SOLXYZ Co., Ltd.

In system contract development, increases in man-hours beyond initial estimates at the time of order receipt, delays in acceptance inspection, and additional costs due to defects in deliverables may occur, and the resulting discrepancy from planned costs could impact business performance. Even after acceptance inspection, if a serious system failure occurs due to the Company's responsibility, it could damage credibility and adversely affect business development. As a countermeasure, the Company appropriately holds pre-order deal review meetings and PA meetings (project assessment meetings) after project commencement, striving to address issues proactively.

Specific customer groups such as manufacturer-affiliated vendors account for slightly over 45% of net sales, and if these customers change their sales policies resulting in a significant decrease in orders or deterioration of order terms, it could have a material impact on business performance. Since customers' sales policies are influenced by fluctuations in the external environment, there is an inherent risk from factors outside the control of the Group. As a countermeasure, the Company strives to diversify risk by avoiding excessive dependence on specific customers.

Budget cuts by client companies, industry-specific environmental changes, intensifying price competition in the information services industry, and rapid changes in new technologies and services may affect order intake. If these external environmental factors change significantly, there is a risk of impact on the Group's business performance. As a countermeasure, the Company works on risk diversification by avoiding excessive concentration in specific industries, analyzing technology trends, and conducting research and development of new solutions.

Due to the medium- to long-term declining trend in the population of new graduates, it may become difficult to secure necessary personnel such as skilled system engineers, posing a risk of disruption to operations. Additionally, when ICT investment is booming, it may become difficult to secure partner companies, and rising subcontracting unit prices could pressure business performance. As a countermeasure, the Company focuses on new graduate and mid-career recruitment activities, prevents personnel turnover through improved treatment, and strives to secure partner companies through a dedicated organization.

Due to the nature of the information services business, there are many opportunities to handle customer information, and if an information leakage incident occurs, it could damage credibility and affect business development and performance. Although the Company has taken out information leakage liability insurance, it is explicitly stated that there is no guarantee that the risk can be completely avoided. As a countermeasure, the Company has obtained ISMS certification, established a basic information security policy, and is working to ensure thorough compliance across the entire Group.

The Company conducts business activities through a local subsidiary in Vietnam and plans to further pursue more aggressive overseas expansion going forward; however, various risks are inherent, including unforeseeable legal and regulatory changes, unfavorable political and economic factors, underdeveloped social infrastructure, tax system changes, and social turmoil caused by war, terrorism, epidemics, and the like. If these risks materialize, they could affect the continuation of overseas business and business performance. As a countermeasure, the Company has established a system for timely and appropriate response through contracts with law firms and other entities.

The Company holds investment securities in business partners and others for the purpose of building business relationships and managing surplus funds. If the deterioration of the issuing company's financial condition or operating results, or trends in the stock market or foreign exchange market, causes a decline in market value or substantial value, it could result in recording of valuation losses on investment securities, etc., affecting business performance. It is explicitly stated that complete avoidance of this risk is not possible. As a countermeasure, the Company strives to gather and analyze information to understand the management condition of investees and to establish a system for early response.

The Company has a policy of actively promoting M&A and business alliances to strengthen and expand its business foundation; however, even after conducting due diligence, changes in the market environment or unforeseen circumstances may prevent the originally expected effects from being achieved, potentially affecting financial condition and operating results. As post-acquisition monitoring of target companies, the Company has established a system to detect early signs of change through regular quantitative and qualitative monitoring.

In the information services industry, multilayered subcontracting structures and business arrangements involving on-site placement at client locations are common, and there is a risk of receiving corrective guidance from regulatory authorities if such practices are judged to be insufficiently handled. If corrective guidance is received, it could damage credibility and affect business performance. As a countermeasure, the Company has established guidelines for appropriate management of subcontracting operations, ensures thorough compliance among employees, and requests cooperation from subcontractors and customers as well.

If large-scale natural disasters such as earthquakes or terrorism cause catastrophic damage to social infrastructure or business offices, or if a large-scale infectious disease outbreak such as COVID-19 causes employee infections or movement restrictions, it may become difficult to provide systems and services, potentially affecting business performance. As countermeasures, the Company has established a disaster response manual, set up a disaster response headquarters, and conducted crisis response drills, in addition to promoting remote work for employees and developing the necessary infrastructure environment.