AVILEN Inc.

If rapid technological innovation occurs in AI algorithms and related technologies that constitute the source of the Group's competitiveness, development costs and man-hours required to respond may increase substantially. As countermeasures, the Group focuses on continuous information gathering and the recruitment and training of excellent engineers and data scientists; however, should this risk materialize, it may affect business progress and results of operations.

In each phase of AI solution implementation (issue identification, PoC, full implementation, and operation/maintenance), if a large number of projects terminate in early phases or require more man-hours than anticipated, profitability may deteriorate and revenue recognition timing may be delayed. As a countermeasure, both business divisions and management administration divisions conduct regular progress monitoring and appropriately revise man-hour estimates.

In operations handling data including customers' confidential information and personal information, information leakage may occur due to human error or unauthorized access. Should this materialize, it could have a material impact on results of operations through damages payable to customers and loss of social credibility. As countermeasures, the Group has established a system through monthly Information Security Committee meetings, ISO 27001 certification (obtained May 2020), and Privacy Mark certification (obtained August 2022).

The Group recognizes and amortizes goodwill related to LangCore Inc., whose shares were acquired in October 2024. If the expected results are not achieved due to changes in the business environment or other factors, there is a risk that an impairment loss may occur. Although the Group judges that this goodwill appropriately reflects future earning power, should this risk materialize, it may affect results of operations and financial position.

As of the end of the current consolidated fiscal year, there is no litigation in which the Group is a party; however, should litigation arise in the future, it may affect results of operations through financial burdens incurred and damage to social credibility. The Group strives to reduce the risk of legal violations by establishing risk management and compliance regulations and disseminating them to officers and employees, but it is difficult to foresee the timing and likelihood of litigation occurring.

While there are forecasts that the AI market will reach USD 826.7 billion by 2030, in scenarios where the pace of market expansion slows sharply or the Group's competitive advantage fails to materialize, market expansion and growth speed may not correlate. Because the AI business market has a short history and is not yet mature, there is also a risk that market trends may fluctuate significantly. As a countermeasure, the Group is expanding its AI solution lineup and diversifying target industries to avoid dependence on a single industry or customer.

Because the business foundation depends on internet communication networks, a large-scale system failure caused by network disruption due to natural disasters or accidents, server downtime due to a surge in access, or unauthorized external access could have a material impact on results of operations and business operations. As countermeasures, the Group implements regular backups, continuous monitoring of operating conditions, security enhancements, and unauthorized access checks conducted in principle on a monthly basis.

The customer retention rate for FY2025 (ending December 2025) was 69.1% (the proportion of corporate customers with transactions of ¥1 million or more in FY2024 (ending December 2024) that also transacted in FY2025 (ending December 2025)), and transactions with continuing customers are not based on long-term contracts. If the Group is unable to continuously grasp customer needs and transactions cease, it may affect results of operations and financial position; accordingly, the Group strives to maintain relationships by providing regular opportunities for meetings, business discussions, and information sharing.

While securing and developing excellent human resources is essential for sustained high growth, there is a possibility that recruitment and development of personnel meeting the required standards may not proceed as planned, or that the necessary workforce cannot be maintained due to an increase in resignations. As countermeasures, the Group is engaged in active recruitment activities, promotion of human resource development, and strengthening cooperation with external outsourcing partners to secure resources; however, should this risk materialize, it may affect the business and results of operations.

Japan Post Capital Co., Ltd. is a shareholder (other affiliated company) holding more than 20% of the Company's outstanding shares, and the Company has a capital and business alliance relationship with the Japan Post Group aimed at promoting DX. If this relationship were to deteriorate, it could affect results of operations and financial position through a decrease in transactions related to the Japan Post Group, among other factors. However, the Company currently conducts transactions under conditions similar to those with general business partners, thereby ensuring independence and autonomy, and monitoring is conducted by the Board of Directors based on the related party transaction management regulations.