TRIPLEIZE CO., LTD.

In the AI Solutions and GPU Server segments, technological innovation and changes in customer needs occur at a very rapid pace, and if the Group is unable to respond in a timely manner, this may affect its business results and financial position. There is also a risk that personnel expenses, system investments, and other costs required to respond may become larger than anticipated. The Group has established a system for grasping the latest trends through regular product development meetings and hearings with external experts, but there is no guarantee that it will be able to keep pace with such changes.

If the development of features for in-house products such as AIZE does not proceed as planned, or if market share is lost to competitors with superior functionality, it may become difficult to generate revenue, which could affect the Group's business results and financial position. The Group continues to invest in software development costs amid an intensely competitive market environment; however, because development outcomes are directly linked to maintaining competitiveness, development delays or quality shortfalls pose a risk of directly impairing the business foundation.

AIZE (Image Recognition Platform), which utilizes facial recognition technology, has received strong interest; however, the market is at a stage of rapid formation with numerous new entrants, making it difficult to accurately estimate the scale, pace, and profitability of business development. Since the Group formulates its business plans and management policies on the premise of substantial growth in the AIZE business, failure to achieve the projected outlook would have a significant impact on the overall plan.

AIZE is a service that utilizes camera images, and in addition to the Act on the Protection of Personal Information, it requires broad regulatory compliance from a privacy protection standpoint. The Group refers to the "Camera Image Utilization Guidebook" published by the Ministry of Internal Affairs and Communications and the Ministry of Economy, Trade and Industry, and works to provide advance notice to client companies, among other measures; however, if there are amendments to relevant laws and regulations or significant changes in social expectations, it may become difficult to continue providing the service, or the scope of service provision may need to be reduced.

The Group handles information requiring broad privacy protection considerations through AIZE, and if information leakage, tampering, unauthorized use, or similar incidents occur, this may result in response costs, reputational damage, claims for damages, and other consequences that could affect the Group's business results and financial position. The Group has established an "Information Security Management Regulation" and a "Personal Information Handling Regulation," manages lists of and restricts access rights for development engineers, and provides internal training for all employees, among other measures; however, such risks cannot be reduced to zero.

The Group's competitiveness is rooted in the technological capabilities it has accumulated through advanced technology development such as Go-playing AI; however, as social attention to the AI field increases, there is a risk that its relative technological advantage may decline due to increased investment by competitors and a growing number of new entrants. If the Group is unable to maintain its advantage over competitors, this may affect its business results and financial position, and the impact of intensifying competition is particularly significant for the Group, given its status as a small-scale corporate group.

Securing and developing excellent human resources is essential for the sustainable growth of the business; however, if the Group is unable to secure or develop personnel when needed, or if there is significant turnover, this may hinder business expansion and increase operational costs, which could affect business results and financial position. The Group works to raise its profile through social marketing utilizing SNS and media promotion, but competition to acquire AI and IT talent is intense across the industry as a whole.

Fixed assets, including goodwill, have increased due to past M&A activity, and if changes in the business environment cause individual businesses to fail to progress as planned, resulting in an expected decline in future cash flows, recognition of impairment losses may become necessary. Since the Group applies IFRS, it does not amortize goodwill on a regular basis, and when an impairment loss is recognized, the impact on business results and financial position may be more significant compared to under Japanese GAAP.

The Group regards M&A and capital/business alliances as effective means of expanding its business scale; however, if matters not identified or anticipated during due diligence come to light after execution, or if a sudden change in the business environment following an acquisition prevents the Group from realizing the initially expected investment benefits, this may adversely affect its business results and financial position. There is also a risk that changes in the Group's business domain resulting from M&A and similar activities may alter its earnings structure.

Following the sudden passing of the founder, Ms. Seiko Fukuhara, his spouse, and an asset management company of which she serves as representative, together hold 48.7% of the total number of issued shares, resulting in a highly concentrated shareholder structure centered on a specific individual. If, for any reason, Ms. Seiko Fukuhara were to sell her held shares and her ownership ratio were to decline, this could affect the market price of the Company's shares and the exercise of voting rights, among other matters. In addition, there are 1,400,100 potential shares from stock acquisition rights outstanding (equivalent to 16.7% of the total number of issued shares), and if these are exercised, there is a concurrent risk of dilution of existing shareholders' equity value and voting rights ratio.