Arent Inc.

As the Group expands its business, it is essential to continuously secure personnel with advanced technical skills and planning capabilities. However, competition for recruiting engineers and other talent is intense. If recruitment targets are not met, if core members or experienced engineers leave, or if the Group is forced to pay high compensation to secure talent, this could have a material impact on the Group's business and results of operations through a decline in service quality or increased costs. The Group intends to strengthen its recruitment structure and improve its talent development plans and personnel evaluation systems.

Mr. Hiroki Kamobayashi, Representative Director and President, plays a critical role in formulating, deciding, and executing the Group's management policies and business strategies. If, for any reason, he becomes unable to continue managing the Group's operations, this could have a material impact on the Group's business and results of operations. The Group is working to strengthen its organizational structure through information sharing and delegation of authority at the Board of Directors and elsewhere, but the dependence risk is still recognized as moderate.

The Group's core business is DX and software development for the plant and construction industries, and the domestic construction industry's IT investment market is estimated at approximately ¥1 trillion. If corporate IT investment contracts significantly due to worsening economic conditions or a recession in Japan or overseas, or if market conditions in the plant and construction industries—the Group's key customer base—deteriorate, this could have a material impact on the Group's business and results of operations. The Group is working to enhance its resilience to market trends through specialized services that require high mathematical capability and deep industry knowledge, but the risk of a slowdown or contraction in market growth cannot be eliminated.

The Group's business and internal management infrastructure depend on internet communication networks. If a system failure occurs due to power or communication restrictions caused by natural disasters such as major earthquakes, external attacks such as computer viruses or hacking, or software defects, this could seriously impede business continuity. The Group implements preventive measures such as monitoring operational status and performing regular backups, but it is difficult to fully prepare for unpredictable major incidents.

In the IT industry, technological innovation and changes in customer needs occur rapidly. There is a risk that the competitiveness and added value of the Group's services could be impaired by the emergence of alternative technologies or generic competing products, such as faster computational technologies being commercialized due to the rapid development of AI technology, which could outpace the algorithms currently employed by the Group. The Group addresses this through constant monitoring of market trends, securing excellent IT engineers, and skill improvement via internal study sessions, but if technological innovation occurs more rapidly than expected, this could lead to a decrease in new orders and the loss of existing customers.

Numerous patent applications have been filed in the software industry, and the Group also actively files patent applications. However, if a dispute arises with a third party regarding intellectual property rights, resolving it could require significant time and expense, potentially affecting the Group's business and results of operations. The Group conducts patent infringement checks during product development and examines countermeasures through its Risk Management Committee and Compliance Committee, but the likelihood of occurrence is recognized as moderate.

Numerous competitors exist in the field of DX and software development for the plant and construction industries. The Group seeks to differentiate itself through the high technical and consulting capabilities of programmers with deep industry expertise, but a decline in competitiveness could lead to a decrease in orders received. In particular, there is an anticipated risk that the competitive environment may change within the next few years, making the continued securing of competitive advantage a challenge.

In the previous consolidated fiscal year, sales to Taikisha Ltd. amounted to ¥1,552,850 million (52.8% of total sales), and sales to PlantStream Co., Ltd. amounted to ¥711,603 million (24.2% of total sales), indicating a high degree of dependence. In the current consolidated fiscal year, the consolidated dependence risk related to PlantStream is expected to be resolved due to its conversion into a wholly owned subsidiary (March 2025); however, transactions with Taikisha Ltd. remain at a high level (30.8%), and if transactions with this company decrease, this could affect the Group's business results.

Because the Group engages in system development for client companies, it has access to confidential customer information. If an information leak occurs due to human operational error or unforeseen factors, this could result in liability for damages and a loss of customer trust or deterioration of business relationships. The Group has implemented measures such as establishing information system management regulations and personal information handling regulations, conducting regular internal training, and obtaining external information security certifications, but it is difficult to completely eliminate this risk.

The Company issues stock acquisition rights as an incentive plan for officers and employees. As of the filing date of this document, the number of potential shares outstanding has reached 468,400 shares (equivalent to 7.2% of the total issued shares of 6,538,085 shares). If these stock acquisition rights are exercised, new shares will be issued, which could dilute the value per share and voting ratio. The likelihood of this occurring is assessed as high.