TOKAI SOFT CO.,LTD.

The software contract development and services business is highly susceptible to economic conditions, and significant political or economic changes both domestically and overseas, or economic deterioration caused by widespread large-scale disasters or pandemics, could lead customers to scale back capital investment and product development plans, potentially resulting in decreased orders and sales. The Group aims to stabilize its business performance by diversifying across three business fields—embedded systems, manufacturing/distribution and business systems, and finance/public sector—while striving to accurately grasp economic conditions using indicators such as the business conditions index.

Each business division has major clients, and if transactions with such clients end or are significantly reduced due to changes in the client's business policy or software development investment plans, this could have a material impact on the Group's business performance and financial condition. As countermeasures, the Group strives to maintain relationships of trust through familiarization with customers' development and quality methodologies, while also promoting the expansion of its customer base through the development of new clients.

Competition to acquire highly skilled and talented engineers is intensifying year by year, and it takes a long time to develop engineers with project management skills in particular. If the number of hires falls significantly short of plan or if core personnel leave the company, this could lead to a decline in software development capabilities and affect business performance. The Group addresses this through planned recruitment and training, whether of new graduates or mid-career hires, as well as by utilizing external human resources through the development of quality partner companies.

As system development becomes larger in scale, more complex, and more sophisticated, development difficulty is rising, and if quality defects or delivery delays occur, this could lead to loss of customer trust, significant recording of losses, litigation, or reputational damage. The Company utilizes process management methodologies such as PMBOK to monitor projects from the initial business negotiation through to final acceptance, while continuously working to improve quality and productivity through retrospective reviews.

In the course of handling customers' personal information, confidential information, and important information assets, if information is leaked from the Group or its partner companies, this could affect business performance and financial condition through claims for damages from customers or loss of credibility. The Group has implemented multi-layered countermeasures, including obtaining ISMS certification and the Privacy Mark, security assessments by external organizations, establishment of an Information Security Committee, and employee training.

If changes in legal regulations occur or violations of laws take place and the Company fails to respond appropriately, this could affect business performance and financial condition through restrictions on business activities, loss of social credibility, or claims for damages. In particular, as a worker dispatching business operator, the Company complies with the Worker Dispatching Act and files notifications with the relevant supervisory authorities, while building a compliance framework through the development of internal controls, an internal whistleblowing system, and cooperation with outside legal counsel.

Due to the diversification and increasing complexity of software development and the expanded use of open source software, there is a possibility that the Group may unknowingly infringe upon the copyrights or patent rights of third parties, which could affect business performance and financial condition through substantial cost burdens or claims for damages. The Group strives to reduce infringement risk through the establishment of copyright management regulations, awareness-raising activities for developers, and continuous reminders at sales and management meetings.

In the contract software development industry, price competition involving overseas companies due to globalization and intensifying competition from improved development efficiency are anticipated, which could affect business performance through decreased orders and lower profitability. The Group addresses this through continuous strengthening of project management and quality management to reduce development costs, and through differentiation based on advanced software technology that is not affected by price competition.

While the Group is promoting M&A as part of its growth strategy, if an acquired business fails to develop as planned due to contingent liabilities or other factors arising after the acquisition, this could affect business performance through additional costs incurred or impairment of goodwill. The Group addresses this through careful execution of due diligence and risk reduction via verification of post-acquisition business plans, as well as the early identification of factors that could impede smooth business execution through PMI (post-merger integration).

Large-scale natural disasters such as major typhoons, floods, and large earthquakes associated with climate change could affect business performance and financial condition through decreased orders resulting from customers postponing or canceling IT investment plans, delivery delays caused by damage to development-related materials and source code, and opportunity losses resulting from Group or partner company employees being affected by disasters. The Group has established a business continuity framework through mutual backup between two locations to ensure data safety, development of remote access environments, and the formulation and dissemination of manuals for responding to large-scale disasters.