Business Risks

The main potential risks to our business are stated below. Some of the statements are not necessarily risks of our business; theyare stated because they can be important when understanding our business or investment in this sector. The Company addressesthese risks when they are recognized; however, any investment in The Company should be made after fair consideration on thepart of the investor. It must be taken into account that this forecast represents the best judgment of management based oninformation available at the end of the period under review, and the statement below does not cover all the possible risk ofinvestment.

AI/RPA business has been renamed DX business, effective April 1, 2021.

1. System

Due to the nature of our business of operating information websites on the Internet, our business relies on the communication networks that connect the computer systems constituting the websites and the devices accessed by the users.

If our computer systems fail due to large-scale and/or wide-reaching natural disasters, such as earthquakes, floods, fires, computer viruses, loss of electrical power, communication failures, or other causes that are unpredictable at this point, we may be forced to suspend business.

Other potential risks we face include the disabling of the Company’s system or ISP service due to temporary overload, criminal acts such as unauthorized access to our server by a third party, unintended failure due to an operational error by an employee, and failure in the communication network.

 To prevent such situations from arising, we have established a back-up system for our computer systems and continuously implement security measures. By doing so, we strive to prevent disastrous situations from arising and to alleviate the impact of business operation if they arise. If any of these occur despite such efforts, the credibility of the Company may be damaged, which may lead to suspension of business, and actions or claims for damages may arise. In the event of such a failure, the Company’s operating results and financial position may be substantially affected.

2. Protection of personal information and information security

The Company employs the Secure Sockets Layer (SSL) protocol in all communications with its websites. SSL encodes the data between the Company and the job seeker, ensuring that all information is protected from interception, alteration and spoofing. We also implement security measures such as preventing unauthorized access on a continuing basis. However, if a serious problem occurs in the personnel recruiting services business and the AI/RPA business, such as unauthorized disclosure of personal information, the Company may have to assume legal responsibility, regardless of the terms and conditions of any membership contract.

Even if the Company is able to avoid legal responsibility, it will lose credibility with companies and job seekers. In addition, the Company’s operating results and financial position may be affected negatively by the damage to the brand image.

To ensure strict management of personal information, the Company acquired the Privacy Mark to ensure strict control of all personal information. Furthermore, we obtained certification of the ISMS Conformity Assessment System in October 2005. Subsequently, we applied for evaluation for transfer to ISO 27001 (JISQ 27001) upon the review for continuation and expansion of ISMS certification, and obtained certification in November 2006.

3. Intellectual property rights

In providing information on the Internet in the personnel recruiting services business and in the AI/RPA business, the Company may face severe competition or be sued if a competitor acquires any relevant utility model rights or patent, which could have a negative impact on our operating results and financial position. The Company cannot completely rule out the possibility that The Company might be obligated to compensate for violation of utility model rights or a patent related to the whole or a part of the business, which someone in Japan or abroad have already acquired. The Company’ intellectual properties also have the possibility to be infringed by a third party. Although the Company does not recognize any specific cases at this moment, any occurrence of these events could have a negative impact on our business and operating results.

4. Competition

In the personnel recruiting services business there are many competitors that offer part time job information, dispatch employee job information, regular employee job information, and nurse placement business using the Internet. New operators enter the business each year, as the barrier to entry is low. The Company is committed to introducing pioneering services and continuously providing new functions in order to attract users, but if The Company fails to respond effectively and efficiently on a timely basis in the intensifying competition with existing rivals and in the competition with new entrants, our business and operating results may be substantially affected.

 In the AI/RPA business, The Company provides a DX service utilizing our unique strength of a wide-ranging customer base and direct marketing sales personnel acquired through the job information service. However, if a competitor with similar or different strengths emerges and The Company fails to respond effectively and efficiently on a timely basis in the competition with them, it could have a negative impact on our overall business and operating results.

5. New businesses

In addition to conducting business as a “Labor force solution company” that solves various labor-related issues with Human Work Force and Digital Labor Force, the Company is also considering aggressive development of new businesses to expand its business scale and diversify its business portfolio. When examining a new business, The Company must adapt to ever-evolving technologies to satisfy the needs of our clients. However, if difficulties arise in recruiting system experts, including IT engineers, or if system development falls behind schedule, the timely launch of a new business will be impaired, which may affect the Company’s operating results and financial position.

Furthermore, aggressive development of new services and new businesses may lead to lower profit margins due to additional expenditure, including investment on system development and advertising.

In addition, if the planned launch of a new service or business is prevented by an unforeseen situation, The Company will not be able to recover our investment and may experience a negative impact on our business and operating results.

6. Dependence on the personnel recruiting services business

Our business relies heavily on the personnel recruiting services business, whose sales (¥46,369 million) account for 99.9% of the Company’s total sales for FY2020 (¥46,415 million). As a result, fluctuations in sales in said business could have a significant impact on the Company’s business and operating results due to competition with other job information companies in the market. Although the Company is making efforts in the AI/RPA business to establish a more stable earnings base by diversifying our business portfolio, the failure of such services and businesses to contribute to operating results as initially planned may result in a continued dependence on the personnel recruiting services business.

7. Impairment accounting

The Company will carry out impairment accounting if cash flows from the fixed assets the Company invested in can no longer be expected due to reasons such as a drop in profitability of the websites the Company operates or a significant deterioration of the business environment. This may have an effect on our operating results and financial position.

8. Developments in economic trends, employment, and the recruitment market

The personnel recruiting services business, which is our main business, is heavily affected by the recruitment plans of companies that place job advertisements. Therefore, the business is susceptible to economic trends, employment situations, and the recruitment market, as well as outbreaks of infectious diseases. Drastic changes to our business environment due to these influences may affect our business and operating results.

9. Human resources

The Company has rapidly expanded the scale of our business centered around the personnel recruitment services business. Since reinforcing our sales system and developing services are crucial for further business expansion and launching new services, we believe it is necessary to secure quality human resources. Therefore, our business and operating results may be affected by failure to recruit a sufficient number of appropriate personnel or an outflow of many personnel due to resignation. Also in the AI/RPA business, if the Company fails to recruit a sufficient number of adequate personnel amid intensified global competition to secure competent engineers and business consultants, it may cause a delay in launching services and lead to a negative impact on our business and operating results as a whole.

10. Legal restrictions

The Company offers job advertisement services using the Internet in the personnel recruitment services business and services utilizing digital technologies in the AI/RPA business. At this moment the restrictions of laws and regulations targeting the Internet and digital technologies are limited. However, our business and operating results may be affected if a future enactment or revision of laws and regulations affects these areas or additional expenses are incurred to comply with laws and regulations. The Company is subject to a variety of different legal restrictions, such as the Law on Securing, Etc. of Equal Employment Opportunity and Treatment between Men and Women in Employment, Dispatching Undertakings and Improved Working Conditions for Dispatched Workers, the Employment Security Law, and the Labor Standards Law. The Company has obtained license from the Ministry of Health, Labor and Welfare as a fee-charging

The Company operates in compliance with these laws; however, violation of these laws or their revision and enhancement may lead to the possibility of limiting business and increasing expenses to comply with the new legal restrictions. This may result in negative effects on the Company’s operating results and financial position. In addition, the laws that regulate the qualification of our registrants such as the Act on Public Health Nurses, Midwives and Nurses may affect our business and financial position as our services are targeted to those who are qualified by these laws.

The Company has obtained license from the Ministry of Health, Labor and Welfare as a fee-charging employment placement business provider. Our license number is 13-ユ-303788 and the expiry date is January 31, 2022. Since a license as a fee-charging employment placement business provider is required to continue our main business activities, the disqualification of license for some reason may affect our business activities and operating results. As of February 29, 2020, the Company is unaware of any fact that falls under a reason for disqualification of license, which is stipulated in Article 32-9 of the Employment Security Law.