.0% relative to the total number of issued shares of 6,197,920 shares. If these stock acquisition rights are exercised, the value of shares held by existing shareholders and their voting rights ratio may be diluted.