TWOSTONE&Sons CO.LTD.

In the Engineer Matching Business, freelance engineers and employee engineers are indispensable management resources, but competition for talent acquisition with other companies is intensifying alongside the continued growth of the IT market. If competitors offer more effective services or the Company is slow to respond to changes in the working environment, there is a risk that it may become unable to secure sufficient IT engineers, including external partner companies. As countermeasures, the Company has assigned dedicated staff, provides freelance independence support services, and enhances employee benefits.

The Engineer Matching Business relies on internet advertising to attract users to the "Midworks" site, and if advertising effectiveness falls short of plan or the number of existing registered users declines, a significant impact on the business and performance would result. High dependence on specific customer acquisition channels also leaves the business vulnerable to external factors such as fluctuations in the advertising market and changes in platform policies. At present, disclosure of specific countermeasures to diversify alternative customer acquisition methods is limited.

In the Engineer Matching Business, subcontracting of work is conducted based on quasi-mandate (junishoi) contracts, which entails a risk of being deemed disguised contracting as well as a risk of contract termination arising from the attendance conduct of on-site engineers. Additionally, if the worker dispatching business license (valid for five years) is not renewed or is revoked, the Company would be unable to continue providing its services. The Company addresses these risks through the formulation and operation of internal manuals, regular interviews and surveys, compliance training, and convening a risk management committee, but if deficiencies arise in operations, a significant impact on the business and performance may occur.

Because the Engineer Matching Business permanently employs a large number of IT engineers as regular employees, if the proportion of engineers with active assignments declines, the number of working days decreases, or unit prices fall due to economic conditions, changes in the business environment, or a decline in social credibility, the cost ratio would rise, resulting in a significant impact on performance. The burden of personnel expenses as a fixed cost may constitute a vulnerability in the earnings structure. At present, no specific hedging measures are disclosed in the securities report.

The Group holds a large volume of personal information on engineers and job seekers, is subject to the Personal Information Protection Act, and is also involved in highly confidential information such as client companies' new product development and know-how. If an information leak were to occur, it could result in loss of customer trust, a decline in social credibility, claims for damages, and a significant impact on business operations and financial results. The Company addresses this through obtaining the Privacy Mark certification, establishing personal information protection regulations, and formulating and providing training on information security manuals.

Representative Directors Yasushi Kawabata and Katsuya Takahara, as founders, play central roles in formulating, determining, and executing management policies and business strategies, and if either becomes unable to continue their duties, a significant impact on the business and performance would result. The combined shareholding ratio of the two exceeds 57% of total shares outstanding, giving them extremely significant influence over management decision-making. The Company states that it is working to build a management structure to reduce this dependence, but no specific succession plan is disclosed.

The Group is pursuing strategic M&A as a means of business expansion, and if contingent or unrecognized liabilities that could not be identified through due diligence exist, or if post-merger integration (PMI) does not proceed as planned, goodwill impairment may become necessary, impacting performance. The Company has established a process involving detailed due diligence and board resolutions for M&A transactions, but complete elimination of integration risk is difficult. There is also a coexisting risk of losses on business divestitures arising from the launch of new services.

The Group's various services operate on AWS, and if a service disruption occurs due to disasters, computer viruses, hacking, or other external attacks, or software malfunctions, a significant impact on the business and performance may result. The Marketing Platform Service also has high dependence on internet-related technologies, and delayed response to technological innovation poses a risk of reduced competitiveness. The Company seeks to ensure infrastructure availability through the use of AWS, but the risk of dependence on a single cloud provider remains.

The Group grants stock options as incentives to directors, employees, and others, and as of the end of the consolidated fiscal year, the number of potential shares was 5,105,940, equivalent to 11.7% of the 43,493,360 shares outstanding. If these options are exercised, the value of existing shareholders' holdings may be diluted. In addition, the combined shareholding ratio of the two Representative Directors is high at over 57%, and if their ownership ratio declines in the future, it could affect the stock market price and the exercise of voting rights.

The Company has a short operating history, having been established in October 2013, and there is a risk that corporate governance may fail to function effectively amid rapid business expansion. If internal control systems are inadequate, it may become difficult to ensure the appropriateness of operations, the reliability of financial reporting, and thorough legal compliance, potentially preventing appropriate business operations. It should also be noted that past performance results may not provide sufficient material for period comparison, which limits the information available for investment decisions.