ASAHI INTELLIGENCE SERVICE CO.,LTD.

Because the information services industry depends on user companies' IT investment budgets, a deterioration in the business environment due to worsening economic conditions could affect operating results. While the advancement of cloud computing, IoT, and AI is driving the sophistication and complexity of technology, the low barriers to entry make price competition likely to occur, creating a risk that price declines will accelerate for conventional technologies and services. Providing high-value-added services is required to respond to intensifying competition.

The information services industry has a structure with relatively low barriers to entry, making price competition likely to occur. If the Company is slow to respond to diversifying customer needs and technological innovation, this could accelerate price declines for conventional services and potentially worsen profitability. Shifting toward high-value-added services remains an ongoing challenge.

The Company operates a permanent employment-type engineer dispatch business and is subject to regulation under the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers. Related laws and regulations are subject to ongoing review, and if amendments significantly disadvantageous to the Company's business are made, this could affect operating results. However, since employees are hired on an indefinite-term (regular employee) basis, the Company judges the impact on this business to be minor, and it is also promoting a shift toward contracted (outsourcing) work to mitigate risk.

If a system outage occurs due to a system operation error in large-scale system operation and management services, the Company may be held liable for damages by customers. As countermeasures, the Company promotes daily team activities (small group activities) and has established a "No-Mistake and Information Security Enhancement Month" to improve employees' technical skills and awareness.

For contracted development projects under lump-sum contracts, an increase in work hours beyond the estimate at the time of order acceptance may result in recorded losses, and delivery delays or failure to deliver could give rise to liability for damages. Since the system development projects the Company receives are generally relatively small in scale, the Company believes the risk of loss-making projects that would significantly impact overall performance is low.

The Company's business partners are mainly high-quality listed companies not concentrated in any specific industry sector such as government agencies, automobiles, electrical equipment, or finance; however, sales to the largest client account for up to approximately 24% of total sales. If the business performance of a specific client deteriorates or transactions are scaled back, this could affect the Company's sales, but the Company believes the risk from such dependence is limited due to the diversification of its client base.

In the course of business operations, the Company has opportunities to handle confidential customer information, including personal information, and if a leak to external parties were to occur, this could result in claims for damages or loss of trust, affecting operating results. As countermeasures, the Company has established a basic information security policy, regularly conducts enhancement months and study sessions, and has established a company-wide personal information management system, and has also obtained the Privacy Mark certification.

The Company's growth and performance depend heavily on human resources, and recruiting and developing highly skilled engineers is an important management issue. Competition for talent is intense in the information services industry, and securing excellent personnel is a constant challenge; failure in recruitment and training, or the departure of existing employees, could significantly impact growth and performance.

Rapid changes in the technological environment, including the advancement of cloud computing and the utilization of IoT and AI, are driving the sophistication and complexity of technology levels. If the Company is slow to respond to these new technologies, it may become difficult to provide high-value-added services that meet customer needs, potentially leading to a decline in competitiveness and the loss of order opportunities.