Hutzper Inc.

When providing solutions to client companies, the Company has opportunities to temporarily acquire or access confidential information and personal data, and there is a risk that information leakage may occur due to human operational errors or other causes. In the event of a leak, the Company may incur liability for damages or suffer a deterioration in business relationships due to loss of client trust. As countermeasures, the Company has obtained ISMS certification and is working to establish and appropriately operate various regulations related to information management.

The AI-related market in which the Company operates has been performing favorably due to technological innovation and accelerating DX, but there is a risk that market growth may slow due to external factors such as the introduction of new laws and policies concerning AI technology or a reduction in client companies' AI-related investments caused by economic fluctuations. A slowdown in market growth rate may directly affect the Company's financial position and business results.

In the AI-related market, the pace of technological innovation and changes in client needs is rapid, and the number of new entrants is also on an increasing trend. If the Company is unable to respond in a timely manner to technological innovation and changes in client needs, or if responding requires substantial expenses such as system investment and personnel costs, this may affect the Company's financial position and business results. The Company is addressing this by building a system to grasp the latest technology trends and by securing and training excellent personnel.

The AI-related market in which the Company operates is characterized by a rapid pace of technological innovation, and there is a risk that the Company may be unable to maintain sufficient technological advantage due to technological innovation exceeding expectations or the emergence of discontinuous alternative technologies. Loss of technological advantage may affect the Company's financial position and business results through a decline in customer acquisition capability. The Company strives to address this through securing diverse talent and building its development structure.

The manufacturing industry, the Company's main customer base, constitutes an enormous market accounting for 18.8% of nominal GDP, and the factory digitalization market is expected to expand from a projected ¥1,918.0 billion in FY2025 to a projected ¥2,180.0 billion in FY2030. However, if the manufacturing industry itself experiences a business downturn or delays in DX promotion, this may affect the Company's financial position and business results.

As of the end of the fiscal year under review, the number of employees was a small 68, and there is a risk that appropriate business operations may become difficult if personnel reinforcement and enhancement of internal management and business execution systems accompanying business expansion and diversification do not proceed in a timely and appropriate manner. Constraints on organizational scale tend to become especially apparent during phases of rapid business expansion, and may affect the Company's financial position and business results.

As of the end of the fiscal year under review, there are no specific legal regulations that directly restrict the Company's business; however, legal regulations concerning AI have recently been actively discussed, and there is a risk that future enactment or revision of laws or changes in legal interpretation may constrain the Company's business. If regulatory tightening materializes, this may affect the Company's financial position and business results through changes to the business model or the incurrence of additional costs.

Investment partnerships organized by venture capital firms hold 16.8% of the total number of issued shares, and depending on share price trends, there is a possibility that these shares may be sold. If a large-scale sale occurs, the supply-demand balance in the stock market may be temporarily disrupted, potentially having an adverse effect on the Company's share price.

Competition for talent acquisition in the IT industry is extremely intense, and there is a risk that the Company's future business development may be constrained if it is unable to sufficiently secure necessary personnel in a timely manner or if excellent personnel leave the Company. In particular, the loss of specialized personnel in departments such as the AI Engineering Department and Data Science Department would directly lead to a decline in technical and development capabilities, potentially affecting the Company's financial position and business results. The Company is working to develop an environment for external talent acquisition, internal training, and prevention of turnover.

Due to customers' budget consumption cycles and characteristics of their growth phases, sales tend to be concentrated in the fourth quarter (October to December), with the fourth quarter sales composition ratio for the fiscal year ending December 2025 reaching 40.3%. If projects planned for December, the Company's fiscal year-end month, are postponed or lost, this may have a significant impact on the Company's financial position and business results for that period. The Company is working to mitigate this risk through new customer acquisition and optimization of expense planning.