Forum Engineering Inc.

There is a risk that securing a sufficient number of engineers may become difficult due to the decline in the number of engineers accompanying Japan's population decrease, a decrease in the number of people seeking dispatch employment, expansion of direct employment by manufacturers, and intensifying recruitment competition with other companies in the same industry. If salary increases resulting from intensified recruitment competition cannot be passed on to dispatch fees, profitability will deteriorate. As a countermeasure, the Company is promoting the construction of an engineer securing infrastructure utilizing its proprietary direct matching system, Cognavi (AI Matching Platform).

If domestic and overseas economic conditions deteriorate due to the materialization of natural disasters, infectious diseases, financial crises, geopolitical risks, etc., recruitment demand from manufacturers in the eight major machinery and electronics industries, which are the Company's main clients, may decline, potentially resulting in a decrease in the number of dispatched engineers, a decline in utilization rates, and deterioration of contract terms. In particular, since dispatch contract periods are often three months, there is a risk that a large number of contracts will terminate within a relatively short period in the event of a sharp economic downturn. The Company is utilizing the skill matching function of Cognavi (AI Matching Platform) to minimize the impact under severe external environments.

The Company holds business permits (valid until June 30, 2027) based on the Worker Dispatching Act and the Employment Security Act, and there is a risk of penalties such as permit revocation or business suspension in the event of violations of relevant laws and regulations. In addition, under the "equal pay for equal work" regulations, wages paid to dispatched engineers must be equal to or greater than the average wage of general workers, and if dispatch fee revisions cannot be realized when wage levels rise, profits will be squeezed. The Company has established a legal compliance framework through the development and thorough operation of internal regulations, and continues unit price negotiations with client companies whose rates have not yet been revised.

In the engineer staffing and placement market, there are competing companies with advantages in scale, financial strength, brand power, etc., and competition has intensified in recent years. Against a backdrop of rising labor costs due to the introduction of "equal pay for equal work" and slowing market growth, oligopolization and consolidation of the industry may progress, and failure to respond appropriately could affect business performance. The Company is working to maintain its competitive strength by maintaining and enhancing the technological superiority of Cognavi (AI Matching Platform) and improving service awareness.

The pace of technological innovation in the ICT field is extremely fast, and customer needs are also changing in tandem, so if the Group's response is delayed, there is a possibility that its technological superiority will decline and substantial investment and cost burdens will arise. Cognavi (AI Matching Platform) has a multi-layered structure including a technical terminology database of approximately 178,000 words, natural language processing, and a proprietary matching algorithm, and is positioned as intellectual property that cannot be easily imitated by other companies. The Company plans to continue strengthening the functions of Cognavi (AI Matching Platform) while closely monitoring trends in technological innovation.

In the business development of the three services, Cognavi Tenshoku, Cognavi Shinsotsu, and Cognavi College, as well as the Indian subsidiary Cognavi India Private Limited (established October 2022), if service provision and adoption do not proceed as planned, this could affect business performance. In the India business, expansion is being pursued using indicators such as the number of student members, number of participating universities, and number of hiring companies, but risks may materialize if adaptation to the local market environment is insufficient. The Company continues to promote the strengthening of Cognavi (AI Matching Platform) services and the development of a business model tailored to local needs.

As of March 31, 2025, the Company employed 4,645 technical staff as full-time employees, and under law, dismissal is not easy, and there is an obligation to pay a certain proportion of salary even to engineers who are not currently working. If the number of dispatched engineers decreases or utilization rates decline due to economic downturn or intensified competition, the fixed cost burden will increase and put pressure on business performance. In addition, disputes over employment conditions could lead to a decline in social credibility, so the Company is working to maximize utilization rates using Cognavi (AI Matching Platform) and to implement appropriate labor management and education and training.

Dispatched engineers frequently have access to confidential information of client companies, and if information leaks occur, there is a risk of disputes with client companies, claims for damages, and loss of social credibility. In addition, the Company holds personal information of numerous engineers and science and engineering students, and if external leakage or improper management occurs, this could have a material impact on business performance and financial condition. The Company has implemented measures such as obtaining Privacy Mark certification, introducing monitoring software, and thoroughly communicating information management rules through work regulations.

Each of the Cognavi (AI Matching Platform) services is built on an ICT foundation, and if a system failure occurs due to information system outages, network failures, natural disasters, etc., this could result in business disruption, increased recovery costs, decline in social credibility, and legal liability. Part of the development and management of the matching function and data storage relies on third-party systems and cloud services, and if such services become unavailable, substitute costs would also arise. The Company is working to reduce the risk of failures through regular data backups and security assessments of third-party services.

The Company has filed patent applications related to the core technology of Cognavi (AI Matching Platform), but there is no guarantee that improper use of intellectual property rights or independent development of similar technology by competitors can be completely prevented. In addition, if the Group infringes on the intellectual property rights of a third party, risks such as litigation, compensation payments, and service suspension could arise. The Company conducts related patent searches at the time of patent application and currently believes there is no possibility of infringing third-party patents, but it plans to continue protecting and managing its intellectual property going forward.