Japan System Techniques Co., Ltd.

The rapid spread of AI technology and the diversification and shortening of development timelines have made systems more complex, increasing the risk of unprofitable projects arising from insufficient requirements definition and inaccurate cost estimation. If such projects occur, increased customer compensation and product repair costs, as well as reputational decline, could have a significant impact on business performance. As countermeasures, the Group is thoroughly reinforcing employee training, strengthening the review function in the estimation and order-taking process, and enhancing project management.

As the Group handles highly sensitive information, including medical data, security risks—including those spanning the supply chain—have become a critical management issue amid the increasing sophistication and broadening scope of cyberattacks. Should an accident or fraudulent act occur, it could lead to reputational decline and liability for damages, significantly affecting business performance. In response, the Group has established the CSIRT organization "JAST-SIRT" to conduct threat monitoring and analysis, and has taken out information leakage liability insurance.

The diversification of digital technologies and the increasing sophistication of specialized skills have made it difficult across the industry to secure excellent talent, and failure to secure sufficient personnel may hinder operations. If outsourcing unit prices rise due to supply-demand imbalances or the impact of inflation, it could affect business performance. In response, the Group is strengthening its system for securing partner companies, utilizing offshore and nearshore resources, and promoting measures to enhance employee engagement and health management initiatives.

The Group recognizes revenue on custom software development based on the progress of performance obligation fulfillment, and errors in estimating total construction costs may lead to incorrect revenue recognition. When a project's estimated cost exceeds expected revenue, the unrecoverable amount is recorded as a loss, and if costs increase in the future, additional losses may need to be recorded. The Group is paying close attention to making timely and appropriate estimates through enhanced project management.

If previously unrecognized issues come to light after a corporate acquisition, or if synergy effects are not sufficiently realized and sales and profits fall significantly short of expectations, it may become necessary to record impairment losses on goodwill and other intangible assets, or to write down the value of shares in affiliated companies, in the consolidated financial statements. In addition, deteriorating business performance or worsening geopolitical conditions could affect the performance and financial position of the Group as a whole. As countermeasures, the Group conducts detailed due diligence on financial condition and business operations prior to acquisitions and strengthens governance of subsidiaries.

In a rapidly changing industry, the Group cannot always accurately forecast future demand and continuously develop and supply new products and services that lead to appropriate profitability. If a significant gap arises between the scale of upfront investment and subsequent monetization, it could affect business performance and growth outlook. The Group is making active investments in research and development and striving to discover new business seeds.

The Group has multiple overseas subsidiaries in China, ASEAN, South Asia, and the Middle East, and changes in policies or regulations, or the occurrence of international conflicts, resulting from shifts in the political, economic, and social conditions in each region could lead to suspension of system and service provision or fluctuations in exchange rates. Should such events occur, they could affect the Group's business performance and financial position.

For certain orders not subject to revenue recognition based on progress, performance continues to be concentrated at the fiscal year-end (March). In FY2026 (ending March 2026), quarterly net sales were skewed toward the fiscal year-end, with ¥7,039 million in the first quarter compared to ¥9,655 million in the fourth quarter, and delays in acceptance inspections toward the fiscal year-end could affect business performance.

Some products procured from manufacturers and distributors require large minimum order quantities, exposing the Group to inventory obsolescence risk. If procured products become obsolete, or if procurement is delayed due to supply chain disruptions, resulting in a failure to supply customers in a timely manner and the loss of business opportunities, it could adversely affect business performance. The Group strives to accurately forecast necessary quantities while carefully monitoring sales conditions.

Litigation risk related to business operations exists across each business field, and the Group may be ordered to pay unexpectedly large damages, which, depending on the amount, could significantly affect business performance and financial position. While the Group works to mitigate losses in the event of such risks through liability insurance, if losses occur that are not covered by such insurance, it could affect business performance and financial position.