SYSTEM RESEARCH CO.,LTD.

Transactions with Toyota Motor Corporation itself accounted for ¥5,345 million in sales (18.4% of total sales) in FY2026 (ending March 2026), reflecting the Company's high dependence on the Toyota Group in the Tokai region, its primary market area. Should the business conditions of Toyota deteriorate, this could have a direct impact on the Company's operating results. As a countermeasure, the Company pursues a policy of expanding transactions with other and new customers in parallel with expanding transactions with the Toyota Group, in order to reduce the concentration of the sales ratio.

Advances in AI technology, including generative AI, are accelerating the automation and efficiency of system development processes, increasing pressure from customer companies' progress in in-house development and declining development unit prices on the man-month-based contract development business model. Demand for engineers under the conventional model may shrink, which could affect the Company's operating results. In response, the Company is promoting the conversion of engineers' skills and the acquisition of the latest technologies.

In a business environment that handles customer data, if malware infections or increasingly sophisticated and elaborate cyberattacks result in the leakage of customer information or employees' personal information, or in a prolonged business suspension, this could lead to a loss of social credibility, liability for damages, and substantial remediation costs. The Company has obtained ISMS (ISO27001) and Privacy Mark certification, introduced a zero-trust network, and conducts recovery tests assuming cyberattack scenarios, but unforeseen incidents cannot be completely ruled out.

In the knowledge-intensive and labor-intensive systems development business, if tightness in the labor market makes it difficult to secure and train excellent engineers, or if there is a mass resignation of employees, business development could be constrained. In addition, if it becomes difficult to secure sufficient quality and quantity of technical capability and engineers among partner companies, this could also hinder business operations. As countermeasures, the Company is engaged in active recruiting activities, improving the working environment through work-style reforms, and maintaining favorable business relationships with partner companies.

If corporate IT investment is restrained due to prolonged geopolitical tensions, including in the Middle East, or due to surging energy prices and exchange rate fluctuations, this could lead to the suspension or scaling-back of system development projects, a decline in engineer utilization rates, and a decrease in sales and deteriorating profitability. Reductions in customers' IT investment tend to appear 6 to 12 months after a deterioration in their business performance, and the Company monitors customers' business trends closely while optimizing the allocation of engineers.

In contracted projects, if low-profitability or unprofitable projects arise due to high development difficulty or unexpected costs such as bugs, this could affect the Company's operating results. The Company positions its Project Risk Management activity,

The Company is subject to regulations under relevant laws such as the Act on the Protection of Personal Information, the Worker Dispatching Act, and the Act on Promotion of Subcontracting Small and Medium-sized Enterprises. If a violation of laws occurs or if legal regulations change, this could affect operating results. In particular, if the license for the worker dispatching business (License No. Ha23-300001) is not renewed, or if a partner company's license expires, it would become difficult to secure engineers. The Company has implemented countermeasures such as regular meetings of the Compliance Committee and the conduct of audits.

The head office is located in the Tokai region, an area with high risk of the Tokai and Tonankai earthquakes as well as flood risk. If a large-scale natural disaster, fire, power outage, or infectious disease outbreak reduces the Company's systems development capability, substantial costs for business recovery could arise and sales could decline. The Company has implemented measures such as storing backup units for the head office's core servers, storing data in the cloud and migrating systems to the cloud, holding regular meetings of the Crisis Management Committee, and conducting safety confirmation drills, but it states that it is difficult to eliminate all risks.

In M&A and capital alliances aimed at business expansion, changes in the economic environment in Japan and overseas may make it impossible to exercise sufficient control over the management, business, and assets of a target company. There is a risk that expected synergies may not be realized and the amount invested may not be sufficiently recovered; if business development does not proceed as initially expected, this could affect operating results, among other factors. When implementing such transactions, the Company identifies risks in advance through due diligence and examines profitability and the potential for investment recovery.

Because new employees are assigned to projects from the second quarter onward, operating income and ordinary income in the first quarter tend to be lower than in other quarters. In FY2026 (ending March 2026), first-quarter operating income was only ¥601 million (17.3% of the full-year total), a significant difference compared to fourth-quarter operating income of ¥1,066 million (30.7% of the full-year total). This tendency is expected to continue going forward, and caution is required when evaluating quarterly performance.