GRCS Inc.

Following the suspension of a large-scale project in the Financial Technology Business, the Company recorded an impairment loss of ¥245,318 thousand and a provision for business structure improvement of ¥108,416 thousand, resulting in a net loss attributable to owners of the parent of ¥527,903 thousand. Net assets at the end of the consolidated fiscal year fell into negative territory at ¥(95,937) thousand, giving rise to a capital deficiency and resulting in a going concern doubt. As a countermeasure, the Company entered into a capital and business alliance agreement with Fixstars Corporation on January 19, 2026, and has resolved and completed payment for a third-party allotment capital increase (¥96,715 thousand) with Fixstars Investment Corporation as the allottee, which is expected to resolve the capital deficiency. However, this is premised on achieving positive operating income in FY2026 (ending November 2026), and there is a risk that the financial condition could deteriorate again if the plan is not achieved.

As a company providing security products and services, there is a risk that if unauthorized intrusion, data theft, or tampering by hackers or crackers occurs, the Company would suffer a more significant impact on its credibility than other companies. If virus proliferation, leakage of technical information or customer personal data, or website tampering occurs, this is expected to result in loss of credibility, business disruption, and recovery costs. As countermeasures, the Company has implemented EDR tool installation, enhanced access security through multi-factor authentication, and selection of securely designed cloud platforms.

GRC and security services fall within the "defensive" domain, which tends to be a target for cost reduction by companies, creating a risk that demand will decline when the economic environment deteriorates. During economic downturns, client companies tend to curb IT investment, which could directly impact the Group's sales and profits. While the Group is pursuing business expansion through initiatives in new services and new businesses, the structural risk of demand fluctuation remains.

In order to respond to the expanding application of overseas laws and regulations accompanying business globalization and the frequent occurrence of sophisticated cyberattacks, it has become essential for the GRC and security industry to devise new services incorporating the latest technology and to improve quality. If the Group falls significantly behind other companies in responding to the latest technology, this could reduce its competitiveness and affect its business results and financial condition. Continuous technology investment and human resource development are required, but resource constraints due to the Group's small organizational scale could be a challenge.

Highly specialized consultants and engineers are essential to the Group's service provision. If recruitment and training do not proceed as planned, or if excellent personnel leave the Company, the smooth provision of services and proactive order-taking activities could be hindered. With only 213 employees (as of November 30, 2025), the organization is small in scale, resulting in high dependence on specific personnel and a significant impact from resignations. Although the Company has a policy of actively investing in recruitment and training, competition for specialized personnel in the GRC and security field is intense in the market.

Yoshikazu Sasaki, the founder and Representative Director, plays a central role in formulating and deciding management policies and business strategies and in creating new business models, and if he were to become unable to continue his duties, this could affect the Group's business results and financial condition. While the Company has been working to reduce this dependence through delegation of authority, he is also a major shareholder holding 32.89% of issued shares (excluding treasury shares), creating a concentration risk in both management and shareholding. Establishing a more organizational management structure remains an ongoing challenge.

As the GRC and security industry is a market expected to see future growth, new entrants, both domestic and foreign, may enter the market. If intensifying competition leads to price declines or loss of orders due to factors other than price competition, this could affect the Group's business activities and business results. In particular, given the Group's currently fragile financial base, there is a risk that its resilience to price competition is limited.

The Company's proprietary product platform utilizes overseas products, and services are provided after sufficient verification and testing; however, there remains a possibility that serious bugs or defects could occur after service provision begins. If bugs or defects cause significant damage to customer services, this could affect business results and financial condition through reduced sales resulting from contract terminations, among other factors. There is a structural risk arising from dependence on overseas products, requiring continuous thorough quality control.

Stock acquisition rights have been issued for incentive purposes for directors and employees as well as through third-party allotments, and as of the filing date of this document, the number of potential shares is 319,970 shares, equivalent to 23.18% of the total issued shares of 1,380,130 shares. If these stock acquisition rights are exercised, the value of shares held by existing shareholders and their voting ratio could be diluted. In particular, given that a third-party allotment capital increase has also been implemented to resolve the current capital deficiency, dilution pressure is elevated.

The Group selects partner companies (subcontractors) for each specialized field and provides services through mutual cooperation, and if unforeseen circumstances arise with such companies, trust relationships are damaged, or subcontracting costs rise sharply, this could hinder the smooth provision of services and proactive order-taking activities. Due to the Group's small organizational scale, there is limited capacity for in-house production, and where dependence on specific partners is high, there is a risk that securing alternative sourcing could be difficult. Managing subcontractors and maintaining relationships with them is an important issue for business continuity.