E-Guardian Inc.

In the 28th fiscal period, TikTok Pte Ltd. and Mercari, Inc. accounted for high proportions of the Internet Security Business's sales performance, at 10.7% and 13.9%, respectively. If either company changes its business policy or experiences deteriorating business conditions, this could have a material impact on the Group's business strategy and operating results. The concentration of sales among specific customers is a structural risk that undermines revenue stability.

The internet security market is a field expected to grow going forward, and domestic and overseas operators with greater capital strength, marketing capabilities, customer base, and brand recognition than the Group may enter the market. Intensifying competitive conditions could lead to price declines or loss of orders due to factors other than competitive pricing, potentially affecting business performance. The Group has not disclosed specific countermeasures in its Annual Securities Report at this time.

IT-related technologies advance rapidly, and industry standards and user needs are changing quickly, with new technologies emerging one after another. If the Group's response to these changes is delayed, the services it provides may become obsolete or unsuitable, potentially leading to a decline in competitiveness within the industry. Delays in keeping pace with technological change directly lead to loss of order opportunities and may affect business performance.

The Internet Security Business provides services via the internet, and a system failure means the suspension of the entire service. If equipment or networks become unusable due to disasters such as earthquakes or fires, or due to acts such as computer viruses or hackers, this could result in loss of credibility, customer cancellations, and difficulty acquiring new customers, potentially having a material impact on business performance. The Group has implemented failure prevention measures such as dual power sources, firewall installation, and network monitoring, but complete elimination of such risks is difficult.

The Group may store personal information, image data, comments, and other data on servers in connection with its customer-facing services, and while various network security measures are employed, the possibility of personal information leakage due to unauthorized access exists. If a leak were to occur, in addition to liability pursuit such as damage claims, litigation, administrative sanctions, and criminal penalties, it could lead to a loss of social credibility. Given the nature of the business as an information security company, the impact of reputational damage on business continuity is particularly significant.

Much of the Group's core Internet Security Business consists of services for social media such as blogs and SNS, and demand has grown in proportion to the increase in the number of social media users. If a new service that replaces the internet emerges in the future, or if the number of social media users declines, this could lead to a decrease in the number of posts, potentially having a material impact on the Group's business performance. Due to the structure of the business, dependence on trends in the social media market is high.

The Group has a policy of actively utilizing M&A for the purpose of strengthening existing businesses, expanding business scale, and securing diverse revenue sources, and strives to reduce risk by conducting due diligence in advance. However, if the business environment changes drastically after an M&A transaction, or if the business does not progress as planned for unforeseeable reasons, this could affect the Group's financial position and operating results. This also entails the risk of impairment of asset value, including goodwill.

The Company bears management responsibility for the business operations of its subsidiaries, and continuous strengthening of the Group-wide risk management and compliance systems is required. If these management systems fail to function adequately for any reason, this could have a material impact on the Group's business performance and reputation. As the Group expands, the number of entities subject to management increases, heightening the importance of establishing adequate systems.

As the Group undergoes rapid business expansion, securing and developing excellent human resources has become an important issue, and the Group is working on internal development, promotion, and external recruitment. If competition for talent with competitors intensifies as the market expands, this could lead to the outflow of personnel or difficulty in securing talent, potentially affecting the Group's competitiveness. In addition, if difficulties arise in employing the large number of operators responsible for practical operations, this could hinder smooth business execution and active order-taking activities.

The Group has obtained a license for "general worker dispatch business" from the Minister of Health, Labour and Welfare based on the Worker Dispatching Act, and is subject to regulation under that law. If a situation arises that constitutes a violation of laws and regulations, or if relevant laws, regulations, or their interpretation change, this could affect the Group's financial position and operating results. In addition, significant errors in judgment regarding whether to allow postings on monitoring sites could lead to a decline in client credibility, contract termination, or suspension of transactions, potentially indirectly affecting business performance.