BBD Initiative Inc.

The SaaS and subscription service market for small, medium, and mid-sized enterprises has numerous competitors, and there is a risk that the Group's competitive advantage could be undermined by intensifying competition from competitors and new entrants offering innovative AI-powered services. The Group is focusing on leveraging its accumulated know-how and developing new AI-centered services, but changes in the competitive environment may affect its business results.

While the worsening shortage of IT personnel is increasing demand for advanced IT technology personnel centered on AI, if companies' in-house system development, utilization of personnel from emerging countries, and offshore development progress more rapidly than expected, demand for the System Engineering Services (SES) business could decline, potentially affecting business results. Responding to rapid changes in the market environment remains a challenge.

If the securing and training of direct sales personnel needed to support business expansion does not proceed as planned, or if capable personnel leave the company, the service sales expansion structure could weaken and affect business results. In addition, there is a risk that AI engineers essential for AI product development and operation could leave for other companies due to an accelerating shortage of AI talent or a mismatch in working conditions. The Group is continuously improving its working environment and reviewing its treatment and compensation systems.

In the SES business, projects may involve dispatching teams of dozens of members, and there are clients that account for large amounts of revenue individually. If the securing and training of AI personnel does not proceed as planned, or if the departure of capable personnel makes it impossible to meet existing clients' needs, the Group could lose major clients, which could have a material impact on business results. The Group is actively promoting deeper relationships with existing clients.

The pace of technological innovation in the Group's product services is extremely rapid, with new services being created daily. If there are delays in responding to technology or increases in capital expenditure costs, this could affect sales and business results in subsequent years. The Group is focusing on acquiring advanced technology centered on AI through the recruitment and training of engineers.

If a failure occurs in the provision of cloud services due to sudden surges in access, natural disasters, accidents, or unexpected ransomware damage, this could affect the Group's business and results. The Group works to prevent trouble such as ransomware in advance through server load balancing, regular backups, and monitoring of operational status, but complete elimination of such risks is difficult.

The Group has carried out M&A to expand its business and may continue to make investments and loans through alliances and M&A in the future. If the business environment of an investee changes and the business does not progress as planned, the valuation of goodwill or the shares of the investee could become subject to impairment, potentially affecting business results and financial position. The Group evaluates risks and recoverability in advance when making investments and loans, but it is difficult to reliably predict changes in the business environment.

If the rapid expansion of the business outpaces the establishment of adequate internal management systems, appropriate business operations could become difficult, potentially affecting the business and its results. The Group recognizes that effective functioning of corporate governance and the establishment of appropriate internal management systems are essential, and it conducts internal audits, responds to the internal control reporting system, and thoroughly ensures compliance with laws and internal regulations.

The Group handles vast amounts of information ranging from client companies' confidential information to personal information. If important information assets are leaked externally for any reason, this could damage social credibility and lead to claims for damages, potentially affecting the Group's business and results. The Group has obtained the Privacy Mark (Bluetech Co., Ltd., Registration No. 10822852; Architect Core Co., Ltd., Registration No. 10823421) and ISO/IEC 27001 certification (Registration No. JUSE-IR-154) and is working to protect its information assets.

The Group is subject to regulations such as the Telecommunications Business Act, the Personal Information Protection Act, and the Worker Dispatching Act. If deficiencies arise in compliance arrangements due to legal amendments, or if the scope of regulation or liability expands, this could affect the Group's business and results. In addition, it is difficult to fully grasp third parties' intellectual property rights related to SaaS applications and business models, and if patents related to the Group's business are established by third parties in the future, this could affect business results and financial position.