SHIFT INC.

With the IT industry's job openings-to-applicants ratio at a high level of 11 times, failure to secure sufficient engineers could impede smooth service provision and proactive order-taking activities. The Company is responding through strengthening its recruitment structure, ensuring competitive salary levels, approaching potential job changers, implementing engagement improvement measures, and strengthening cooperation with business partners.

If problems arise in the execution of operations due to insufficient communication with client companies, the Company may become liable for damages, potentially resulting in loss-making projects. The Company strives to prevent trouble from occurring through thorough alignment of understanding before contract conclusion and confirmation of progress on key projects at weekly performance management meetings.

If important confidential information or personal information related to software development entrusted by client companies is leaked externally, the Company may face claims for damages and loss of social credibility, which could affect its business results and financial position. The Company has implemented multi-layered measures including data encryption, multi-factor authentication, ISO27001 (ISMS) certification acquisition, and continuous employee education through e-learning.

In M&A transactions and business alliances, the originally anticipated synergies or business expansion effects may not be achieved. In addition, if impairment losses on goodwill, customer-related assets, or investment securities occur due to deteriorating performance after participation or investment, this could have a material impact on business results and financial position. The Company has established due diligence conducted by external experts, monitoring through weekly group performance meetings, and a regular reporting structure to the Board of Directors.

The software testing outsourcing market has been on an expanding trend against a backdrop of IT talent shortages and heightened quality awareness; however, if the market fails to expand as expected, or if IT investment is curtailed due to domestic or overseas economic deterioration or sudden foreign exchange fluctuations, business growth may be affected. As countermeasures, the Company is promoting broad customer development that avoids dependence on specific industries, along with strengthened cross-selling into areas beyond software testing.

As the number of officers and employees increases year by year with business expansion, misconduct such as bribery, embezzlement, or insider trading, or an inability to build internal management systems in step with rapid business expansion, could affect business results and financial position. The Company addresses this through the establishment of compliance-related regulations, awareness-raising via e-learning, the establishment of an internal reporting system (hotline), and the establishment of a dedicated internal control department.

Dai Tange, the founder and Representative Director and President, plays an important role in formulating business strategy and leveraging industry networks; if he becomes unable to continue performing his duties, business operations could be affected. The Company is working to reduce this dependency by appointing full-time executive directors with management experience at other companies and by strengthening the Board of Directors' structure through the appointment of outside directors, based on advice from the Nomination and Compensation Committee.

While providing services under outsourcing contract arrangements, if regulatory authorities determine that direct instructions and orders are effectively given by client companies to workers, constituting disguised contracting, the Company could face administrative dispositions such as business suspension, which may affect its business results and financial position. The Company continuously implements a mandatory management supervisor system, regular disguised contracting surveys, the establishment of a compliance committee, and legal compliance education through e-learning.

There are many uncertainties in the active business development into areas beyond software testing, and if business plans are not achieved, the investment burden incurred up to that point could affect business results and financial position. To minimize risk, the Company premises such initiatives on small-start trials, implementing them only after thoroughly examining relevance to existing businesses and profitability, among other factors.