PBsystems,Inc.

The core business of the Secure Cloud System Business is the construction of virtualization systems utilizing software from Cloud Software Group, Inc. (formerly Citrix Systems), and the know-how accumulated since 1998 is the source of the Company's competitiveness. If the partner agreement with CXJ cannot be renewed, or if the market appeal of its products declines, the Company may become unable to utilize its accumulated know-how, resulting in a significant decline in competitiveness. Although diversification is currently being pursued through handling multiple software vendors, the degree of dependence remains high.

Sales to N Data Software Co., Ltd. accounted for 19.6% of total sales as of the end of the fiscal year under review, indicating a high level of dependence on a specific customer. Order trends from this customer could directly affect the Company's business performance. As countermeasures, in addition to strengthening the relationship with this customer, the Company is working to mitigate adverse effects by expanding new customer development among mid-sized companies, SaaS providers, public organizations, and others.

Increasingly sophisticated and complex customer requirements or changes in system specifications may result in work hours exceeding initial estimates, leading to an increase in total costs due to additional expenses. Since the fiscal year ended September 2022, the Company has adopted revenue recognition based on progress for projects meeting certain criteria, which creates a risk that if cost overruns occur, revenue for that fiscal year may be overstated. In particular, if this occurs on a large-scale project, the impact on business performance would be greater.

The Emotional System Business, which is rooted in VR/AR-related technology, faces the risk that if the Company falls behind in keeping pace with technological innovation, or if MetaWalkers® and MetaAnywhere® fail to gain support from general consumers, progress in the business may be delayed, thereby delaying medium- to long-term improvement in business performance. In addition, expanded spending on development investment to respond to new technologies and content amortization expenses, among other costs, could worsen profitability and may necessitate consideration of business continuity. There is also a risk that write-downs of book value due to a decline in asset profitability could affect business performance.

The information and communications services industry is characterized by rapid technological innovation, with industry standards and user needs changing quickly. If technological innovation occurs at a pace exceeding the Company's response capabilities, or if unexpected new technologies become widespread, the products and services handled by the Company could become obsolete or lose competitiveness. Although the Company actively gathers the latest information and accumulates technical expertise, there is a risk that, depending on the speed of change, its response may not keep pace.

In the course of conducting business, the Company handles customers' confidential business and technical information as well as personal information. If an internal information leak or unauthorized external access occurs, this could result in a significant impact on business performance due to loss of customer and public trust and pursuit of liability such as damage claims. Although the Company has implemented measures such as establishing an information management system, providing employee training, and requiring outsourcing partners to adopt equivalent measures, risks remain, including those involving outsourcing partners.

Kazuhisa Tomita, the founder and Representative Director and President, plays a critical role in determining management policy and strategy, and is also the largest shareholder, holding 980,000 shares (16.83% of total issued shares excluding treasury stock) as of the end of the fiscal year under review. If he becomes unable to fulfill his current role for any reason, or steps down, this could affect the Company's business and performance. Although the Company is working to establish a management structure that does not depend on him and to strengthen the appointment and development of talent in various fields, the degree of dependence remains high.

Securing excellent human resources is essential for responding to rapid technological innovation and maintaining competitiveness. If the Company is unable to secure sufficient desired talent, or if existing employees leave, this could affect the Company's business and performance. The Company has established a Human Resources Development Department and is working to increase recruiting opportunities, enhance compensation, build an open organizational culture, and strengthen talent development; however, competition for talent acquisition in the IT industry is intense and requires continuous response.

Since the purchase prices of some of the software and hardware handled by the Company are affected by exchange rates, a sharp depreciation of the yen could lead to deterioration in project profitability or a decline in competitiveness due to price increases. Although the Company takes measures such as setting shorter quotation validity periods to pass on fluctuations in purchase prices to selling prices, a risk remains that the Company may not be able to keep pace with sudden fluctuations.

The number of potential shares from stock acquisition rights issued as incentives to officers, employees, and others stood at 119,200 shares as of the end of the fiscal year under review (the same number as of November 30, 2025), equivalent to 1.8% of the 6,583,500 total issued shares. If these are exercised in the future, the per-share value of the stock could be diluted, potentially affecting stock price formation.