MetaReal Corporation

Currently, there is no direct regulatory legislation governing internet-based services, but future enactment or application of laws could constrain the AI Business. In addition, while the HT Business is currently not subject to the Worker Dispatching Act, if it becomes subject to the Act following a revision, obtaining a license from the Minister of Health, Labour and Welfare would be required, and if obtaining such a license takes time or proves unattainable, business operations could be disrupted. These regulatory changes could affect the overall performance of the Group.

The pace of technological innovation in the AI field is extremely rapid, with new services being continuously developed. The Company is proactively engaged in accumulating and analyzing the latest information and introducing new services, but if it fails to respond promptly to unexpected and rapid technological changes, the services offered may become obsolete and competitiveness may decline. This impact could extend across all segments, including the AI Business, HT Business, and Metaverse Business.

The main customers of the AI Business and HT Business are operating companies in the pharmaceutical, chemical, manufacturing, and IT industries, and service demand may fluctuate significantly due to legal and regulatory changes, economic fluctuations, industry restructuring, and customers' in-house sourcing policies in these industries. In the HT Business, changes in the political and economic conditions and diplomatic issues in the United States, Europe, China, and other regions may affect customer companies' global expansion, causing fluctuations in demand for corporate training services. These demand fluctuations directly affect the performance of the Group.

A machine translation engine for specialized industry documents developed by the National Institute of Information and Communications Technology, an incorporated administrative agency under the jurisdiction of the Ministry of Internal Affairs and Communications, is in competition with the Company's AI Business services. As this institute has government backing and national treasury funding, the Company may face intense pressure in the competition to acquire users. This intensifying competition could affect the performance of the Company's AI Business.

New businesses in the Metaverse Business and AI Business have a cost-front-loaded structure in which development costs associated with development and agile refinement are incurred in advance. This creates a risk that the amount of losses recognized in the consolidated financial results could become substantial. If monetization is delayed beyond expectations, the adverse impact on financial condition could become prolonged.

Securing talented personnel in the development, sales, production, and administrative departments is recognized as an important management issue, and the Company is engaged in proactive recruiting activities and organizational structure development. However, if it fails to secure or retain personnel, delays in automatic translation development, the need to review sales strategies, declines in service quality, and deficiencies in internal management systems may occur. These risks could broadly affect the performance of the Group.

The AI Business is provided as SaaS over the internet, and while appropriate security measures are implemented, system failures may occur due to unforeseen events such as hardware or software malfunctions, human error, computer viruses, cyberattacks by third parties, and natural disasters. If a system failure occurs, the stable provision of services may be impaired, disrupting business activities and affecting performance.

The Group holds and handles customers' translation source materials (which may include confidential information) as well as the personal information of registered users, translators, interpreters, and others. Although measures such as confidentiality agreements, security locks, use of data centers with ISMS certification, SSL communication, and acquisition of the Privacy Mark are implemented, information leakage cannot be completely eliminated. If a leak occurs, it could have a material impact on performance through damages, loss of credibility, and legal liability.

There is a risk that the development of automatic translation in the AI Business could infringe on intellectual property rights held by third parties, and also a risk that the Group could be held liable for damages if source texts entrusted by customers for translation in the HT Business infringe on third-party copyrights or other rights. Although the Company strives to eliminate litigation risk through compliance activities, if unforeseen troubles develop into litigation, the resulting substantial litigation costs and loss of credibility could affect business continuity and performance.

The Group may conduct investments, including corporate acquisitions and capital participation, with the aim of strengthening the AI Business, HT Business, and Metaverse Business. Although profitability and the feasibility of investment recovery are investigated and examined in advance, sudden changes in the business environment or unforeseen circumstances following an acquisition or investment may prevent the Group from securing the expected profits or synergy effects. In such cases, there is a risk of an adverse impact on the Group's performance and financial condition.