Human Technologies, Inc.

The Company manages personal information and confidential customer information of employees exceeding 3.58 million billed IDs on the cloud, and risks from increasingly sophisticated cyberattacks, new methods exploiting generative AI, and vulnerabilities via the supply chain are growing year by year. In the event of an incident such as information leakage, data corruption, or service tampering, the Company's business results and financial position could be materially affected through fulfillment of reporting obligations under the Personal Information Protection Act, inspections and guidance by regulatory authorities, damage claims, contract cancellations, and loss of social credibility. In addition to maintaining ISMS and Privacy Mark certifications, the Company continues to make security investments to strengthen its data protection infrastructure, external connection channels, and internal control infrastructure.

Due to the rapid evolution of advanced technologies including generative AI, the competitive advantage of the Company's services may be undermined through the entry of AI-leveraging emerging competitors, in-house AI development by customers themselves, and the emergence of alternative approaches. On the other hand, the Company recognizes that its capability to respond to Japan's complex labor legislation and its long-accumulated customer data are, if anything, becoming more valuable amid the spread of AI, and it is actively implementing AI-related investments to promote internal operational efficiency, build data analysis infrastructure, and apply AI to SMP functions. However, if the effects of AI investments do not materialize as expected, or if the Company fails to keep pace with technological evolution, this may affect its competitiveness and business results.

The Company operates attendance and labor management data for customers totaling 3.58 million billed IDs and 61,000 billed companies on cloud-based IaaS, and any service interruption directly affects customers' payroll calculation and attendance management operations. In the event of a serious incident such as a disaster, cyberattack, or software malfunction, the Company's business and results of operations may be materially affected through damage compensation, customer attrition, and loss of social credibility. The Company has implemented preventive measures such as regular backups, system redundancy, and dual management using a DR site.

The attendance management SaaS market is a field relatively easy to enter, and the competitive environment may change significantly going forward due to the entry of major companies with capital strength and marketing power, the rise of AI-native emerging competitors based on generative AI, and the entry of overseas HR tech companies into the Japanese market. Intensified competition may affect the business, results of operations, and financial position through customer attrition, price competition, and increased response costs. On the other hand, the Company recognizes that accumulating the know-how to respond to Japan's complex labor legislation requires considerable time, making it difficult for competitors to gain equivalent market trust in a short period.

The Group's revenue consists of a single segment, the Attendance Management SaaS Business (Single Segment), comprising "KING OF TIME" and its related services, exposing the Company to concentration risk in its revenue sources. If the growth of the attendance management market slows, customer needs change due to the spread of generative AI, or the launch of new services is delayed, this may affect the Company's financial position and results of operations. To diversify revenue sources, the Company is proceeding with the full-scale launch of "KING OF TIME Electronic Contract" (released February 2025), "Payroll Calculation BPaaS," and "Partner Services," but the revenue contribution from these new services remains limited.

If the development and operation of internal management systems fail to keep pace with the expansion of business scale following listing, the increase in group companies through M&A, and the expansion of overseas subsidiaries' operations, appropriate business operations may become difficult, potentially affecting business development, financial position, and results of operations. The Company has established a three-lines-of-defense system comprising operating divisions, the Risk and Compliance Management Committee, and the Internal Audit Department, and strives for early detection and resolution through quarterly risk assessments and internal audits.

At the time of the FY2026 (ending March 2026) earnings announcement, the Company revised the timing for achieving a 30% operating profit margin from the previously planned FY2028 (ending March 2028) to FY2030 (ending March 2030), reflecting its decision to prioritize approximately ¥160 million in AI-related investments and approximately ¥130 million in security-related investments to maintain medium-term competitiveness. If the effects of these investments materialize later than expected, or if changes in the market environment or the need for additional investment arise, this may further delay the achievement of the profitability target, thereby affecting the market price of the Company's shares and its financial position.

The continuous securing of excellent talent, primarily engineers and AI specialists, is necessary for new business development, stable service operation, and improved competitiveness. However, if recruitment and training do not proceed as planned due to the recent intensification of competition for engineers and AI talent, rising personnel cost levels, and the departure of excellent talent to other companies, it may become difficult to maintain and strengthen the service development and operational structure. The Company has implemented measures such as forming dedicated recruitment teams, regional hiring, flexible working environments including remote work, and initiatives to improve talent development and retention, but the effectiveness of these measures may be limited due to the intensifying competitive environment.

As part of its growth strategy, the Company considers agile M&A as a target, but if the post-acquisition business plan does not progress as expected, PMI (post-merger integration) does not proceed smoothly, unexpected contingent liabilities are discovered, or the purpose of the acquisition cannot be achieved due to changes in the market environment, this may affect results of operations and financial position through impairment of goodwill and other intangible assets and the incurrence of additional costs. When executing M&A, the Company adopts a policy of conducting thorough due diligence on the target company's business content, financial condition, legal risks, and other matters based on disciplined investment decision-making.

"KING OF TIME" and its related services are provided on the premise of compliance with Japan's complex labor-related laws and regulations, which are amended annually, including Article 36 agreements, the variable working hour system, premium wage calculations, and the social insurance system. Compliance with such laws is a source of competitive advantage as well as an ongoing responsibility. In cases where the notice period for amendments is short, complex system modifications are required, or ambiguity remains in the interpretation of laws, the Company's results of operations and financial position may be affected through delayed responses, increased system modification costs, damage compensation due to incorrect calculation results, and litigation risk. The Company's ability to respond promptly and accurately to legal amendments is a differentiating factor, and it continues to develop its systems accordingly.