AR advanced technology, Inc.

Technological innovation is progressing rapidly in the information services industry, and if the Group fails to respond appropriately, it may become difficult to expand transactions with customers, potentially leading to stagnation in net sales. In the use of AI technologies, including generative AI, there are multifaceted risks such as information leakage, intellectual property infringement, and quality impacts from erroneous judgments. The Group strives to reduce these risks through continuous investigation, research, and human resource development regarding technology trends, as well as by formulating internal guidelines on AI use and implementing education programs.

The Group is subject to regulations such as the Worker Dispatching Act and the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors, and three Group companies (AR Advanced Technology, Inc., ATS, and PRO) conduct business after obtaining worker dispatching business licenses. If any of them fall under grounds for disqualification or violate relevant laws and regulations, they may be ordered to suspend business or have their licenses revoked, and there is a risk that changes in the enactment, revision, or interpretation of laws and regulations could make it difficult to expand dispatching operations, leading to a decrease in net sales. The Group strives to avoid and reduce legal risks through thorough legal compliance and strengthened internal education.

The Group engages in investment activities such as M&A to expand its business, and while it conducts detailed due diligence on target companies in advance, issues that could not be identified during the preliminary investigation—such as the emergence of contingent liabilities or the discovery of previously unrecognized liabilities—may arise after an acquisition. If business development does not proceed as planned, impairment of goodwill may become necessary, posing a risk of a material impact on the Group's business and performance. The Group intends to continue expanding its business through M&A while appropriately managing such risks.

If natural disasters such as earthquakes and typhoons, terrorism, pandemics, or similar events occur, this may seriously affect the Group's business operations and lead to a decrease in net sales. In addition to its Tokyo head office, the Group has offices in Osaka and Nagoya, and has built an operating structure not dependent on specific locations by developing a remote work environment; however, depending on the circumstances of a disaster or similar event, there is a risk that business activities could be disrupted. The Group strives to mitigate this risk through the formulation of a business continuity plan (BCP), diversification of office locations, and strengthening of its remote work system.

The Group's main customers are corporations, and if deterioration in domestic and overseas economic conditions and business trends causes customer companies to reduce their information systems investment, this may lead to a decrease in orders received and a decline in net sales. The Group has thus far expanded its business against a backdrop of rising information systems investment sentiment among customer companies, but despite measures such as product enhancement, its structure remains susceptible to economic fluctuations. The Group strives to minimize this risk by accurately grasping changes in the economic environment and customer trends, and through flexible business operations and thorough cost management.

If the Group's competitiveness relatively declines due to improvements in competitors' service capabilities or intensifying price competition, this may lead to a decline in profitability and a decrease in ordinary profit. The Group works to secure a competitive advantage by strengthening its planning, proposal, and human resource capabilities, utilizing business partners, and providing high-value-added services. It seeks to curb this risk through continuous service improvement, human resource development, and strengthened collaboration with business partners.

In custom software development projects, if additional costs arise due to specification changes, or if damages are incurred due to deficiencies in deliverables or delivery delays, there is a risk that ordinary profit will decrease due to deteriorating project profitability and a decline in the Group's credibility. In addition, if it becomes necessary to significantly revise estimates of total project costs, this may result in impacts on performance, such as revisions to gross profit. The Group strives to reduce the risk of deteriorating profitability through thorough project management, regular progress monitoring, and prompt response when risks materialize.

The Group's business activities are highly dependent on human resources, and if the Group is unable to secure, retain, and develop excellent personnel as planned, or if personnel leave the company, it may become difficult to maintain and expand its business, potentially leading to stagnation in net sales. Against the backdrop of intensifying competition for talent in the information services industry, the Group has established a dedicated department to strengthen its recruitment and development systems, but human resource risk remains high. The Group continuously works to secure and retain excellent personnel by promoting the development of a comfortable working environment.

The Group handles a large amount of confidential information and personal information in the course of its business operations, and if an information leak were to occur, it could have a material impact on the Group's operating results and financial position, including a decline in net sales due to loss of social credibility, the occurrence of liability for damages, and a decrease in net income due to recording of extraordinary losses. Although the Group has obtained Privacy Mark and ISMS certifications and works to thoroughly manage information, risks such as cyberattacks and internal misconduct are always present. The Group strives to reduce the risk of information leakage by strengthening its information management system, conducting regular education and training, and obtaining and maintaining security certifications.

Founder and Representative Director and President Toshinori Takeuchi plays an important role in formulating and promoting management policy, business strategy, and business plans, and the degree of dependence on the Representative Director is considerable. If, for any reason, the Representative Director becomes unable to continue performing his duties, this may affect operating results and financial position, including a decline in net sales, due to a weakening of management capability. The Group is working to reduce this dependence through strengthening its management structure and promoting human resource development, but expects a high degree of dependence to continue for the time being.