Simplex Holdings, Inc.

A large portion of revenue is derived from domestic financial institutions, creating a risk that a sudden change in IT investment trends or the business environment in this field could adversely affect performance. In addition, in system development for financial institutions, changes in laws and regulations may result in additional costs that cannot be passed on to customers. As a countermeasure, the Group is promoting diversification of its revenue base through expansion into non-financial fields and strengthening of consulting services.

The Group employs a business model combining flow business and recurring business, but if services do not match customer needs or competitive pricing cannot be offered, it will become difficult to maintain or increase revenue from existing customers. Even in expansion into non-financial fields, if the Group cannot differentiate itself from competitors with existing customer bases, it may not achieve the expected revenue growth. There is also a risk that the substantial sales expenses required to expand the customer base could affect performance.

Due to the rapid advancement of cutting-edge technologies such as generative AI, customers' IT investment content, decision-making processes, and in-house development trends are changing. If the Group is unable to respond appropriately and sufficiently to these changes, there is a risk of a decline in competitive advantage, reduced order opportunities, and deteriorating profitability. There is also a possibility of demand shifting from existing solutions to new solutions. As countermeasures, the Group is engaged in acquiring new technologies, continuing investment in research and development, and strengthening human resource development.

Securing and retaining excellent personnel with expertise in both business and technology is the most important strategy, but if the Group is unable to develop personnel who can respond to rapid changes in technology and the industry, it will become difficult to provide solutions that meet customer requirements. There is a risk that the cost burden of high-level compensation for mid-career hires and improvement of the internal work environment could become excessive, as well as risks of employee health problems, reduced productivity, and personnel turnover due to deteriorating labor conditions. The Group positions human resource strategy as an important management strategy and strives to secure and develop excellent personnel.

The Group depends on information technology networks and systems that handle confidential information of client companies. If information leakage, tampering, or unauthorized use occurs due to cyberattacks, unauthorized access, human error, or other causes, there is a possibility that liability for damages or loss of credibility could adversely affect performance. Some security measures depend on third parties and cloud infrastructure, and insurance coverage may be insufficient to cover all liabilities. The Group has established internal rules, external attack countermeasures, and systematic measures to prevent information leakage, but states that complete elimination of such risks is difficult.

If cost and profitability projections for system development are inaccurate, actual costs may exceed estimated costs, resulting in deteriorating project profitability. Profitability may also deteriorate due to price competition, order-taking strategies that prioritize market share expansion, or development troubles, which could adversely affect performance. As countermeasures, the Group is working to enhance methods for estimating expected man-hours, strengthen review systems, and reinforce the quality control department.

As of March 31, 2026, goodwill of ¥36,476 million arising from the absorption-type merger accompanying the fund exit in December 2016 is recorded on the consolidated statement of financial position. If the profitability of the related business declines, impairment could occur, potentially having a material impact on performance and financial position. Goodwill is allocated to the Single Segment as a single cash-generating unit, and impairment testing is conducted every period to confirm that the recoverable amount exceeds the carrying amount.

The Group requires licenses under the Worker Dispatching Act and the Employment Security Act for its staffing and recruitment businesses, and violations could result in criminal penalties, loss of licenses, or business suspension. Since most of the Group's major clients belong to regulated industries subject to the Financial Instruments and Exchange Act, the Banking Act, the Personal Information Protection Act, and other regulations, if a client's system experiences personal information leakage, system downtime, or other troubles, this could lead to deterioration in the Group's performance and reputation regardless of the Group's involvement. The Group works with external experts to monitor changes in regulatory trends and strives to establish an appropriate response system.

If the Group is unable to comply with contract terms (delivery deadlines, performance requirements, service levels, etc.), there is a risk of reduced compensation or the incurrence of additional costs. Because the technical infrastructure of the solutions is complex, significant errors or failures may occur, and performance delays or interruptions caused by infrastructure changes, introduction of new features, human error, or other factors could lead to decreased customer satisfaction, claims for damages, and loss of competitiveness. The Group hedges these risks by setting limits on liability for damages in contracts and by taking out liability insurance, but it cannot be denied that these measures may not function appropriately in all cases.

If stock acquisition rights and performance-conditioned paid stock options granted as incentives to officers and employees are exercised, new shares will be issued, potentially diluting the value of shares and voting rights held by existing shareholders. As of March 31, 2026, the number of potential shares was 8,274,000, equivalent to 3.5% of the total number of issued shares of 237,045,100. The Group plans to continue granting such incentives going forward, and this dilution risk continues to exist.