EM SYSTEMS CO.,LTD.

Because the Group's main systems handle patient information, in the event of a personal information leak, there is a possibility of significant loss of social trust and substantial disadvantages, which could materially affect operating results. As a countermeasure, the Group has strengthened entry/exit management and operational rules at its data centers, obtained third-party certifications for ISMS and PMS, and implemented data encryption processing on local systems.

At the head office building (Shin-Osaka Brick Building), constructed in March 2008, if vacancy rates rise more than expected or rent levels decline, this could affect operating results and financial condition. There is also a risk that rising vacancy rates or falling rents due to changes in economic conditions could lead to the need for impairment. Currently, the occupancy rate is maintained at a certain level, and the Group states that it has secured stable rental income.

Healthcare system reforms accompanying the super-aging society are being continuously implemented, and there is a possibility that clinics' and pharmacies' willingness to invest in equipment may shrink due to factors such as decreases in drug price margins and reduced patient visits resulting from increased out-of-pocket burdens. Depending on the content and scale of the system reforms, this could affect the operating results of the Group. As a countermeasure, the Group is promoting management contributions through reducing the burden on medical institutions.

If major revisions to the medical insurance system or long-term care insurance system are implemented, the expanded scope of change programs may increase workload, potentially affecting operating results. In addition, if modifications to already-delivered change programs become necessary, additional costs may arise depending on the scale and content. As a countermeasure, the Group strives to obtain information on reform details early and implement measures promptly.

In the development of systems for clinics and pharmacies as well as for long-term care/welfare service providers, if delays in service launch or discontinuation of development occur due to mid-development revisions or reviews, impairment of software may become necessary, potentially affecting operating results. In addition, there is a risk that the software and services provided could become obsolete if the business environment changes drastically due to major changes to the existing insurance claims system or unexpected proliferation of new technologies. As a countermeasure, the Group is strengthening its development capabilities through the establishment of a new development subsidiary via corporate reorganization (incorporation-type company split).

At Yimeng Software System Development (Nanjing) Co., Ltd. and Yimeng Software System Development (Shanghai) Co., Ltd., which handle the main development of application software, costs may increase due to rising engineer salaries and changes in China's tax policy. In addition, there is a risk of being affected by uncertain international circumstances. These factors may affect the operating results of the Group.

If server operations or the communication environment become unstable in the operation of certain cloud systems, this may affect the business operations of connected customers (clinics, pharmacies, etc.), and the scope of impact could be extensive. Business disruption at medical sites could also lead to a loss of social trust. As a countermeasure, the Group is strengthening its development and operation structure through the establishment of a new development subsidiary via corporate reorganization (incorporation-type company split).

Due to the declining birthrate and aging population as well as intensifying competition for IT talent across all industries driven by DX promotion, there is a risk that securing and retaining highly specialized personnel may become difficult. If personnel acquisition and development do not proceed as planned, or if significant personnel attrition occurs, this could affect business development, operating results, and financial condition. As a countermeasure, the Group is working to develop a corporate culture, personnel systems, and office environment where diverse talent can thrive, as well as enhancing its educational programs.

There is a possibility that the Shin-Osaka Brick Building could be damaged, destroyed, or deteriorate due to earthquakes, fires, accidents, terrorism, etc., which could affect operating results and financial condition. Since the head office division, Osaka sales office, Clinic Mall, and tenant offices are consolidated there, there is a risk that the impact on business continuity in the event of a disaster could be extensive. The securities report does not describe specific countermeasures.

The Group utilizes business alliances and M&A to promote the spread of advanced medical systems, but it is uncertain whether the expected business development or contribution to performance can be achieved, and this could potentially affect operating results. Even in the promotion of medical DX in the post-COVID environment, there is a risk that investment effects may fall short of expectations due to changes in market conditions. As a countermeasure, the Group has established a careful review process utilizing external, experienced accounting firms and others.